Don’t Give Up On Us Now

alpari-westhamA report by Phidar Advisory has indicated that Dubai residential sales headed south in Q4, with apartments falling 3.6% and villa sales by 1.7%;  although apartment rentals showed a marginal 0.4% increase, villas fell by 3.1%. Office lease rates remained relatively unscathed with a 0.5% drop. Another report, this time by JLL, forecast a subdued 2015 market as the estimated 25k new units coming on line will be more than enough to meet demand.Union

The final two of six towers in Emaar’s Dubai Creek Residences will go on sale – in Dubai, Abu Dhabi and London – this Saturday. Located in Dubai Creek Harbour at The Lagoons, the 30- and 35-storey buildings will have a selling price of between US$ 381 and US$ 504 per sq ft. The whole project – a JV between Emaar and Dubai Holdings – will be three times the size of Downtown and will eventually have 39k residential units, 3.7k offices, 22 hotels and 8 million sq ft of retail space.

Meydan’s US$ 817 million freehold Millennium Square development  of luxury semi-detached villas is slated for completion by 2017. Prices for the 3.5k sq ft properties, developed by G&Co, start at US$ 1.2 million.

CBD has provided US$ 56 million funding to R Hotels for the development of its sixth UAE property, due to open on Palm Jumeirah by the end of next year. The US$ 136 million hotel will be R Holdings’ fourth in Dubai, with the other two located in Ajman.

In line with other local developers, Union Properties is to expand into the burgeoning hospitality sector, with plans to build a 4-star property in Dubai Investment Park. The development will include a 150-key hotel and 50 serviced apartments. UP has two other sites designated – Motor City and Dubailand – and expects to be managing at least 1k rooms by 2020.

Dubai-based Gulf Marketing Group, established in 1978, is on a major expansion drive, with plans to open a further 47 outlets this year, following on the 42 new shops that were opened in 2014. The Baker family company operates all over the GCC and has Sun & Sand Sports and Supercare Pharmacy in its extensive portfolio.

The Can-Pack Group, a leading manufacturer of aluminium cans, has opened its new US$ 55 million plant in Dubai Investment Park. The 150k sq mt facility will see current production increase by 285%, to 5 million cans a day, and will also encompass a warehouse and distribution centre.

As UAE’s chocolate confectionary market is expected to jump 10.2% this year to US$ 319 million, one of the oldest players, Patchi is planning a new factory in DIC, with a 10k kg daily capacity. The Lebanese chocolatier’s old Al Quoz plant was damaged by fire in 2013 and the company currently uses temporary facilities to produce 3k kg of chocolate daily.

It does appear that UK and Chinese companies are doing well from the Dubai construction sector. Kier Group is the preferred bidder for a US$ 152 million mixed-use development and has recently won contracts worth US$ 132 million (a JV with Mercury for a local bank’s data centre), US$ 71 million (Dubai Parks) and US$ 39 million (Dubai University).

Following recent conflicting reports, it now seems that Dubai construction company, Middle East Developments, will begin work in Q2 on the Al Noor Tower in Casablanca. The 540 mt tower, costing US$ 1 billion, will become Africa’s tallest building, easily dwarfing the current holder, the 233 mt Carlton Tower in Johannesburg.

Saudi healthcare company, Dr Soliman Fakeeh Hospital, is spending US$ 272 million on a hospital / university in Dubai Silicon Oasis. Phase 1 of the facility, a 150-bed smart hospital, is due for completion in 2017 whilst phase 2, including an additional 150 beds and the opening of the university, will be completed two years later. It is expected that by 2020, the emirate will host 500k medical tourists, contributing US$ 708 million to the economy.

According to a leading Boeing official, the UAE will require a further 55k pilots and 62k technicians by 2020 to meet the growing demands of the aviation sector. By that time, 750k people will be employed in the industry – a major boost to the local economy.

As the number of passengers using Dubai International is set to rise from its 2014 total of 71 million to 100 million by 2020, the government has invested a further US$ 27 million in enhancing the Smart Gates facility.

The world’s largest covered cruise facility, the Hamdan bin Mohammed Cruise Terminal hosted five cruise ships, all at the same time, this week at Mina Rashid. Over 25k passengers and crew of the Aida Diva, Amadea, Costa Riviera, Costa Serena and MSC Orchestra disembarked in Dubai >later this month, the Queen Mary’s 4.5k passengers will berth here.

Notwithstanding the turmoil and apparent oversupply in the oil market, UAE pumped an additional 153k barrels per day in December to bring its daily output to 2.9 million barrels. During the period, OPEC members pumped 30.2 million barrels. Brent crude was trading higher on Thursday at US$ 50.45

Two other state owned companies are arranging financing facilities. The Investment Corporation of Dubai’s ENOC (Emirates National Oil Company) is set to seal a US$ 1.5 billion long-term loan; the last time it went to the market was in 2008, when it secured US$ 500 million funding. The company operates services stations in the emirate, as well as a 120k barrel a day refinery in Jebel Ali, fuel terminals and oil tankers.

This week, Dubai Holdings’ TECOM Investments, which has 4.5k companies in its various business parks, finalised a US$ 1.1 billion syndicated loan facility, with the funds being used for new projects. Details of the terms were not made available.

Meanwhile, Limitless now has the backing of 85% of its creditors and obtained a 3-month reprieve on a US$ 1.2 billion repayment due on 31 December 2014.

