Heart of Gold

titanic-dubaiJust as one famous ocean-going liner, the QE2, leaves these shores, there are plans to bring another one to Dubai. Australian business tycoon, Clive Palmer, is to build an exact replica of the Titanic – with work commencing soon at the Chinese shipyard, CSC Jinling. If all goes to plan, it could be ready to sail to Dubai sometime in 2016.

After a relatively slow start, the world’s first purpose built maritime city will see at least fifteen mixed-use tower buildings ready within the next four years. Dubai Maritime City, which covers an area of 2.27 million sq mt and is located between the Dry Docks and Port Rashid, , will include a range of hotels ranging from budget to luxury 6 star as well as the usual mix of residential, retail and commercial.

Q2 data indicates that Dubai’s economy is steaming ahead at a faster pace than first expected with its GDP surging 4.7% compared to 4.1% in Q1. Most sectors showed growth as the emirate continues in efforts to ease its reliance on oil which now only contributes 12 % to Dubai’s budget – compared to trade (28%), manufacturing (16%), financial enterprises (14%), real estate (13%) and construction (8%).

Three of Dubai’s leading banks reported second quarter earnings. Emirates NBD defied market expectations by posting a massive 50.2% increase in Q2 profits to US$ 264.9 million at the same time as it recorded an impairment provision of US$ 271.7 million. However, it still has an outstanding repayment of US$ 1.31 billion to the federal government – the balance of the US$ 3.43 billion support received at the time of the GFC.

Commercial Bank of Dubai had a 2.3% rise in H1 profit to US$ 135.4 million on operating income of US$ 267.8 million, of which net interest income of US$ 189.1 million  accounted for 70.6% of the total, and non-interest of US$ 78.7 million. During the period, it made impairment allowances of a further US$ 55.9 million on its non-performing loan balances.

Mashreq, controlled by the Al Ghurair family, showed a 25.6% jump in Q2 profits to US$ 109.7 million as its net loans and advances increased by 10.9% to US$ 12.9 billion.

Mortgage lender Tamweel got in on the act reporting a 40.4% hike in profit to US$ 7.1 million. The company is due to delist from the Dubai Financial Market as Dubai Islamic Bank becomes its 100% owner.

Further impressive Q2 results came from Dubai-based logistics firm, Aramex announcing an 11.9% surge in quarterly profits to US$ 19.7 million compared to the same period in 2012. Revenue jumped 8.8% to US$ 230.2 million as it continues its two-prong expansion strategy in the region and Africa.

With assets of US$ 10.6 billion and net debt of US$ 2.3 billion at the end of June, Majid Al Futtaim Holdings reported a 10% rise in H1 revenue to US$ 3.1 billion resulting in an operating profit of US$ 436 million. It is expected that Dubai’s leading property developer will shortly issue a perpetual hybrid security to partially fund its recent purchase of a 25% minority stake in MAF Hypermarkets from the Carrefour Group.

DP World lost a court battle with the UK tax authorities over an “elaborate trick” by the then independent P & O to reduce its 2004 tax bill. The Dubai-based global port authority now has to pay a US$ 21.4 million tax bill plus, one assumes, legal fees.

As already mentioned in a previous blog,  Etisalat is in the final stages of acquiring the 53% shareholding of the French operator Vivendi in Maroc Telecom for around US$ 5.1 billion. Earlier, Qatar’s Ooredoo had shown interest in the Moroccan venture but is now out of contention.

Meanwhile the UAE telecoms operator has reported a 20% jump in Q2 revenue at US$ 2.7 billion and a smaller 9% rise in profit to US$ 537 million. Almost 64% of the company’s revenue (US$ 1.72 billion) emanated from the local market – 12 % up on the same quarter in 2012.

Du, the other provider, recorded a 12.2% increase in Q2 revenue to US$ 725 million with an H1 total of US$ 1.44 billion. After paying a royalty fee of US$ 82.8 million, it returned a net profit of US$ 129 million – up 45.4% on Q2 2012. The company also declared a US$ 0.0272 dividend amounting to a total of US$ 272 million.

Growing confidence in Dubai is reflected in the fact that even bank lending has begun to improve with news, that in the first four months of the year, total credit extended to residents jumped by US$ 6.3 billion to US$ 228.8 billion. 69.5% of this total (US$ 159.0 billion) was attributable to the private sector with government loans creeping up to US$ 33.3 billion.

Rather surprisingly, official figures put Dubai’s inflation rate at a paltry 0.66%. Whether this reflects reality is open to some conjecture when most expenses – including rents and education – continue to surge.

HE Sultan Al Mansouri, the federal Minister of Economy, has hinted that there will be a new Commercial Companies Law introduced by the end of this year. If implemented, it will replace the existing 1984 law and the long-awaited updated version will be welcomed by most of the business community.

