Get Lucky!

dubai-world-islandsAt long last, agreement has been reached between Dubai World and a substantial majority (more than the 67% required) of its creditors concerning the restructuring of a US$ 14.6 billion 2011 debt deal. In short, the creditors will receive an earlier payment of US$ 2.92 billion and extend the repayment balance from 2018 to 2022, at a higher rate. The company has filed a voluntary arrangement with the Dubai World Tribunal for their approval to go ahead with this amendment which will be heard in March.

In a bid to positivise its citizens’ behaviour and lifestyle, HH Sheikh Mohammed bin Rashid Al Maktoum has launched the ambitious 7-year National Programme for Government Communication (NPGC). It will target seven key areas, starting with Healthy Children, followed by six other so called pillars – Cohesive Family, Quality Education, Green Ideas, Sustainable Food, Prosperous Future and Diabetes-free UAE.

Dubai Land Department reported 2014 53.9k real estate transactions totalling US$ 59.4 billion – an 8.0% fall in value and 15.0% in numbers over the previous year. Land sales – at US$ 42.9 billion – represented 73.2% of the total whilst the balance emanated from housing etc. The three most popular locations for apartments were Business Bay, Dubai Marina and Al Thenaya Al Khamesa with 4.3k, 4.1k and 2.6k transactions totalling US$ 1.96 billion, US$ 2.50 billion and US$ 0.93 billion respectively. 12.5k mortgage transactions, totalling US$ 26.4 billion, were recorded last year.

Nakheel and German realty company Engel & Völkers have signed a JV to create a real estate firm based in Dubai Market Centre. The new entity will trade under the German partner’s name and expects recruitment levels of 250. This will give the Dubai property developer access to a bigger global market.

Danube Properties’ second foray in the residential market proved a huge success as its US$ 82 million, 300-apartment Glitz development sold out within two hours. Last June, its US$ 136 million ‘Dreamz by Danube’ met with similar success.

Developer, Oqyana Real Estate Company (OREC), has announced the development of individual private islands that currently form Australasia in ‘The World’ development off Dubai. A deal has been signed with Dutch Docklands to help with construction.

The company that built the world’s tallest twisted tower, Cayan Group, has announced that it has US$ 327 million worth of projects lined up in Riyadh and Dubai; here it plans upmarket hotel apartment and residential buildings on two pilots on Umm Suqeim Road.

The hospitality sector had a mixed end to the year, as December occupancy rates fell 1.4% to 79.3% whilst revenue per available room (RevPar) rose for the first time in six months – by 0.3% to US$ 221 – and average daily rates to US$ 279. Supply for the month at 6.9% outgrew the demand return of 5.3%.

Emaar Hospitality plans to add a third brand to its hotel portfolio following the success of The Address Hotels + Resorts and Vida Hotels and Resorts. In a JV with Meraas Holdings, the Rove will have six Dubai properties over the next six years, the first of which will be the 420-key Rove Zabeel, due to open in 2016. (Emaar also launched its Dubai Inn brand in 2013). It can be only a matter of time before Emaar hives off part of this division, via an IPO, similar to the exercise undertaken when Emaar Malls Group was established last year.

It is reported that Dubai Investments is nearing finalisation of two acquisitions, valued at US$ 110 million. One of the target companies is in the real estate sector with the other is involved in asset management. The company was trading at US$ 0.65 at close of business on Thursday.

Having divested itself of German packaging company Mauser last year for US$ 1.5 billion, Dubai International Capital is looking to sell another German asset, Almatis. DIC has an 80% share in the alumina products maker and, if all goes well, could be looking at a return of US$ 800 million which would help its liquidity position but represent a heavy loss as it expended US$ 1.2 billion on the acquisition in 2008.

The RTA continues to spend money in improving the emirate’s traffic flow. This week came the announcement of the US$ 24 million Wafi bridge connecting the heavily congested Oud Metha Road to Sheikh Rashid Road; the 700 metre addition will be able to cope with 3.3k cars an hour. The RTA also published plans to enhance the 1.6k bus network. By the end of November 2014, YTD bus passengers were up 12% to 123.5 million, equating to a daily load factor of 330k. To cope with this increase, the RTA is adding 400 new bus shelters, 400 ticket machines and 150 new drivers.

