Take The Money And Run!

Dubai-Opera-HouseWith the 2k-seat Dubai Opera slated for completion by 2016, Emaar have wasted no time in appointing the ex-COO of London’s Royal Albert Hall, Jasper Hope, to head up the venture. Located in Downtown, the Opera District development promises to enhance Dubai’s cultural ambitions and will also feature residential units, luxury hotels and waterfront promenades.

Meraas announced the launch of Boxpark – a novel urban lifestyle located in Al Wasl. The 44-unit development, based on warehouse containers, features retail, culinary and entertainment outlets and hopes to emulate the success of similar projects found in London, New York and Paris. However, London lawyers have apparently claimed that intellectual property rights may have been breached.

Work started this week on the Danube Group’s initial two residential projects. The US$ 136 million Dreamz By Danube is slated for completion within 18 months whilst the 300-apartment Glitz By Danube, costing US$ 82 million, should be ready by Q3 2017.

A month after announcing its massive US$ 8.2 billion Desert Rose project, Dubai Municipality confirmed that work will start on Aladdin City next year. Located on Dubai Creek, but outside the possible World Heritage zone, the project will comprise three towers, housing hotels and commercial space.

Last week’s announcement by Kleindienst, developers of the six-island Heart of Europe project on The World, that it was launching the sale of underwater villas, on Monaco Island, has hit an early snag – Nakheel has yet approve the development!

It is reported that government-owned Dubai World is looking at a US$ 1.2 billion syndicated loan to help it meet upcoming payments. Only last month, an agreement was finally made to repay US$ 2.9 billion, before this September’s deadline, and extend the remaining US$ 10.6 billion debt a further four years to 2022.  At the same time, its property division, Limitless, is in the throes of renegotiating a US$ 1.2 billion debt.

The newest addition to the emirate’s hospitality sector will be the 328-room InterContinental Dubai Marina, due to open in May. The property is part of the Bay Central development and will include nine eateries.

Developer Muraba confirmed that phase 1 of the Muraba Residences Palm Jumeirah has been finalised and that the 46-apartment and 4-penthouse development will be ready for hand over, on time, in April 2016.

With over 80 million visitors, Dubai Mall retained its position as the world’s most visited lifestyle destination – well ahead of its main competitor, Times Square (39.2 million). It is estimated that the Emaar mall, with 1.2k retail and 200 F&B outlets, contributes about 5% to Dubai’s GDP.

An RTA study has indicated if the authority had not carried out US$ 16 billion worth of infrastructure work, the annual cost of congestion would have been 5.7 times higher than the estimated US$ 790 million, based on lost working hours.

There was good news for some motorists this week with ENOC (Emirates National Oil Company) reducing diesel prices by 6.4% to US$ 0.79. This is less than half of what the UK consumer pays for a litre – US$ 1.77.

As Gulfood got under way this week, Dubai Customs reported a 13.4% hike in the emirate’s food foreign trade to US$ 18.0 billion, for the first nine months of 2014. This comprised of rises in all three sectors – imports of US$ 11.7 billion (14.4%), re-exports of US$ 3.6 billion (18.2%) and exports of US$ 2.7 billion (4.2%).

Emirates Group expects to increase its manpower by 14.7% to 87k over the next year – a sure sign of the buoyancy in the market and the airline’s continued progress and profitability. The carrier’s success often flummoxes rivals, including, in the past, Air Canada, Air France and Lufthansa, who inevitably blame “unfair subsidies”, including cheap fuel, for the fact that it is a more efficient and better operation. The latest attack comes from the US trinity of American, Delta and United, who have forwarded a 55-page joint report requesting the authorities to revisit US air treaties, alleging that Emirates, Etihad and Qatar have been the beneficiaries of subsidies totalling US$ 40 billion. Such a work of fiction is better suited for the upcoming Emirates Festival of Literature.

IATA reported that growth in ME 2014 passenger traffic of 13.0% was more than double the global average of 5.9%. Regional capacity rose 11.9%, with load factor up 0.8% to 78.1%, compared to the global average of 5.6% and 0.2% (to 79.7%) respectively.

