Runnin Scared

breitling-burjFounded only two years ago in December 2012, Careem, the locally based chauffeur booking service, has received a US$ 10 million investment boost from the Saudi travel group, Al Tayyar. The internet service provider is looking to use the additional funds to expand on the 14 cities in which it currently operates. (It has a long way to go to catch up with the 5-year old Uber which, having just finalised its latest fund raising, has a valuation in excess of US$ 40 billion).

Dubai Properties is planning to build another hotel at the Bay Square development in Business Bay. The 238-room Double Tree by Hilton is scheduled to open in Q1 2017.

Designed to represent a traditional Arabic town, Jumeirah Group’s Madinat extension will have 430 rooms on its 430 hectare site, when it opens late next year.

Once again Khalaf Al Habtoor has shown faith in the Dubai economic miracle as his Group announce three new projects, located near the former Metropolitan SZR. His Polo Resort & Club will feature a 136-room 5-star hotel,162 residential units and a riding school, with 500 stables and three polo pitches. With the other two projects, a 4-star, 334-key hotel and the 74-property Oasis Villas, his total investment of US$ 545 million will be largely self-financed.

Rixos is planning to move its headquarters to Dubai. With 30 properties under its management – and a similar number in the pipeline – the Turkish hotel operator considers that the emirate is the natural centre for the region’s expanding hospitality sector.

Having already being paid a reported US$ 55.4 million for the 2008 abandoned Tatweer golf course, Tiger Woods has tied up with Damac to design a new facility on the same 55 million sq ft  plot of land. The 18-hole championship course and club, including a world class restaurant, will open within three years.

Following the December launch of the Dubai tram system in JBR, Emaar will introduce the Dubai Trolley system – a 7 km tram network for Downtown. Phase 1 will be completed by the end of next year.

Over the next two years, Glosanté, the recently launched Dubai-based healthcare company, is planning to invest US$ 100 million on ambitious expansion plans. Of the 50 offices to be opened in the MENA region, four will be located in Dubai, employing 30 doctors and 50 support staff.

The Investment Corporation of Dubai is reportedly planning to expand its shareholding in Dubai Aerospace Enterprise to 70% by purchasing a 15% share, currently held by Istithmar World. Other DAE minority shareholders include Dubai International Capital, Dubai Silicon Oasis and Emaar. 

To satisfy the ever-growing demand for its products, Mars will spend a further US$ 60 million on expansion plans to its Jebel Ali factory to increase production capacity by 66.7% to 100k tonnes per annum. It is expected that the MENA chocolate sales will top US$ 5.8 billion by 2016.

Access MEA has won a US$ 17 million contract to build a 10 megawatt solar plant in Uganda. The Dubai-based company estimates that the project will provide power to 40k homes in Uganda – a country where 85% of the population do not have this utility.

Abraaj Investment Management is facing stiff completion from Kellogg in its attempt to buy the Egyptian biscuit maker, Bisco Misr. The world’s largest cereal maker has again topped the latest UAE firm’s bid of US$ 11.27 by US$ 0.23 and this has to be matched by 24 December.

November’s PMI continues to paint a rosy picture for the UAE economy with a 58 rating. Although down on October’s record 61.2, because of the slide in oil prices and a slowdown in global trade, it still represents a marked improvement in the country’s business environment.

The contagion, as the rouble continues its downward spiral, is now being felt in both the hospitality and retail sectors. The currency which has lost over 40% in value this year to the US$ (and consequently the dirham) has seen the number of Russian tourists fall, whilst those who are still coming to Dubai are spending less.

Abdulrahman Al Saleh, Head of Dubai’s Department of Finance, has indicated that Dubai will be still be able to finance all its upcoming projects, despite the recent dip in the oil price. He also reiterated that GDP growth, in the coming years, will be between 4.0% – 5.0%.

Some 40k, or 13% of, UAE companies are in default with the federal Ministry of Labour, who are owed some US$ 777 million in unpaid fines. To help defaulting companies, there will be a 6-month amnesty which will see all fines, whatever the amount, being reduced to US$ 272.

Despite an attempt by RBS to derail Dubai World’s latest debt restructure proposal, it seems that the bank – unhappy with the fact that the US$ 10.5 billion loan tenure will be extended by four years to 2022 – does not have enough of the debt to block the plan. Under Decree 57, only 67% of the creditors have to agree the arrangement – and this appears to be already the case. Under the new terms, US$ 4.4 billion will be repaid in May 2015 and this will be partly financed by the November US$ 2.6 billion sale of Emirates Zones World to DP World.

Knights Frank has valued Jebel Ali Free Zone at US$ 4.45 billion. The complex covers 32 million sq mt and has 14k tenants occupying over 1k warehouses and 2 million sq ft of office space.

The same firm reported that Dubai realty hit the skids in Q3 with its first quarterly loss in Q3 for four years. Although 5.2% down, it was still 12.5% up on the corresponding period in 2013.

Latest October figures from IATA indicate a stunning performance by ME airlines with a 10.3% growth recorded. However as capacity was up 13.5%, load factor fell 2.1% to 73.5% compared to the global return of a 5.5% hike in capacity and a 0.1% rise in load factor to 79.1%.

The country is well on the way to become the capital of Islamic finance by 2016, being currently second to Malaysia, a country with 17 million Muslims. It is estimated that US$ 2 trillion was spent on Islamic consumer goods in 2013, with annual double digit growth expected in the coming years, as Islamic assets topped US$ 1.66 trillion.