Despite a worrying 24.7% fall in 2014 revenue to US$ 1.91 billion, Nakheel still managed to pull a rabbit from the hat by declaring a 43.2% surge in profit to US$ 1.0 billion. During the year there was a US$ 125 million write back against a Palm Jumeirah project and this, along with tighter cost control and higher margins, brought about the impressive bottom line figure. At the end of the year, the developer had 17k leasable residential units, expected to grow by a further 76% to 30k over the next three years. This year, Nakheel expects to award construction contracts totalling US$ 1.9 billion – this is on top of the US$ 6.5 billion awarded over the past four years.

Dubai Chamber of Commerce now boasts 169k members – up 10.6% on the previous year. The chamber’s latest report also shows a 1.8% rise in members’ non-oil trade exports and reexports to US$ 79 billion.

December’s inflation rate hit 3.1% as Q4 reached 3.0% – up from Q3’s 2.6%. The main driver was housing and utilities, up 5.4% year on year, but this could see a fall in 2015, as the sector begins to level off.  The other bête-noir was education which showed a 4.0% rise over the year, with no signs of any slowdown in 2015.

The year-end reporting season has begun in earnest with three Dubai banks publishing satisfying annual results. Emirates NBD had a 22% hike in revenue to US$ 3.92 billion, as its bottom line surged 58% to US$ 1.39 billion. Its much smaller offshoot, Emirates Islamic, owned by ENBD, returned with a massive 164% leap in net profit to US$ 99 million, on a 28% hike in net income to US$ 531 million. Dubai’s third biggest bank, Mashreq reported a 20.8% jump in total operating income to US$ 1.58 billion, as net profit went up 33.0% to US$ 654 million. (The Al Ghurair-owned family bank has also expressed interest in acquiring Citigroup’s Egyptian retail business and is also planning a U$ 500 million Tier 2 capital-boosting bond).

Emaar Malls Group saw Q4 profits up 4.6% to US$ 112 million whilst annual profits rose at a higher rate – 22.7% – to US$ 368 million. Its share value at Thursday’s close was US$ 0.77 – slightly down on the US$ 0.79 when it first listed on the DFMI four months ago.

On its last day of trading on the London Stock Exchange, DP World shares rose 4.6% to US$ 17.38. The move back to trade solely on Nasdaq Dubai follows Damac who did likewise earlier in the month.

The DFMI started the week trading on Sunday at 3843 and bucked its recent downward trend to close on 3883 – 1.0% higher on Thursday. Bellwether stocks, Emaar Properties and Arabtec, were trading at US$ 2.04 and US$ 0.82 – down 2.9% and 3.5%, in turn, on the week.

Despite Amazon claiming that it does not receive special tax treatment in Luxembourg, it seems that the EC thinks differently with the view that the country’s tax arrangements constitute “state aid”. The findings will prove embarrassing for Jean-Claude Juncker, the recently appointed EC Chief, as during his 18-year reign as Luxembourg’s prime minister, he oversaw some 340 similar tax avoidance deals with international companies.

Moody’s has cut the Russian credit rating to just one notch above junk status, to Baa3, voicing concern about the country’s economic problems, arising from the low oil prices and the effect of international trade sanctions. The agency is worried that there will be a 5.5% contraction this year, with only a marginal improvement in 2016, and that Russia’s foreign reserves could drop another US$ 125 billion – the same amount as in 2014.

The fallout from last Thursday’s surprise Swiss central bank move to scrap its 3-year 1.20 cap to the euro has resulted in major financial problems for some international companies. In the UK, Alpari, sponsors of West Ham FC, is now insolvent, as its clients have been saddled with heavy losses. The US-listed FXCM saw its shares fall by 90%, as the forex trading group’s clients lost US$ 225 million. Meanwhile New Zealand’s Global Brokers incurred heavy losses and has had to close operations. The major losers, however, will be the Swiss, as their exports could become prohibitively high.

What this has shown is that Switzerland has taken upcoming deflation as a fait accompli. With most of the world seeing lower growth, and some already edging into a deflationary spiral, this has negative connotations. The end result is that consumer and capital spending are curtailed and debt repayment becomes that much more difficult. The world’s economy needs more political input to try and avoid such an occurrence but the Swiss have given up before the battle has really started. 

To nobody’s surprise – but to Angela Merkel’s chagrin –  the ECB has announced its QE plans of buying the equivalent of US$ 56.8 billion of sovereign debt, as well as US$ 11.4 billion of other banks assets, every month until at least September 2016. The unprecedented US$ 1.25 trillion rescue package is a belated attempt – probably three years too late – to avoid the bloc going into a downward deflationary spiral. The aim behind this strategy is to expand liquidity by central banks buying bonds, which will see a further reduction in borrowing costs, thus encouraging the private sector – businesses and individuals – to borrow more which, in turn will stimulate demand and restore inflation. There is a reason for the German Bundesbank’s opposition to this bond-buying scheme – with every chance of the inevitable sovereign bailouts occurring, it does not want to be the first port of call. Time will tell if QE will work in the eurozone but there is no doubt that much more radical reforms are needed, including structural changes, less bureaucracy and a tighter monetary union. But the message to the Germans from the 17 other eurozone members is Don’t Give Up On Us Now!

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