Gulf Finance Corp, owned by Shuaa Capital, has applied for a Saudi operating licence to offer sharia-compliant leasing products. The Dubai-based company hopes that this will fill a gap in the market by giving regional SMEs the opportunity to access funds and to ameliorate bi-lateral deals.

Emirates NBD has delivered its second Australian dollar bond in ten months with a US$ 348 million 7-year issue.  The so-called kangaroo bond, which is a popular vehicle with local banks, had a 4.75% coupon rate.

Under new Central Bank regulations, Indians can now buy overseas property – equivalent to US$ 250k and double the current balance – without official permission. Whether there is a positive knock-on effect on the local real estate sector remains to be seen but Indians continue as the number one buyers of Dubai property, having bought over US$ 12 billion in the past three years alone.

Last month, Aabar Investments received SCA’s approval to purchase up to 75 million Arabtec shares. This week, they were in the market and spent US$ 21.8 million, scooping up 24.8 million units; this brings their total shareholding to 36.1%, or 1.59 billion shares.

Damac Properties first listed on the DFMI on 11 January, with a share value of US$ 0.76 which, by 29 January, had fallen to US$ 0.48. At the close of Sunday business (08 February), six trading days later, the stock stood at US$ 0.84 – an almost 75% surge. This Monday (09 February), impressive 2014 results were reported, indicating a 190.0% jump in profits to US$ 948 million, followed by a board recommendation of a 10% share bonus issue. That day’s trading saw Damac shares drop to US$ 0.76.

In January, the local bourse’s market capitalisation jumped – month on month -1.8% to US$ 89.5 billion whilst volume, at 8.9 billion shares, and value traded, at US$ 4.2 billion, were well down 28.2% and 34.1% respectively.

The DFMI started the week trading on Sunday at 3887 and was up 16 points to close at 3903 on Thursday (3.4% higher than its January opening of 3774). Bellwether stocks, Emaar Properties and Arabtec, were trading at US$ 1.99 and US$ 0.84 – down 0.5% and up 3.6%, in turn, on the week.

With little chance that the rest of Europe will come to the Greek party as it tries to convince the eurozone to slash its outstanding US$ 275 billion debt, Standard and Poor’s downgraded the country’s rating to B-; this is at a level showing that it is vulnerable to default of its debts.

There was no Greek joy to be had in the European corridors of power to their pleas for leniency and there was more bad news when the ECB withdrew the right of Greek banks to use government debt as collateral for loans. Time is indeed running out for Syriza to reach a deal with its creditors, as the 28 February deadline looms. There is a very serious credit crunch coming soon to Athens, if and when the banking system has no access to funds.

The inevitable stalemate occurred at Wednesday’s meeting of eurozone and Greek officials, with not much progress being made in solving that country’s debt crisis. The dichotomy between what Greece wants – an end to austerity measures and a further write down of the outstanding US$ 375 billion debt – and the eurozone – no amendment to the existing arrangements – remains. (China is watching events with interest).

In 2014, the UK saw its trade deficit widen to US$ 53.0 billion with falls in both exports – US$ 22.2 billion – and imports – US$ 11.1 billion. A report by the Institute of Fiscal Studies indicates that there will have to be massive 14.1% government departmental spending cuts of US$ 78.3 billion over the life of the next parliament – well up on the current US$ 58.3 billion. The end result is that this year will see the fewest number of government workers in 40 years and the sector will be receiving its lowest share of national income in 66 years.

As the euro heads south, Danish authorities are doing their utmost to weaken the krone with their fourth rate cut in three weeks – to minus 0.75% – and market intervention of US$ 16 billion. The country has pegged its currency to the euro since the latter’s 1999 inception and, just like Switzerland, it has been looked on as a safe haven. Whether the Danes go down the same path as the Swiss, who allowed their franc to surge in value last month, has speculators guessing.

With the likes of Greece, Chinese slowdown, the euro QE, unethical bank practices and the Russian crisis dominating both the front and business pages, there is one more major problem facing the global economy. The so-called currency war sees countries – including Australia, Canada, China Denmark and India – take steps to weaken their currency, so as to ensure an unfair trade advantage. Such competitive currency devaluations are often short-term measures that have long-term negative repercussions.

