Foxy Lady

Christine-LagardeThere is no doubt that the aviation sector is feeling the pinch from current geo-political, health and climatic issues. With conflict areas – such as eastern Ukraine and northern Iraq – becoming no-fly zones, airlines have had to take expensive detours.

For example, Emirates’ fuel bill last year came in at US$ 8.4 billion – or over 30% of operational costs. In addition, they have cancelled flights to both Erbil and Kiev and have seen reduced passenger loads to other troubled areas. The Ebola scare in western Africa has had a similar effect on air travel and, now looms the Icelandic Bardarbunga volcanic threat.  In 2010, the Eyjafjallajokull eruption saw 100k flights cancelled and a US$ 1.7 billion loss to the industry.  All these factors will have a negative impact on Emirates’ (and many other carriers’) top and bottom lines.

One of many airlines struggling is Qantas which has just reported its biggest ever loss of US$ 2.6 billion (which did include a US$ 2.4 billion write down on its international fleet). In addition, the usual suspects – high fuel prices and weak domestic demand – added to the airline’s woes.

Ryanair, the world’s largest budget carrier seems to be taking a leaf out of flydubai’s book. Over a year ago, CEO Ghaith Al Ghaith introduced business class on many of its routes and now the Michael O’Leary airline is following suit. Imitation is the sincerest form of flattery.

Established in 2006, the Emirates Institution for Advanced Science and Technology is finalising the first phase of its Dubai facility that will eventually build satellites. When completed, manufacturing will move from its current S Korean location to the emirate where  further development of the Khalifa Sat will take place. So far, the EAIST has successfully launched DubaiSat 1 and 2.

As the population grows so do the manpower needs of the medical sector resulting in Dubai Health Authority recruiting a further 531 nurses for work in the ever-expanding public hospitals and clinics. A recent report by Alpen Capital indicates that the UAE is the fastest growing GCC market in this sector. Indeed there has been a doubling of the UAE healthcare budget over the past six years but despite that, it is estimated that the country still spends US$ 2 billion in sending Emiratis for overseas treatment.

October will see the launch of medical tourism packages, involving a host of government departments and Emirates Holidays. The aim of the exercise is to see the number of medical tourists surge from 2012’s total of 107k, generating US$ 178 million, to 500k, and  US$ 708 million, by 2020.

There was no surprise to discover that phase 1 of  Damac’s Akoya Oxygen project was sold out in a day particularly when prices of 5-bedroom villas were going for US$ 681k. The development is branded as Dubai’s first green master development and will cover an area of 55 million sq ft. The company has already delivered 11k units to the market with a further 26k in the pipeline.

Dubai Properties also announced that its recent launch of Naseem townhouses has sold out and consequently the company is putting extra units onto the market. The same developer is also releasing a further 200 units in its Remraam development, following similar success with its May launch.

Tecom, one of the emirate’s largest commercial developers operating eleven business parks, is now moving into the residential market. It has announced that it will build 440 units in its Villa Lantana development, with prices starting at US$ 647k. Located near to its DuBiotech business park, the project will be finished by the end of 2015.

Already managing European operations in France, Germany, Romania and Spain, DP World is expanding its Belgian business by acquiring Euroports shares to take over the running of a planned container terminal in Liège. Due for completion next year, the new facility is expected to provide employment for 1k.

DP World recorded a 25.8% hike in H1 net profit to US$ 332 million, with a 9.9% increase in revenue to US$ 1.66 billion. The company operates 65 terminals around the world and has seen an 8.5% rise in throughput to 13.9 million TEUs (20’ equivalent units).

Jumeirah Palm is currently awash with 5-star hotels only but Byblos Hospitality is set to change this by developing a 144-room 4-star brand. The US$ 49 million hotel will be located on the island’s trunk, opposite the One and Only Royal Mirage. Interestingly Dubai has 351 hotels (70k rooms), of which only 38 (7.7k rooms) fall in the economy to upper mid-scale bracket.

Despite the abysmal July data, Dubai’s 634 hotels (and hotel apartments) had a mighty fine H1 as all indicators headed north, albeit at a reduced rate. The record number of visitors – at 5.8 million – rose by 2.3% (compared to 11% in 2013) and produced US$ 3.47 billion in revenues, with room sales up by 15.3% and F&B 3.8%. Saudi Arabia, India and UK were the top three contributors to visitor numbers.

Dubai Summer Surprises closes next week on 05 September and has reported a 39% surge in special festival promotions. The 27 participating malls have reported a 10% increase in footfall whilst hotels and Emirates have recorded major increases in traffic.

