Down, Down (Deeper and Down)

arabtec-ceoFollowing his May US$ 2.2 billion endorsement for Dubai Holding’s Jumeirah Group’s expansion plans, HH Sheikh Mohammed bin Rashid has approved the addition of a further 350 rooms for the 15-year old Jumeirah Beach Hotel. The complex, due to open in 2018, will have the usual recreational and retail outlets.

Further adding to its burgeoning hotel portfolio, Al Habtoor Group has purchased the 400-room InterContinental Budapest for an undisclosed sum, two years after buying Le Méridien in the same city. The Group is currently building three hotels on its Al Habtoor City site – St Regis, W and The Westin – which will double the number of hotels it owns and manages in Dubai.

Although there has been limited progress on The World Project to date, a further six islands – known as The Heart of Europe – are being developed by Kleindienst Group. It is expected that Drydocks World will be employed to provide offshore marine management – including provision of power, water and sewerage – as well dredging facilities to the Austrian enterprise.

By August, Nakheel plans to clear all of its bank debts, totalling US$ 1.5 billion – some four years ahead of schedule. The company has generated the cash internally and has not received any financial assistance from its owner, the Dubai government. However, it still has outstanding balances with its numerous trade creditors and this sukuk is due for repayment in 2016. Over the next three years, the government-owned developer plans to bring 2,900 hotel rooms into the market as it aims to concentrate more on recurring income-generating assets.

At the top end of the housing ladder, Damac Properties has launched the sale of 34 Fendi-styled villas with prices starting at US$ 9.8 million. The Italian-styled villas will be located in the Akoya development, overlooking the Donald Trump golf course, and will be ready to move in within three years.

Dubai Properties is releasing a further 200 apartments in its Remraam development, located between JAFZA and the new Al Maktoum airport.

Dubai Investments has sold a 66% share in Goldalpharma to Sanofi for an undisclosed amount but it will equate to a 26% IRR over a ten-year period. The French drug-maker will manage and promote the company’s generic drugs at a time when these can cut up to 85% of costs of patented medicines that can have a competition-free run of ten years or more, charging premium prices.

A week after cancelling its 2007 US$ 16 billion order for 70 A350s, Emirates has announced that it will hold talks with both Boeing and Airbus to discuss which model, the Dreamliner or the A350, it will select to add to its fleet.

Ducab, partly owned by Investment Corporation of Dubai, has won a contract to supply fire and halogen cables for a major US$ 27 billion project for the Grand Mosque in Mecca. There was no indication on the value of the order.

Dubai will have to wait another year before UNESCO decides whether to include The Creek as a World Heritage Site. The organisation has requested further details, as it noted that many of the old architecture had been demolished and then reconstructed in places. A final decision is expected next year.

The RTA has announced that the new Dubai Tram system is 93% complete and will be ready for its scheduled November opening. The tramway will have eleven stations along its 10.6 km circuitous route covering JBR, Al Sufouh and three Metro stations on SZR. Phase 1 will have cost US$ 1.09 billion and is expected to carry 27k passengers a day.

Latest data from the Federal Customs Authority reports a 5% increase in the value of goods passing through the country’s ports; the total of 198.3 million tonnes had a value of US$ 430.5 billion. 2013 imports jumped 5.6% to US$ 264.6 billion with gold, phones and vehicles being the three leading items. Reexports surged by 10.9% to US$ 120.8 billion – a sure indicator of the growing importance of the country’s status as a commercial hub for international trade. Non-oil exports saw a disappointing 8.0% fall to US$ 46.6 billion.

Last year, there was a 15.7% increase, to 79.5k, in the number of Dubai police cases involving bounced cheques, of which only 25.2% were resolved before further action was taken.

It is reported that a CBD employee, with his wife and 11 others, have been charged with defrauding the bank of US$ 9.5 million. The scam, which involved contriving false trades, had been on-going for the past eight years.

The DFM, opening on Sunday at 4593 points, had another turbulent week to close Thursday 8.1% down, or 370 points, to 4223. Although the market is still 25.3% up on its 01 January opening of 3370, it is 21.4% down on its 2014 high of 5374 recorded on 06 May.

The seven-year old Borse Dubai – the holding company for the emirate’s two stock exchanges, DFM and NASDAQ Dubai – is set to refinance a US$ 500 million loan on more favourable terms. This three-year loan – at 90 basis points – is a better deal than the previous facility priced at 220 bps over LIBOR. The company, with a reported 20.6% shareholding in the London Stock Exchange and 16.0% in NASDAQ, saw its Q1 net profit surge more than eightfold to US$ 58.6 million.