SE Asia’s largest economy reported disappointing 2014 growth figures. Indonesia’s weaker than expected 5.0% growth was down 10.4% on the previous year, as falling commodity prices kicked in during the year. The country’s new president, Joko Widodo, will have his work cut out to get the economy moving again, having to reduce both the high inflation rate, currently standing at 6.96%, and the current account deficit, which equates to 3.1% of GDP.

Below par figures from China saw January falls in both exports by 3.3% and imports by 19.9%, compared to the same month last year, resulting in a record monthly US$ 60 billion trade surplus. Both Australia and Russia saw their exports – mainly commodities and fuel – to China fall by 38.34% and 28.7%.  China’s total trade value increased by 3.4% over the year – much lower than the official 7.5% target – whilst growth at 7.4% was the lowest in 24 years.

Many analysts continue to be cautious about China’s official economic data and now it seems that India’s new formula, in calculating GDP, is causing sleepless nights for economists. Although the latest revision sees 2015 growth at 7.4%, up from an earlier 6.9% estimate, it is way above the 4.7% figure that emanated from using the old method. Many had thought that the country was experiencing its worst downturn in more than 30 years.  It is similar to a recent report estimating that 363 million Indians (29.5% of the population) lived below the poverty line, in contrast to the official government figure of 269 million; the government uses a base of US$ 0.45 a day against the more realistic US$ 0.55.

Despite 30% of state income originating from energy exports, which have seen recent falls of up to 50%, Malaysia surprised analysts with a Q4 growth of 5.8% – its highest in over four years – and 6.0% for the year. The main driver for this was a boost in domestic demand.

All is not well in Australia as the unemployment rate reached 6.4% – its highest level since 2003. All signs are for another Reserve Bank rate cut to 2.0% in March but no immediate end to the dole queues getting slightly bigger in the coming months. Something has to be done when currently the economy is creating jobs at 1.50% whilst the net working population is increasing at the greater rate of 1.75%.

Over the past three months the US labour market has created one million jobs which equate to 336k jobs a month – well up on the 197k recorded over the same period last year. Although this indicates that the economy is improving, the unemployment rate – at 5.7% – has edged up and it must be remembered that six years ago, pre GFC, 81.0% of men were in employment compared to the current 76.5%.

Qualcomm has been fined a massive US$ 975 million by Chinese authorities. The US chipmaker is the largest supplier of smartphone chips, with half of its US$ 26.5 billion revenue, originating from China. The company has agreed to alter its patent licensing practices by charging royalties at 65%, rather than 100%.

Another bank cover up looks in the offing with news that an HSBC Swiss subsidiary marketed schemes for clients to avoid tax, conceal undeclared accounts whilst allowing clients to withdraw “bricks” of cash on a regular basis. This fraud was on-going throughout 2005-2007 and is said to have involved 100k account holders (and US$ 119 billion) with Swiss (11.2k), French (8.8k) and UK (8.7k) the countries with the largest number of “offenders”, whilst the countries with the highest US$ value were Switzerland (US$ 31.2 billion), UK (US$ 21.7 billion), Venezuela (US$ 14.8 billion) and USA (US$ 13.4 billion).

To date, HSBC has admitted failings in its subsidiary, the Swiss government has charged the whistleblower, Herve Falciani, with industrial espionage and breaching the country’s secrecy laws, the UK taxman has clawed back a miserly US$ 205 million and Steven Green, ex CEO from 2003-2006, and then Chairman of the bank, was appointed to the House of Lords and made a trade minister in 2010. It will be no surprise to see more startling revelations over the coming weeks but it will be one to see any prosecutions. UBS, already hit with over US$ 1 billion in fines last year, could be another bank in the firing line over its selling of bearer bonds.

British lawmakers have accused the Big 4 accounting firm, PwC, of promoting tax avoidance on an industrial scale and cited the example of Shire. The pharmaceutical company employs 5.5k globally with just two in their Luxembourg office. It appears this arrangement, with the duchy was only one of 343 made by PwC in the eight years to 2010 and ensured that the drug maker paid tax at an effective rate of only 0.0156%!  Shire join an increasing number of companies that just Take The Money And Run!

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