God Bless America!

tram-openingTuesday saw HH Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum officially open phase 1 of  the US$ 1.1 billion Dubai Tram system. Eleven must be somebody’s lucky number because the operation started on the 11th day of the 11th month, serving 11 stations with 11 trams whilst covering almost 11 kilometres.

(Two of the UK companies involved with its development seem to be having domestic problems. The UK Serious Fraud Office has accused an ex-senior manager of Alstom Network UK of paying “inducements”, totalling US$ 4.2 million, to Delhi Metro Rail Corporation officials. More charges against the company and other officials will follow. Meanwhile Serco, who won a US$ 29 million contract to run the network, has announced its fourth profit warning this year, when cutting its 2014 forecast to US$ 210 million, whilst also proposing a US$ 875 million rights issue. Their shares, listed on the FTSE, plummeted 35% on Monday, as it also highlighted problems with certain UK and Australian government contracts, and a possible impairment write down of almost US$ 2.4 billion).

Seven is obviously the lucky number of an unnamed Emirati who has just paid US$ 627 million for the mobile number 056 7777777, having already paid US$ 2.1 million for 050 7777777 in March. All proceeds from the auction have gone to the Khalifa bin Zayed Humanitarian Foundation.

Over 1k world leaders in government, academia, business and media congregated in Dubai this week for the 7th Summit on the Global Agenda – a prelude to the upcoming World Economic Forum in Davos. The meeting comprised 80 Global Agenda Councils, with six meta-councils, all tasked with resolving specific global problems.

Following last month’s announcement of a JV with Dubai Holding, Emaar is adding a further two towers to its Dubai Creek Harbour at The Lagoons development. Four towers were recently released for sale to strong demand and these two 30 and 35-storey buildings will have a combined 240 units, going on sale this Saturday, 15 November 2014. When the whole US$ 817 million project is complete by 2016, it will have 39k residential units, 3.7k offices, 8 million sq ft retail area and 22 hotels, with 4.4k rooms.

Overseas AST Company LLC has won a US$ 41 million contract to build The Boardwalk – a 11 km waterfront promenade on Palm Jumeirah, with a completion date by mid-2016. Located on the breakwater, the walkway will have 30 kiosks and be accessible from fourteen different points.

Damac has reported record Q3 earnings, as both revenue at US$ 157 million and profit of US$ 61 million were 159.5% and 165.7% better than for the corresponding 2013 period. 90% of the revenue was derived from its UAE operations.

Despite numerous disruptive issues, such as the Ebola epidemic, geo-political problems, the global economic slowdown, and a part 80-day closure of its runways, Emirates reported an 11.0% jump in H1 revenue to US$ 12.04 billion and an 8.0% increase in profit to US$ 518 million. Over the six-month period to 30 September, the airline carried over 23 million souls, with capacity up 6.5% and Revenue Passenger Kilometres increasing by 9.8%.

Having seen house prices up 35% in 2013, the IMF has indicated that Dubai has been able to control its property sector and there is now little chance of a housing bubble, after last year’s warning that prices were becoming unsustainable. The world body was satisfied that large projects were being carried out “at a much more gradual and measured pace” but some may disagree with this synopsis.

According to figures released by International Property Show, Kuwaitis possess 59.1% (or nearly 7k) of the 11.8k Dubai properties, owned by GCC nationals.

Latest STR Global figures show that the hospitality sector recorded a year on year 1.6% reduction in October average daily room rates to US$ 282 and a 2.3% fall in revenue per available room to US$ 230. The supply of new rooms, at 7.3%, continues to outstrip demand – 6.3% – as occupancy rates dip 0.9% to 81.7%.

In line with most international hotel groups, Jumeirah has introduced its new lifestyle brand, Venu, to the market. It is reported that the first of these will be located on Bluewaters Island, located off JBR, currently being developed by the government-owned Meraas Holding.

Starwood Hotels & Resorts, already operating 14 properties in Dubai, is also considering a Bluewaters location. Next week, it will open  its Sheraton Grand Hotel.

A report from Knights Frank noted that office inventory in the emirate has reached 7.5 million sq mt and is expected to increase by a further 6.7% next year. Vacancy rates continue to fall marginally and currently stand at 18%. Prime office rents rose by 2.0% in Q3 and showed a marked 23.0% jump year on year but with only 6 of the highlighted 13 districts showing double digit growth – Business Bay (31%), Tecom (31%), DFC (26%), Downtown (23%), Bur Dubai (13%) and JLT (10%). DIFC, DMC, DIC, Knowledge Village and Deira witnessed no change over the year.