The Dubai Financial Market General Index had a relatively quiet week closing on Thursday at 2519 points – up 0.9% on its Sunday opening of 2496. The Index has been heading north for some time starting the year at 1623 and rising in Q1 by 12.7% to 1829 and by a further 21.5% to 2223 at the end of June. The end result is that there has been a 13.3% increase this month, 61.82% growth so far in 2013 and an even better 74.96% over the past year. The increased trading has seen the bourse’s Q2 income jump a staggering 581% to US$ 18.9 million on revenues of US$ 30.7 million and a quarterly trade of US$ 10.4 billion. It is expected that similar growth patterns will be the norm for the rest of the year.

Two Dubai residents, Dhia Jafar and Omar Nabulsi, have been implicated for alleged insider trading involving Onyx Pharmaceuticals. The US SEC filed a lawsuit earlier in the month against unnamed plaintiffs who were alleged to have made a quick profit of US$ 4.6 million on an investment of just US$ 305k as its shares rose 51% in one day – 30 June 2013 – after it had rejected a takeover bid from Amgen and declared it would put itself up for sale. The two gentlemen allegedly made profits of US$ 2.33 million and US$ 200k respectively.

A week after the SEC filed civil charges against Steve Cohen, founder of SAC Capital and estimated to be worth US$ 8 billion, the US authorities have launched criminal charges relating to four counts of securities fraud and one of wire fraud against the company. It is alleged that the Wall St hedge fund, that once managed US$ 15 billion of assets, was involved in systematic insider trading resulting in hundreds of millions of dollars in illegal profits over a period of eleven years to 2010. Four employees have been charged – two of whom have already pleaded guilty.

Also in the US, prosecutors are following up on what has become the country’s largest ever hacking and data breach violation. The case involves the theft of a staggering 160 million credit cards by a gang of four Russians and one Ukrainian from a number of high profile companies including Heartland Payment Systems, Carrefour and 7-Eleven. The scam resulted in stolen credit cards being sold on to criminal gangs globally for amounts of between US$ 15 and US$ 150 each. Three of the companies involved have already reported losses of US$ 300 million.

Halliburton must be one lucky company having escaped this week with a nominal US$ 200k fine, after pleading guilty to deleting detailed evidence following the 2010 Gulf of Mexico oil spill. The company was BP’s cement contractor on the Macondo well that exploded, killing three, and created the biggest environmental disaster in US history. The oilfield service company and BP have blamed each other for the disaster.

The newly appointed Archbishop of Canterbury, Justin Welby, went to war this week on Wonga and threatened to put the company out of business because of their nefarious business practices. Unfortunately, he found out next day that the Church , with over US$ 8 billion in investments, had interests in the payday lender. One would think that it would be better all round if he put his own house in order before embarking on such crusades. No doubt the likes of Paddy Power, MacDonalds and Coca Cola will be future targets for the ex-Shell Oil executive.

On the accounting front, radical new UK measures are to be introduced which will see the big four audit firms – Deloitte, Ernst & Young, KPMG and PwC – losing some of their clout. Expected is a tougher stance with a move to stop the banks’ insistence of auditing by one of the Big 4 as a requirement for loans to companies and a ban on certain companies and institutions allowing only the Big 4 to apply for audit work. This follows concerns that the four firms – who audit 90% of country’s leading 350 listed companies – were too dominant and often not acting in the owners’ interests.

Who would have thought that Motor City, and the home of Tamla Motown, would have to file for bankruptcy after decades of corruption, mismanagement and economic decay? Detroit, the largest US city in history to go bust, has stopped payments on some of its US$ 18.5 billion of debts – with a repayment bill equivalent to 38% of city revenue – due to rise to an incredible 65% within three years! In a city of 700,000, the population will continue to fall as residents leave because of a burgeoning crime rate along with reduced city services and policing and 78,000 derelict buildings.

UK Q2 data indicates that the country’s recovery is moving at a quicker rate than expected with GDP up 0.6% – the best quarterly return in two years. However, any recovery is bound to be fragile and, it will be interesting to see how the incoming Mark Carney manages the Bank of England’s strategy in dealing with what is still a very weak economy that is almost 4% below its pre-GFC peak.

Despite some better news out of the eurozone, the bloc is still the main lagging factor holding back global recovery. Whilst record unemployment levels continue to head northwards, consumer confidence remains in tatters and social unrest simmers, the reality is that it will take a lot more positive news for the eurozone to move out of its stubborn recession into a state of expansion.

There are very few places in the world where citizens are paid to lose weight. In the US you may be awarded with a free burger, in the UK a certificate but only in Dubai will you be paid in gold. Open to any resident, “Your Weight in Gold” scheme will see participants receive a gram of gold for each kilogram lost before the final weigh-in on 16 August 2013. It is hoped that such initiatives will help reduce the high levels of obesity, which often result in heart problems and diabetes, caused by poor diet and lack of exercise.  Dubai indeed has a Heart of Gold!

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