Yet again, Barclays finds itself in trouble with the authorities. This time New York prosecutors are investigating fraud charges against the bank in relation to so-called “dark pool” operations in which it “showed disregard for its investors in a systematic pattern of fraud and deceit.” The bank should have protected its clients from aggressive high speed trading firms but seemed to do the exact opposite. Over the past two months, the financial institution has been fined US$ 280 million, for its shady role in dealings with Fanny Mae and Freddie Mac, and US$ 26 million for fixing the gold price. This could be a lot more serious  and penalties could be in the same league as BNP.

The French bank will apparently be hit with a massive US$ 8.9 billion fine for its violation of international sanctions against countries such as Iran, Cuba and Sudan, between 2002 – 2008. Earlier in the year, the bank had set aside a US$ 1.1 billion provision but now will have to slash proposed dividends and issue bonds to make up the shortfall. No doubt senior managers would have picked up huge bonuses from this illicit trade but it is the shareholders and clients who eventually pay for their misdemeanours.

Mining conglomerates, Anglo American, Lonmin and Impala have finally settled with the unions to end a damaging seven-month strike in South Africa’s platinum mines. The end result is that the lowest paid workers will see their pay increase by US$ 55 a month over the next three years, along with additional benefits.

Moody’s has put a negative outlook on Russia whilst keeping its bond credit rating at Baa1 – at the low end of the investment spectrum. The agency cites the lack of positive economic reform, the recent cut in the 3-year growth forecast, from 3.0% to 1.7%, and the possibility of further international sanctions, if the Crimean crisis worsens, as the main drivers for their warning.

It seems that the era of low interest rates may be coming to an end as the governor of the Bank of England, Mark Carney, hinted higher rates could come sooner than markets expect whilst the US Fed is facing increasing pressure to do likewise. Two factors are in play here – falling inflation and asset bubbles.

Japan is a good example of the problems that can arise when a country is experiencing low inflation – as is now the case in the eurozone and the US. A slowdown in growth will result in higher unemployment which, in turn, leads to a reduction in consumer and investment spending, a dampening of business confidence and a cut back in government tax receipts, allied with an increase in social spending. When inflation is low, companies will face difficulties raising prices so they turn to cost-cutting measures, including retrenchment of staff and lower wages, as well as seeing lower growth levels. The end result is that the troika of government, companies and consumers have less money to spend and for those who have will probably hold off as prices will continue to fall. It is thought that a 3% inflation level is probably the best scenario for economies – that being the case the US at 1.5% and the eurozone at 0.5% have a lot of catching up.

Already the eurozone authorities have introduced negative interest rates, whereby banks have to pay the central bank 0.1% for holding their money, and a US$ 545 billion targeted lending programme, to entice banks to lend money to its stakeholders. The ECB might soon have to purchase private sector asset-backed bonds (rather than government securities as favoured by the Fed and the Bank of England) to get the inflation level back on track.

Dubai-based Arabtec Holdings is still the big news-maker as its share value continues to plummet. It has been reported that following the departure last week of its CEO, (and 28.85% shareholder), Hasan Ismaik, there have been subsequent dismissals of a raft of senior managers and other employees. This comes on top of its then major shareholder, Aabar Investments, reducing its stake earlier in the month.

By 14 May, the company had seen its 2014 share price skyrocket by 361%, from a 01 January opening of US$ 0.56 to US$ 2.02. Following this record high, its price has crashed to close on Thursday at US$ 0.84 – down 29.1% on its week’s opening of US$ 1.19, down 53.7% on its 01 June opening of US$ 1.83 and 58.2% down on its 14 May close.

The company is in turmoil and this has had a negative impact for the local bourse, as other listed companies have been affected. The market is well off its 2014 06 May peak of 5374 and the lack of communication and transparency both from the company and the SCA (Securities and Commodities Authority) is not being well received by investors. Any damage has been exacerbated by the fact that DFM has just been upgraded from frontier to emerging status by the MSCI and international fund managers will not take kindly to seeing the Arabtec drama being played out as the market takes on casino-like status, being driven by speculation and rumours rather than market fundamentals. If nothing positive arises by early next week, Arabtec shares – and the DFM’s credibility – will continue to go Down, Down (Deeper and Down).

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