Omniyat Group has started work on its project in Dubai Maritime City. The US$ 164 million seafront development will include 225 apartments, along with 8.1k sq ft of retail outlets. ANWA by Omniyat is an integral part of DMC’s proposed 53-mixed use developments including ten parks, hotels and shopping malls.

UAE has over 130 money exchange firms and some are struggling as compliance regulations become more costly and onerous and the refusal of certain banks to do business with them. At the beginning of the year, the Central Bank introduced a minimum capital requirement of US$ 1.36 million – as industry sources indicate that costs have gone up as much as 40%. With UAE expats remitting some US$ 18 billion annually, it seems that there will be fewer exchanges for them to use in the future.

A potential game changer in the local financial world is the announcement that the UAE and China will finally activate a 2012 US$ 5.7 billion (35 billion yuan) currency swap agreement. This will see bilateral trade and investment being enhanced and follows a similar agreement that China recently signed with Qatar.

Given the circumstances, it was no surprise that the much awaited debut of Dubai Parks and Resorts on the local bourse saw the stock open on Wednesday 6.9% down on par, at US$ 0.25, which then dropped  further, to US$ 0.23, by the end of the week’s trading.  The IPO was for 40% of DPR and, at US$ 689 million, the theme park project had been heavily oversubscribed.

Although the local bourse had major falls in October (9.9%) and November (9.4%, closing at 4281), nobody could have predicted this week’s bloodbath.  Having fallen 6.8% in the first week of December, the DFM tanked over the last seven days,  plunging a disastrous 13.6% from its Sunday opening of 4161 points to close Thursday on 3595. Bellwether stocks, Emaar Properties and Arabtec, were down 24.2% and 14.7%, trading at US$ 1.97 and US$ 0.87, respectively.

Citibank has confirmed that it will be making a US$ 2.7 billion provision for legal costs in relation to its nefarious role in the Libor rate scandal and money laundering. Following Q3 results, the bank had to write off US$ 600 million for “rapidly evolving regulatory inquiries”.

The US economy received a boost with November Labour Department figures showing an extra 321k jobs, bringing the 2014 monthly average to 241k – the longest period of labour growth in nine years. Despite a slowdown in the global economy, the US would continue to expand, albeit at a slower pace with Q4 growth estimated at 2.5% – down from the previous return of 4.3%. On Thursday, the House of Representatives passed a US$ 1.1 trillion budget that will ensure government funding until September 2015. (If the 219 – 206 vote had gone the other way, the government would have had no money and vital services closed – what a way to run a country).

Despite Russian authorities spending more than US$ 70 billion this year – and US$ 4.5 billion this week – in an attempt to shore up the troubled rouble, the currency is still in dire trouble at all-time lows of 54.55 to the US$. The economy has been dragged down on three fronts – the 40%+ fall in oil prices, the impact of western sanctions and a surging inflation rate, currently at 9.1%. This week the central bank lifted interest rates a further 1% to 10.5%. Latest World Bank data estimates that the country will have a 0.7% contraction next year.

Those who thought that Greece had finally escaped from the economic doldrums have been proved wrong even though the country had just announced that it was finally out of its 6-year recession. Investors were surprised when Antonis Samaras announced early presidential elections for 17 December and the stock exchange opened on Monday more than 15% down. The conservative government, wanting to exit the US$ 305 billion bailout, has Stavros Dimas as its candidate. However the left wing Syriza party wants the troika to cut some of the debt and if they were to win the election, it would return the country to another crisis and prolong the recession.

In the first decade of the century, only two countries – Haiti and Zimbabwe – had lower GDP growth than Italy! The country is still in recession and latest figures indicate a 0.4% contraction. It still has a major hurdles to surmount, including a major overhaul of its archaic labour laws and ways to bring in jobs for the 43% of under 25s that are unemployed. Then there is France with an unemployment rate of 10.2% and beset by sluggish growth and labour laws that make the Italians look progressive. The country has consistently failed to meet the EU requirement that a country’s budget deficit does not exceed 3% of GDP.

China’s CPI fell again in November to 1.4% – down 0.2% from October – with producer prices down for the 33rd consecutive month. The figures are another indicator that the slowdown is gaining traction, despite the central bank cutting interest rates last month.

Meanwhile Japan’s Q3 GDP figures were revised down to minus 1.9% as the country sinks deeper into an economic mire. The world’s third largest economy is in recession, following a 7.3% contraction in Q2, and there is little confidence in the market as the country soon goes to the polls.

In Australia, the November unemployment rate of 6.3% was at its highest since 2002 – despite 43k jobs being added to the economy. It must only be a matter of time before the Reserve Bank moves to cut the 2.5% interest rate which has remained unchanged since July 2013. For the only G20 member to have avoided a recession in the past 25 years, Australia is now struggling in the wake of a much vaunted weakening of its mining sector.

The fear for the local market is that of contagion. Most indicators are positive with growth at 4.0%+, great infrastructure already in place, major projects in the pipeline and the debt problem being more realistically managed. However, the country does rely on oil (with prices nosediving and associated revenue heading south), as well as the 3 ‘Ts” – trade, travel and tourism. Unfortunately, any downturn will have a negative impact on the country’s short-term economic prospects and there is little that can be done but to batten down the hatches. Although the economies of US and UK are performing well they too will be affected by events around the world that are outside their control.

As global fears of a major slowdown gather momentum, Brent crude closing on Thursday at US$ 65.04, the Russian currency in danger of meltdown, stock markets swimming in a sea of red and markets readying themselves for the inevitable recession, no wonder the financial world is Running Scared!

This entry was posted in Finance and tagged , , , , , , , , , , , , , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s