Rolling In The Deep

lego-manThis week, Emaar’s directors approved a special cash dividend of US$ 2.46 billion, following a US$ 2.2 billion pay-out earlier in the year
As at 16 October, the developer’s market capitalisation was US$ 19.3 billion, down some US$ 3.0 billion this week.

Emaar Properties is also planning to sell a Downtown commercial plot, measuring 506k sq ft. It is expected to raise at least US$ 83 million – based on a rate of US$ 163 per sq ft – and the winning developer will be allowed to build up to 30 storeys.

Nakheel seems to have upset some residents by raising application fees for those wishing to add extensions to their property. For example, it is reported that fees in Jumeirah Village have risen from US$ 40.9 to US$ 103.5 per sq ft. Meanwhile the cost to Emaar residents is US$ 545.0 per application.

Dubai is set to become Lego’s 7th global theme park location when it opens in 2016. Based in Jebel Ali, and encompassing three million sq ft, it will be operated by Merlin and developed by a Meraas subsidiary – Dubai Parks & Resorts Limited. It will have 40 interactive rides, with six distinct areas inside the park.

There was good news for Shuaa Capital with a 628% increase in profit for the first nine months of the year to US$ 7.1 million.

As expected, a group led by Fajr Capital has taken a significant minority stake in Dubai-based GEMS Education for an undisclosed sum – although there were some reports valuing the company in the region of US$ 2.5 billion. The educational operator runs more than 50 schools, in 19 countries, but under the new arrangement, GEMS will have two entities – one focussed on the MENA region and Asia and the other in Europe and N America.

Flydubai becomes the latest government related entity to look at raising additional finance through a bond issue, whilst favourable market conditions still continue. Funds raised would be used for general operating expenses and for new aircraft.

The UAE cabinet has approved a 6.3% increase in the 2014 federal budget to US$ 13.4 billion. Further analysis indicates that US$ 6.5 billion has been allocated to social sectors – health, education and social services – and US$ 5.4 billion on government expenditures. Lesser allocations see US$ 534 million on infrastructure, US$ 436 million on financial assets and US$ 272 million to federal spending.

Q3 saw Dubai’s inflation rate jump to 3.07% – three times higher than the same period last year. The main reasons for this rise were housing-related costs, which accounts for 43.7% of the basket, and food / beverage (11.0%) both up 5.11% and 3.15% respectively, whilst education saw a 4.31% hike. (The IMF had forecast a 2.2% UAE inflation rate for this year).

Following the success of the Emaar Malls Group recent IPO, next week will see Amanat going to the market, floating 55% of the company. The UAE-based healthcare and education provider will be selling shares at US$ 0.27 but is unlikely to be as oversubscribed as Emaar’s US$ 1.58 billion flotation that attracted over US$ 47 billion. (Some entity must have benefited from this temporary cash inflow).

As part of its restructuring plan, the much-troubled Gulf Navigation has managed to convert US$ 60 million bonds into share capital. The company saw its shares fall, at the close of this week’s trading on the DFM, to US$ 0.11.

With the UAE retail sector growing at an 8% annual rate and valued at over US$ 102 billion, of which US$ 10 billion originates from apparel and footwear, the newly listed Marka plans to open four new fashion outlets over the next twelve months. As a “greenfield” IPO, the company had no assets or real business when it commenced trading last month but has a current share value of US$ 0.32 – up US$ 0.05 on its issue price.

There was blood on the floor of the local bourse as the DFM saw 673 points wiped off as the index fell 13.6% from its Sunday opening of 4943 to its Thursday close of 4270. This week, Emaar and Arabtec shares sank from US$ 3.12 to US$ 2.70 and from US$ 1.23 to US$ 0.98 respectively.

Bank of America is the latest financial institution to report a massive fall in Q3 profits from US$ 2.5 billion to US$ 168 million on revenue of US$ 21.4 billion. This was the result of a multi-billion dollar mortgage-related settlement with the US authorities. To rub salt into their wounds, banking rivals, JP Morgan and Citigroup, announced profits of US$ 5.6 billion and US$ 3.4 billion.

Following a marked slowdown, the German government has once again cut its 2014 growth forecast from 1.8% to 1.2%, as well as for next year from 2.0% to 1.3%. Much of the blame for this turnaround is attributed to falling exports and the worrying eurozone and international economic environments.

Falling oil prices are now giving serious concerns with the International Energy Agency announcing higher output and reduced demand growth. On Thursday, Brent Crude was trading at US$ 85. It is inevitable that prices will fall even further under this scenario as Opec September production was its highest in the past year – so there is no indication that the organisation, that produces 35% of the world’s crude, is cutting back on supply. It is also estimated that oil demand growth is at its slowest rate since 2009. A fall in oil demand is a good barometer that the global economy is slowing.

Six years since the last recession, the eurozone is caught out on two fronts. First, it has not fully recovered from the battering it took then and it has not learnt too many lessons from its earlier mistakes. High unemployment, sluggish growth and too much bureaucracy continue unabated in most of the bloc. Furthermore it seems that the likes of the French and Italians do not understand the meaning of the word “austerity” and would prefer the easier option of borrowing and spending their way out of their troubles. It seems certain that for the next few years, the eurozone will be beset by stagnation with little or very subdued growth.

The US and the UK introduced QE policies – something that seems an anathema to Mario Draghi and the European Central Bank. As a result, it is a fair bet that it will soon slump back into another recession and a triple dip recession will be a contagion around the world, including here in Dubai. Then we have other issues – IS, Ukraine, ebola and a Chinese slowdown – that do nothing for confidence and little wonder that the markets are Rolling In The Deep…

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