We Can Work It Out

david-haye-gymThe Indian-based Hiranandani Group has signed a management agreement with Accor to develop a 350-room Ibis hotel in Downtown Dubai. This is yet another indicator that Dubai’s hospitality sector is in need for hotels in the budget price range, as the 5-star bracket continues to dominate the market. The hotel – slated for a 2016 completion – will be the French Accor’s 16th property in Dubai.

SKAI Holdings has announced that it has sold all 234 hotel rooms, 234 apartments and 33 penthouses in its recently launched US$ 306 million Jumeirah Village Circle project. The Dubai-based developer reported that sales proceeds were US$ 253 million and that it would retain the likes of 17k sq ft of retail space, restaurants and spa facilities. The project will take three years to complete, with work commencing next month.

Dubai’s move into the health and fitness market received a timely boost with the opening of the Hayemaker Gym, with the support of Dubai Investment Development Agency, in liaison with David Haye, the ex-world boxing champion. The new centre of excellence for sports and performance coaching will help the emirate’s push to becoming a global health tourism destination.

Meanwhile it is reported that Dubai may well submit a bid to host the 2024 Olympics but will probably  bid for the Youth Olympics and / or the Asia Games earlier.

Further apparent good news for Dubai Investments with H1 profits more than doubling to US$ 219 million from US$ 101 million, in the same period last year. However, it has to be noted that US$ 129 million of the profit came from the May sale of its 66% share in Globalpharma to the French pharmaceutical company, Sanofi. The company is expecting that its credit rating will soon be lifted to BBB, a move that would help it raise future funds at more favourable rates.

According to OAG, Emirates is ranked first globally when it comes to a premium class capacity ranking known as ASKMs (available seat kilometres) having recorded a weekly 876 million in April, with 191k seats available in business and first class.

Having already launched thirteen new routes this year, flydubai is to start flying to destinations in Iran – Tehran and Mashhad.

Emaar Properties reported a 40.6% rise in H1 profit to US$ 472 million, on revenue figures of US$ 1.38 billion. 52.3% of total revenue, equivalent to US$ 721 million, came from the company’s malls, leisure and hospitality businesses. Furthermore, revenue from international operations came to US$ 205 million, contributing 14.9% to the company’s top line. The Dubai developer has indeed come a long way from its origins, as a builder of villas, in new Dubai, some fourteen years ago.

Shuaa Capital saw Q2 revenue and profit weaker than in Q1. Revenue at  US$ 14.2 million was 18.75% down whilst profit at US$ 1.7 million was off 24.4%. The main reason for this was the fall-out from the Q2 22.1% drop on the Dubai bourse.

Dubai International Capital racked up a tidy profit with the sale of Mauser Group to Clayton, Dubilier & Rice for a reported US$ 1.7 billion. Owned by Dubai Holding, DIC bought the German packaging company for US$ 1.1 billion in 2007.

It will come as no surprise to many to see that Gems Education has reported a 78.6% jump in annual profit to US$ 75 million although its cash holdings dropped 8.6% to US$ 24.6 million. Bloomberg reported in May that Fajr Capital and Investcorp were considering a minority stake holding in the parent company which would have valued it in excess of US$ 1.5 billion.

The Department of Economic Development renewed 31.3k licences in Q2 and issued 5.8k new licences in H1 – a 17.0% increase on last year – of which 74.2% (or 4.3k) were trade licences.

With 8.7k new companies joining in H1, the Dubai Chamber of Commerce can now boast a staggering 160k members. The Chamber, the largest in the MENA region, is planning to shortly open a further three international offices – in Erbil (Kurdistan), Ghana and Mozambique.

The importance of SMEs to the local economy was highlighted by figures from the Dubai Economic Council which estimated that 42% of Dubai’s workforce is employed by that sector. The biggest hurdle facing SMEs is the lack of finance and unfortunately they do not seem to get too much help from the banks here.

Ventures Onsite estimates that new 2014 GCC infrastructure projects will be in excess of US$ 86 billion – a massive 78% increase over 2013 returns. The company expects to see a fivefold surge in UAE projects to US$ 15.2 billion, only topped by Saudi Arabia (US$ 29.3 billion) and Qatar (US$ 26.2 billion).

Empower provided 174.3 million refrigerating tonnes per hour (RTH) in July – a 9.5% increase compared to 2013. The largest district cooling service provider in the world has a capacity for 1 million RTH, following its January acquisition of Palm District Cooling and is building a third district cooling plant in Business Bay.

Following July’s recovery that saw the bourse gain 22.6% in the month, the Dubai Financial Market General Index opened on Sunday at 4833 – and closed the week 2.0% down at 4735. Bellwether stocks, Emaar and Arabtec were trading at US$ 2.66 and US$ 1.12 respectively.

