Catch Us If You Can

barclaysTo many observers, the local property market is perhaps growing at a faster rate than would be considered appropriate, bearing in mind that it is less than five years since over-inflated property prices saw a 50% diminution and brought Dubai to its economic knees.  Latest figures indicate housing rentals up 30% over the past twelve months and residential property valuations up at almost the same level. In H1, recorded sales totalled US$ 7.85 billion of which a staggering (and worrying) US$ 6.32 billion, or 80.6%, were for cash. The most popular location was Dubai Marina where total transactions amounted to US$ 1.8 billion. Commercial sales were also up with H1 figures of US$ 21.6 billion.

A recent IMF report shows that Dubai government debt grew by over 10% to US$ 142 billion in the year ending 31 March 2013. Of this total, which is estimated to be 102% of the emirate’s GDP, 45% or US$ 64 billion falls due within the next three years. Could a double whammy of a crashing real estate sector and an unsettling financial market see history repeating itself.

Meanwhile, the Ruler of Dubai has issued a decree appointing a committee to deal with all court cases for stalled real estate projects, currently going through the legal system. It seems that the new body will have total responsibility for settling legal disputes between investors and developers in any scheme that has been cancelled by Dubai Real Estate Regulation Agency (RERA) – late last year, it reported that it had cancelled 217 projects between 2009 and 2011.

Latest figures show that there has been an 11.1% increase in Dubai visitors to 5.58 million with hospitality revenues up by 18.6% to an impressive US$ 3.17 billion. All indicators are heading north including hotel occupancy up from 81.8% to 84.6% – this despite a jump in inventory with sixteen new hotel establishments opening in the past year increasing the number of rooms available to 81.5k.

The week started with a formal announcement from Arabtec Holdings that it had raised US$ 654 million in a rights issue to double its equity. The 1.56 billion shares will have an issue price of US$ 0.41 (compared to its opening price on Sunday of US$ 0.61). It is expected that the money will be used to help with the company’s regional growth plan which has already seen 2013 orders of US$ 3.54 billion. The company may tap into the bond market later in the year to raise further finance.

Emaar Properties announced a 9.9% increase in Q2 profits to US$ 184 million on a 47.6% surge in revenue to US$ 845 million, compared to the same quarter in 2012. Its Dubai H1 sales of US$ 1.72 billion were four times higher than in the previous year but profit of US$ 335 million  was less than 1% up on last year’s comparative figures. 45% of revenue (US$ 634 million) came from its hospitality and retail business.

One of Russia’s largest energy providers, Lukoil, is planning to move its head office from Moscow to Dubai in the near future. It is expected that up to 400 employees will make the move – a further indication of how the emirate is becoming a focal point for major players in the energy sector.

No surprise to see that Dubai International Airport recorded a 17.5% increase in June traffic to 5.54 million with the H1 total hitting 32.6 million – an increase of 16.9% over 2012 returns. Despite a slowdown in world trade, cargo figures also headed north with a 10.2% H1 hike to 1.2 million tonnes. Since the start of the year, the facility has seen the introduction of 84 new services to 25 destinations.

With lower cargo volumes in Asia, Africa and Europe, DP World reported a 5.7% decline in H1 container volumes, handling 12.8 million 20’ equivalent units, compared to 13.6 million TEUs in the same period of 2012. The world’s third biggest port operator remains upbeat for the rest of the year.

Dubai-based Adenium Capital, has doubled its solar portfolio by buying an Italian 24 MW solar farm in partnership with ForVEI. The company, that deals in renewable energy investments in Japan, Italy and Jordan, reportedly paid US$ 69.1 million for their new asset.

Following last week’s reports that Etisalat was in exclusive talks to acquire the 53% shareholding of the French operator Vivendi in Maroc Telecom for around US$ 5.1 billion, the telecoms provider is reportedly showing interest in Pakistani firm Warid Telecom. Warid, currently owned by The Abu Dhabi Group, is the smallest of that country’s five operators, and would probably sell for around US$ 1 billion.

Emirates Central Cooling Systems Corporation, a JV between Dewa and Tecom, is building the first green district cooling plant in the region. Empower have awarded Transgulf a US$ 42.2 million contract to build the facility, with a capacity of 45k Refrigeration Tonnes, in Business Bay.