A new Colliers International report that, at present growth trends, the emirate will require 51 new schools to teach 77k additional students by 2020. The consultancy firm estimates that a further US$ 2 billion will have to be spent over the next six years, bringing the total investment in private schools to over US$ 8.0 billion.

Government-owned Union Cooperative is to spend more than US$ 545 million in ambitious expansion plans that will include eight new hypermarkets, as well as numerous convenience stores in partnership with another, as yet unnamed, GRE (government-related entity). This will see the workforce jump from its present 3.8k employees to 6k.

Zack Shahin, along with three others who were tried in absentia  have been sentenced to ten years in jail, fined a combined US$ 8.2 million and have been ordered to repay the same amount. The former CEO of property developer, Deyaar, was accused of taking US$ 5.4 million in bribes from a Canadian construction company, Thermo.

Masharie’s two subsidiaries – Emirates Extrusion Factory and White Aluminium Extrusion – are planning major expansion as the demand for their products rises; over the past year, there has been a significant 13.1% increase to 27.25k metric tonnes. EEF is adding a further production line to expand capacity by 6k metric tonnes and a powder coating plant that will see an increase of 7.2k metric tonnes, whilst WAE’s new anodising plenty will lift production by 4.8k metric tonnes. (Masharie is the private investment division of Dubai Investments).

The Investment Corporation of Dubai has established a new subsidiary, known as Dubai Holding, to manage its 50% shareholding in Emirates Global Aluminium, which was formed when Dubal and Emal merged last year. Currently, the company is responsible for over 50% of the GCC’s aluminium production. The rationale behind the new subsidiary is for Dubai government to have a uniform approach, when managing the emirate’s energy assets.

Limitless has to meet a December deadline to restructure a US$ 1.2 billion sukuk and it looks likely that the troubled Dubai GRE will use future receipts to service current repayments. The other option for the cash-strapped company is to negotiate a longer loan tenure.

Government-owned Port and Free Zone World has agreed a US$ 2.6 billion sale of Economic Zones World – along with an assumed net debt of US$ 859 million – to DP World. EZW, including JAFZ and JAFZA Enterprises among its interests, has gross assets of US$ 3.7 billion and latest June returns indicate a profit of US$ 221 million. The sale of the massive industrial and logistics complex will give the financially troubled Dubai World a welcome cash injection as the US$ 3.459 billion raised from the sale will help towards next year’s repayment of a US$ 4.4 billion loan repayment.

Troubled Standard Chartered Bank is reportedly considering the closure of some ME branches as it tries to shut 8% of its 1,250 global locations, in order to cut global costs by US$ 400 million. The way that this bank has treated some of its Dubai customers of late may help to partly explain why it has had to issue three profit warnings and its shares have lost 30% in value.

Emirates NBD is initiating a US$ 1 billion unsecured bond with a price at around 150 basis points over midswaps.

The Central Bank reported a 2.2% increase in September loans to US$ 376.0 billion, as the economy continues to flourish and interest remains at historic low levels. Meanwhile total bank assets rose to US$ 629.4 trillion – 1.7% up month on month and 21.2% for the year – whilst both bank deposits and non-resident deposits saw marginal decreases to US$ 384.2 billion and US$ 299.7 billion respectively.

Since its inception in 2004, Dubai International Financial Centre has grown to almost 1,150 companies, employing over 17K, operating under its umbrella. Its expansion plans include 67% more office and other space to 15.2 million sq ft, with an increase in the number of hotels and retail space along, with a doubling in the number of companies over the next ten years.

HE Suhail Al Mazroui, UAE Energy Minister, confirmed that the oil market fundamentals remain basically the same, despite the recent 31.4% slide in oil prices (on Thursday, Brent Crude was trading at US$ 78.89). The current oversupply is the direct result of increased production in shale oil, mainly emanating from the US.

Nasdaq Dubai is in talks with Misr for Central Clearing, Depository and Registry (MCDR) that could result in dual listings here in Dubai and in Egypt. If this proves successful, then it could lead to similar arrangements with other overseas bourses.

Another sign of the rude health of Dubai’s economy came with news that DFM’s latest IPO was ten times oversubscribed. Amanat Holdings – a healthcare and education provider – collected US$ 3.7 billion for its actual requirement of US$ 375 million. Shares will be proportionally allocated to all subscribers and trading will commence later in the month.