DEWA finally nominated the Saudi Acwa Power consortium – ahead of 49 other contenders – to build its US$ 327 million 200MW solar power plant, due for completion within two years. 15% of the financing will be internal with the balance through banks.

The UAE Minister of Public Works, Dr Abdullah bin Mohammad Al Nuaimi, has estimated that some US$ 820 million of government-related projects are currently underway – around 50% of the ministry’s 3-year budget to 2016.

The strength of the retail sector was again highlighted with reports that the Canadian Circle K plans to open 28 convenience stores in the country this year alone, where it already has 38 outlets.

2014 proved a profitable year for the Dubai Mercantile Exchange as it announced a 33% jump in trading volumes to 8.4k lots per day. During the year, four new trading members – Idemitsu, Itochu, Marubeni and Mitsui – were added, bringing the total of entities to 90.

The cost of school education is always an area of concern but a recent Parthenon Group report indicates that the average Dubai school fee of US$ 8k is some 45% lower than equivalent rates in London, Hong Kong and Singapore. However, there are certain schools where the fees are as high US$ 27k, plus the usual extras. Interestingly, the report also estimated that 51 new schools – equating to an extra 110k students – will be needed by 2020, with a capital expenditure of US$ 1.5 billion.

Next week sees the 17th Intersec exhibition with 1.2k exhibitors from 52 countries, occupying 48k sq mt of floor space. This security, safety, and fire protection trade fair is now considered the largest of its kind in the world and will be a boon for Dubai’s hospitality sector. Global analysts, Frost & Sullivan, estimate that the ME physical security market will jump from its current level of US$ 3.0 billion to US$ 10.9 billion by 2020.

As the price of oil still trades at under US$ 50, the UAE Minister of Energy, Suhail Mohammad Al Mazroui, has confirmed that there have been no changes to lift the country’s production levels to 3.5 million barrels by 2017. The US$ 10 billion Shah Gas project is currently being developed with Occidental Petroleum.

A division of Shuaa Capital, Gulf Finance Capital, has obtained a 3.5 year US$ 136 million loan facility, including a US$ 13.6 million standby letter of credit. The monies will primarily be used to fund SMEs.

Dubai Islamic Bank is planning a Tier 1 US$ 500k Islamic bond which has been four times oversubscribed, The sukuk  will be set at 6.75% – slightly down on the 7.0% price guidance set initially by DIB.

The market capitalisation of the Dubai Financial Market Index jumped 24.3% in 2014 to close on US$ 87.9 billion with the value of shares traded surging 138.6% to US$ 104.0 billion. Last year, the DFM recorded net foreign investment of US$ 1.1 billion – being US$ 46.1 billion bought and US$ 45.0 billion sold; this represented 44.4% of all shares purchased and 43.3% of those sold. Of the nine sectors on the bourse, only three – banking (32.3%), real estate and construction (17.6%) and industrial (17.5%) returned a profit whilst the other six were in the red, with the main losers being services (-54.6%), insurance (-29.4%) and telecommunications (-24.3%).

A month after receiving Securities and Commodities Authority’s approval, Damac started trading on the local bourse on Monday. Already trading in London since December 2013, when it raised US$ 348 million, the Dubai-based developer offered 23.08 shares for each of its global depository receipts. Shares opened on Monday at US$ 0.76 – and having surged to US$ 0.87 within the first hour settled to close the day on US$ 0.77 and the week down at US$ 0.66. Earlier, it had reported a 65% hike in nine months’ profit to 30 September 2014 at US$ 687 million on an almost doubling of revenue to US$ 1.57 billion. It is interesting to note that Damac’s share price equates to 5.9 times its latest annual earnings compared to Emaar’s 20.5.

The DFMI started the week trading on Sunday at 3674 and bucked its recent downward trend to close on 3843 – 4.6% higher on Thursday. Bellwether stocks, Emaar Properties and Arabtec, were trading at US$ 2.10 and US$ 0.85 – up 7.6% and 11.1%, in turn, on the week.

Following 2013 revelations of accounting scandals in its Polish and German offices, it is reported that Imtech has begun similar enquires in its UAE office. The Dutch engineering and construction company is looking into possible export control and sanction violations.

The World Bank’s latest forecast is that oil prices will remain low which will have the impact of reduced inflation and a delay in interest rate rises; Brent crude was trading steady at US$ 48.48 at Thursday’s close. 