Atlantis, The Palm, becomes the latest government entity to consider refinancing its current loan facility. Last September, the hotelier, 100% owed by the Investment Corporation of Dubai, signed a US$ 880 million, five-year syndicated loan at 500 basis points over Libor. Last week it was reported that Dubai Duty Free was refinancing their US$ 1.75 billion loan at 175 bps.

Dubai World is hoping that smaller investors will buy into their new US$ 10.3 billion debt restructuring proposal  which reportedly proposes an early repayment of US$ 4.4 billion, followed by a four-year extension, to 2022, for the repayment of the balance at a high rate than the average 2.4 % currently agreed.

The 32-year old Emirates General Transport and Services Corporation has announced 2013 revenue of US$ 409 million, maintaining its 18% average annual growth over the past five years. The corporation, with a fleet of 13.5k vehicles, also reported total assets valued at US$ 545 million, spread over 41 sites across the country.

A recent report by G4S has estimated that the value of the facilities management sector could reach US$ 5.5 billion in 2015. The survey covered the likes of cleaning, pest control and building management but excluded security.

Dubai’s H1 foreign trade dipped 3.7% to US$ 178 billion, with imports at US$ 111 billion, exports – US$ 16 billion – and reexports of US$ 51 billion. The emirate’s biggest trade partners were China (US$ 21.9 billion), India (US$ 14.4 billion) and the US (US$ 11.1 billion).

Nasdaq Dubai has only two companies trading shares – DP World and Depa. On Monday the Dubai-based interior specialist company saw its trading suspended in relation to technicalities concerning the composition of its six-member board of directors, half of whom have links with Arabtec, their largest shareholder with a 24% stake. Depa is without a chairman as the former incumbent, Arabtec’s ex managing director, Hasan Ismaik, resigned in June. (Coincidentally, Mr Ismaik is reportedly interested in selling some of his 27.90% stake holding in Arabtec but he values each share at above the current market value).

Having risen 2.0% the previous week, the Dubai bourse opened on Sunday at 4908 – and closed the week marginally up 20 points at 4928.  So far this year, the market has jumped 46.2% from its 01 January opening of 3370. Bellwether stocks, Emaar and Arabtec closed on US$ 2.79 and US$ 1.28 respectively.

If the proposed US$ 11.4 billion Burger King takeover  of Tim Hortons goes through, the big loser would be Uncle Sam. Currently, the company, based in Miami, that gave the world “The Whopper” pays 35% corporation tax in the US but a move to Canada would result in a 15% tax burden. Strangely, Warren Buffet, a strong critic of companies using tax loopholes, is investing US$ 3 billion in the JV which will be domiciled in Ontario. Another tax inversion deal rears its ugly head!

A week after Bank of America’s US$ 16.65 billion legal settlement in its role of selling questionable mortgage securities, Goldman Sachs has been hit with a net US$ 1.2 billion penalty for similar offences involving Fanny Mae and Freddie Mac. Having already reached sixteen settlements with various defaulting financial institutions, the Federal Housing Finance Agency is still pursuing similar cases against HSBC, RBS and Nomura.

With over a 25% unemployment rate – equivalent to 8.3 million – South Africa has major economic problems. Despite a Q2 recovery which saw a GDP growth of 0.6%, compared to a 0.6% contraction in Q1, Africa’s second biggest economy recorded contractions of 9.4% in mining and 2.1% in manufacturing.The country needs to drastically cut its unemployment level before any meaningful recovery can take place.

Attending the Jackson Hole meeting earlier in the week, the ECB’s Mario Draghi is confident that his current polices will put the EU economy back on track but he reiterated that individual governments would have to get their own house in order. This may mean them going ahead with unpopular economic measures and introducing structural economic reform in many areas.

It is inevitable that the ECB has to introduce drastic measures to push up the eurozone inflation – well down at 0.4%, compared to their 2.0% target – and a major asset purchase by the central bank is becoming inevitable. Quantitative easing has already proved of some benefit to the US and UK economies but it seems that the eurozone may be coming to the party a little too late.

The French PM, Manual Valls, has had enough of François Hollande’s dithering with the country’s economy and has handed in his resignation. There is little chance of the Gallic country making a quick economic recovery, especially since there has been no growth this year and unemployment levels still hover over the 10% level. With a 0.8% July jump, there are now 3.42 million in the dole queue – a rise of 4.3% in the past year.

Another French personality has had a bad week with news that ex-finance minister – and now IMF chief – Christine Lagarde has been formally investigated in a political fraud involving Bernard Tapie and his ally, and former president, Nicolas Sarkozy. It appears that she signed off a more than favourable US$ 530 million payment to Tapie in an arbitration dispute with the then state-owned Credit Lyonnais. Foxy Lady!

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