Joyalukkas, the locally based jewellery trader, is planning an 18% increase in outlets to one hundred, covering ten countries. The company currently employs 6,000 and has expansion plans for its money exchanges.

The “Dress One Million Children” campaign, initiated by HH Sheikh Mohammed bin Rashid Al Maktoum, was extended after meeting its initial target of US$ 10.9 million. This week, it reached US$ 16.3 million which has now doubled by the fact that the Dubai ruler donated a similar amount. The end result is that children in forty six countries will benefit from the largesse of the Dubai community.

The Dubai Financial Market Index had another hectic week closing 3.0% up at 2595 after a Sunday opening of 2519 points. In what is usually a tranquil period for the market, July’s trading saw the Index start the month on 2221 and close 16.6% up at 2589. Over the past year, the market has been on fire and is 67.3% up (2589 to 1548) compared to the comparatively minor gains of FTSE 100 – 15.9% (6621 to 5712), S&P 500 – 21.7% (1686 to 1385) and All Ords – 17.4% (5036 to 4289).

The IMF has indicated that it expects the US economy to grow at a slower than expected rate in Q2 following a lacklustre 1.8% return in Q1. This comes despite the fact that house prices have been on the up and unemployment levels begun to drop. However, consumer spending, which accounts for 66% of US economic activity, has slowed down reflected in poor June retail sales figures.

The world body has also come out with concerns about the Chinese economy especially in relation to government debt (both central and regional) which stands at a worrying 45% of the country’s GDP. Even the government is concerned so much so that it has called for an urgent audit of all its debt which is measured in trillions of dollars. In addition, Moody’s Investor Services claims that the country’s shadow banking sector, at an estimated US$ 4.7 trillion, may be as high as 55% of GDP. However, China still holds a massive US$ 3.5 trillion in mainly US$ foreign reserves.

If China has a debt problem, what about Japan? The world’s third biggest economy has a debt level which is estimated to reach 230% of its GDP by 2014. The country should be wary of Abenomics which encourages more government spending and drastic monetary easing to lift Japan out of its long-standing deflationary era.

The Indian rupee continues to fall and on Wednesday it was at 61.17 to the US$. Authorities are trying – with little success – to revert its downward trend by introducing stop-gap measures such as expanding the gold duty, moving up short-term interest rates and pushing up fuel prices.  Despite these efforts, the outlook is more of the same which will be good news for the NRIs remitting money home – but not for the long-term good of the Indian economy.

In Europe, the outlook is still bleak for the PIGS and certain other EU countries. However, there are some economists who consider certain former Iron Curtain countries to be possible hotspots for increased economic growth as they strive to catch up with their western neighbours. Interestingly, Poland is the only EU country to have escaped any recession whilst Russia is expecting 2013 growth in excess of 2%.

Barclays, the mis-selling bank, having already provided for US$ 4 billion mis-selling payment protection insurance and US$ 1.3 billion for mis-selling swap products, has set aside a further US$ 3.0 billion to cover future claims. This comes after the troubled bank has been hit with recent fines of US$ 460 million for manipulating US energy prices and US$ 444 for its role in the Libor rate-fixing scandal. To further add to its woes, the bank is being investigated by the UK’s Serious Fraud Squad relating to Qatar Holding’s US$ 8.1 billion 2008 investment, that helped the bank avoid a government bailout.

Another bank facing the wrath of the regulators is Credit Suisse. The UK’s Financial Services Authority fined the financial institution US$ 9.1 million for exposing some of its customers, who invested more than US$ 1.5 billion,  to an unacceptable risk, when selling them Scarps (structured capital at risk products).

Not to be outdone, JP Morgan Chase have settled with the US authorities and agreed to pay a fine of US$ 410 million for its alleged power market manipulation – slightly less than Barclays penalty.

Long gone have the days when banks did what banks were supposed to do – taking in deposits and lending out to customers. Nowadays it seems much of  their work is done in the twilight zone carrying out risky business transactions and shonky deals. In some cases, their simple message to the regulators is – Catch Us If You Can!

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