It is estimated that the Russian central bank spent over US$ 82 billion last year propping up the rouble as the currency fell 41% against the greenback. 25% of the annual fall occurred on just two days in December, as the country’s economy was left reeling from the double whammy of a 50% cut in the oil price and international sanctions. Consequently as many countries were becoming worried about falling inflation rates, Russia went the other way and saw it rise to 11.4% last year, as its economy dipped into inevitable recession.

The UK saw a December inflation rate of 0.5% – its lowest level since May 2000. In the present economic climate, it is inevitable that this will fall even further and possibly into negative territory by the end of Q1. A major consequence will be that interest rates will remain static for most of 2015.

The Swiss authorities surprised the financial markets by scrapping its three-year 1.20 cap against the euro. Within an hour, the euro had dropped 30% to 0.85 francs per euro  before recovering somewhat to 1.02 francs – still 15% down on the day. Another shock this week was the Indian central bank’s decision to cut interest rates by 25 basis points which sees the benchmark repo rate at 7.75%. The RBI governor, Raghuram Rajan, indicated that inflation had been controlled and that this move would help growth  by encouraging more lending and boosting the industrial sector. 

It is only since 2009, that Chinese authorities have allowed its currency to trade on the international stage. The renminbi is growing in popularity, particularly with local SMEs, as UAE banks are expecting a 40% increase in the demand for the yuan. On a global scale, the Chinese currency accounts for only 1.59% of total global payments but as bilateral trade, currently valued at US$ 40 billion, grows then the demand for local currency payment – rather than the US$ – will expand from its present 40% level.

There was good Chinese data to end the year as the country recorded a 9.7% jump in exports and 2.3% drop in imports, compared to the previous December, whilst annual exports rose 6.1% as imports increased by a marginal 0.4%. Following a 2013 13.9% spike in car sales, growth halved last year to 6.9% to 23 million vehicles – US car sales stood at 16.5 million.

Shinzo Abe continues his balancing act as he tries to enhance growth but, at the same time, cut Japan’s massive debt, which now stands at more than twice its GDP. His record US$ 813 billion budget sees the world’s third biggest economy reducing its borrowing for the third straight year, aided by a 9.0% boost in tax revenue to US$ 460 billion; this has resulted in a 10.7% fall in bond issues to US$ 311 billion. It is now expected that the Bank of Japan will cut its CPI forecast to 1.5% this year as it attempts to make its huge stimulus programme reap economic results.

There was a mixed reaction to the December US job figures which saw an additional 252k added to the payroll whilst the unemployment rate fell 0.2% to 5.6% -its lowest since June 2008 and the 11th straight month of 200k plus figures. However, hourly earnings show only a 1.7% rise over the past twelve months as they fell, to cancel out November’s gains; these indicate that they are barely keeping up with inflation. A closer look at the figures shows that the drop in the unemployment level was largely due to a corresponding fall in the number of people looking for work.

Despite reservations, these figures are still light years ahead of the faltering eurozone. Gone have the days when the bloc could rely on its powerhouse Germany to come to its economic rescue. November returns showed that German imports rose by 1.5% to US$ 92 billion, whilst there were worrying falls in exports at US$ 113 billion (2.1%) and factory production (0.1%).

One of the hurdles facing Mario Draghi – and the possibility of introducing some form of quantitative easing to try and kick-start the flagging eurozone economy – has apparently been removed. There had been reports that Germany would scupper any planned bond buying program but a top EU lawyer has confirmed that, subject to certain conditions, QE would be compatible with EU legislation.

Even with all the gloom and doom, the World Bank still considers that global growth this year will be at 3% and 3.3% in 2016 but is concerned that there is too much reliance on the US, as economic indicators in the likes of eurozone and Japan continue to head south. Unfortunately, the eurozone does not have a united growth model – maybe it does not have any model. The bloc cannot escape from its trinity of high unemployment, low inflation and low growth and is beset by massive public debt – with five member countries having levels of over 100% and seven over 90%. As debts need to be repaid, it is inevitable that all stakeholders – governments, businesses and households – will have to curb spending and any recovery will be faltering and at a much slower pace. Even a belated QE program will lack the impetus it would have had a year ago. The only hope is that Mario Draghi and the eurozone somehow Get Lucky!

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