Following its buy-out of Autonomy in 2011 for US$ 11.1 billion, and then finding out that it had bought a lemon, Hewlett Packard is to sue the UK company’s former chief executive, Michael Lynch, and CFO, Sushovan Hussain, for fraud. This is after HP had to write down US$ 8.8 billion of the company’s value within a year of the sale. So much for due diligence!

Almost on the same subject, some may consider F1 supremo, Bernie Ecclestone, a lucky man.The 83 year old had admitted making a payment to German banker, Gerhard Gribkowsky to facilitate the sale of a major stake in his F1 business. The German banker is currently in jail whilst Mr Ecclestone has agreed to pay US$ 100 million as settlement  to end his trial on bribery charges. This could be considered one law for the rich and one for the poor.

HSBC has a lot to thank this region for as MENA (Middle East and North Africa) accounted for US$ 989 million, or 8.0%, of its H1 profit (up 8.8% from 2013 H1’s figure of US$ 909 million). On a global scale, the bank reported a 12.7% fall in its profit, down from US$ 14.1 billion to US$ 12.3 billion, as its revenue figures dropped 9.3% to US$ 31.2 billion.

Standard Chartered fared even worse with a 20.0% fall in H1 profit to US$ 3.3 billion and now faces the real threat of takeover bids from larger European or Australian banks.

But HSBC and Standard Chartered are not the only banks with unhappy shareholders. Credit Suisse announced its biggest quarterly loss (US$ 780 million), since the GFC, which included a US$ 1.78 billion provision for US tax evasion charges. Meanwhile Bank of America came in with a 43% quarterly fall in net income to US$ 2.3 billion. In recent times, the financial institution has been hit with a massive US$ 9.5 billion fine for its impropriety in its dealings with Fannie Mae and Freddie Mac and US$ 783 million for mis-selling.

The Portuguese Banco Espirito Santo has had to be split in two with the “good” bank, Novo Banco, receiving an extra US$ 6.6 billion in capital and taking over the branches, deposits and other healthy assets whilst the “bad” bank will inherit the bank’s loan portfolio and be wound down over time. This comes after H1 losses of US$ 4.8 billion and is bad news for both shareholders and some creditors who will lose money on the new set-up. The troika – EC, ECB and IMF – gave Portugal US$ 105 billion in bailout funds and it seems that they, along with the local government and the bank, have been negligent and have still not fixed the banking system. If it can happen here, there is another Banco Espirito Santo on the European horizon.

Although there are many who consider that the US economy is well into its recovery phase, recent data seems to indicate otherwise. Slowdowns in July growth figures and nonfarm payrolls (from 298k to 209k), as well as a marginal increase in unemployment figures from 6.1% to 6.2%, are giving rise for some concern.

The Australian government is hoping that July’s 6.4% unemployment rate, its highest level since 2002, was a glitch but, if not, the country could be heading for a downturn. With 789k unemployed, it seems that the country’s jobless rate is now greater than the US which last occurred more than seven years ago.

With a 0.2% Q2 contraction, Italy has returned to recession as numbers have deteriorated since the beginning of the year. Since the GFC, its economy has shrunk by over 9.0% and their economic troubles have been further exacerbated by huge government debt and a complete lack of reform to their archaic labour laws. 

The last thing the eurozone wanted was the Ukraine crisis to worsen. Now Vladamir Putin is piling the pressure on the West as he retaliates by cutting back on food imports and restricting the use of Russian air space in a move that will have severe economic repercussions for some major carriers. Mario Draghi, the ECB president, will have to introduce some form of quantitative easing sooner rather than later. Failure to act now will see the bloc inevitably go into recession.

Despite the continuing optimism for the Dubai economy, there are some niggling signs that all may not be rosy in the garden and that the emirate may be operating a two-sided economy. Public sector leverage remains high with some estimates putting the emirate’s debt this side of US$ 150 billion compared to a GDP of US$ 110 billion. Up to 65% of this total relates to GREs (government related entities).

The Dubai debt problem will not go away and latest reports indicate that Dubai World is once again restructuring its US$ 25 billion loan and Amlak its US$ 2.7 billion facility; both are looking at an early first repayment and for an extension to the loan tenure. Latest results from Arabtec, Emaar and Shuaa Capital all indicate that Q2 results were not as good as those of Q1. Add to this the recent volatility in the stock market, increased rents, rising costs, a flat housing market and regional ge0-political problems then some may consider that light clouds are on the horizon. But then again this is Dubai and, as usual, We Can Work It Out.

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