Dubai Parks and Resorts is the latest company to test the market with a proposed IPO on the DFM. The Meraas subsidiary, currently planning the mega Jebel Ali theme park, is offering 40% of the entity to the public by issuing 2.53 billion US$ 0.27 shares which values the IPO at US$ 689 million and the entire entity at US$ 1.72 billion. (The company is also expected to shortly agree a US$ 1.15 billion project financing facility with Goldman Sachs).The development, slated for completion by Q3 2016, will consist of three distinct theme parks, a 4-star hotel and a centrally located retail and dining district, and will cover some 16 million sq ft of land.

On Sunday, the Union Properties board failed to approve the Q3 accounts. Subsequently, the DFM suspended trading in their shares until the problem had been resolved. Three days later, the amended figures showed a 171.6% surge in nine-month profits to US$ 227 million, despite an 18.8% fall in revenue to US$ 471 million. Actual Q3 returns were disappointing with both revenue (at US$ 121 million) and profit (at US$ 35 million) down, 62.8% and 25.6%, respectively.

The DFM confirmed that Arabtec’s former chief executive, Hassan Ismaik, has sold a further tranche of shares (reportedly at a premium price of US$ 1.36 per share) in a US$ 1 billion deal. Consequently, Aabar Investments now own 34.93% of the company with Mr Ismaik still retaining an 11.8% shareholding.

Having fallen 3.1% the previous seven days, the DFM recovered those losses and more by surging 5.7% from its Sunday opening of 4406 points to close the week on 4657. Thursday saw 392.6 million shares trade with a value of US$ 281 million. Bellwether stocks, Emaar Properties and Arabtec, were well up, trading at US$ 3.00 and US$ 1.16 respectively.

Denmark’s third largest company, and the leading global ship fuel supplier, OW Bunker, has filed for bankruptcy just eight months after going public on the Copenhagen Nasdaq. Only last month, it published figures indicating a US$ 24 million trading loss which has since been updated to US$ 150 million, following the discovery of a major fraud in its Singapore subsidiary, Dynamic Oil Trading. Without additional credit lines, it cannot survive but further financial assistance is unlikely as banks are owed US$ 750 million.

Hyundai / Kia have made a US$ 100 million settlement with US authorities for overstating the fuel economy on 1.2 million of its vehicles. Not only will this cost the company the actual fine but it is set to lose a further US$ 250 million. This is by dint of underestimating greenhouse gas emissions by 4.75 million metric tons (US$ 200 million) and taking preventative measures so such transgressions will not reoccur (US$ 50 million).

As was widely expected, UK and US regulators have fined six banks for manipulation of the forex market which turns over US$ 5.3 trillion of currency daily. The banks involved – Bank of America, Citibank, HSBC, JP Morgan, RBS and UBS – will have to pay punitive penalties totalling US$ 4.1 billion. A seventh institution – Barclays – has yet to agree a settlement with the lawmakers

In the UK, the Big 4 – Barclays, HSBC, Lloyds and RBS – account for 77% of all UK current accounts, in a segment valued at nearly US$ 20 billion, as well as 85% of all SME accounts. Not before time, they are now facing a Competition and Markets Authority enquiry to ensure that their dominant position is not being abused which is an unlikely scenario, judging on their past records!. These leading institutions had been reluctant to assist  but have agreed to cooperate whilst the CMA wish to see more competition and greater transparency in this sector.

The Dow Jones Industrial Average continues in record territory, closing on Thursday on 17653 whilst the S&P 500 and Nasdaq are still flirting with all-time highs, currently trading at 2039 and 4680 respectively. There is no doubt that, following the market’s recovery from last month’s 10% falls, the US equity market is heavily overbought  and ready for an imminent major correction.

It is also interesting to compare the latest US and Chinese economic data.

                                      China                                   USA

Growth                          7.3%                                    3.3%                  

Trade Surplus    US$   45.4 billion                     43.0 billion Deficit

Exports                US$ 206.9 billion                   195.6 billion

Imports                US$ 161.5 billion                   238.6 billion

Forex Reserves  US$ 4.056 trillion                   138.1 billion

Furthermore, the US budget deficit of US$ 121 billion (receipts – US$ 213 billion and outlays of US$ 334 billion) is the highest in three years and 34% up on the same period in 2013. Finally, the US public debt topped a massive US$ 18 trillion this week which makes each of the country’s 320 million inhabitants liable for US$56,250. God Bless America!

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