One Vision

dubai-tower1This week, HH Sheikh Mohammed bin Rashid Al Maktoum launched three new wasl projects including Zabeel Park 1 which, apart from being a mixed-use development, will also have a year-round snow fountain, as well as the feature main tower in the shape of the number “1”. The other two were Al Wasl Tower that will resemble an integrated vertical city, with the world’s largest ceramic façade, and Dubai Gate in Jebel Ali.

Saudi developer, Tanmiyat, will finally  deliver 150 villas of its US$ 1.9 billion Livings Legend development, which had been hold ever since the GFC, over six years ago. On completion next year, the 14.4 million sq ft project, located near to Downtown, will encompass 500 villas, 12 apartment towers, a hotel, retail / dining outlets and a 9-hole golf course.

So far this year, Damac has awarded five contracts – for work on Akoya by Damac, Akoya Oxygen, Celestia, Privé and Vantage – totalling US$ 327 million. The developer has already delivered 13k units and has a 38k pipeline, including 10k hotel rooms and serviced apartments for its new Damac Hotels & Resorts division.

Following the 2008 GFC, AZIZI Developments was forced to cancel several projects, as liquidity and demand dried up. Having successfully launched five developments, totalling US$ 1.23 billion, last year, it has plans for further expansion in both the luxury residential and hospitality sectors.

As the supply of hotel inventory continues to rise quicker than demand (not helped by the drop in Russian and eurozone visitors), it is inevitable that both occupancy and room rates will fall. January Average Room Rates fell 3.6% to Dhs 1,070, along with Revenue per Average Room by 6.4% to Dhs 916, as occupancy rates dropped 2.9% to 85.6%. With 80 new properties in the pipeline, and inventory set to rise by 22.2%, over the next two years, to 110k rooms, there may be a further softening in price when supply is greater than demand. According to MasterCard Global Cities Index, Dubai – with 11.95 million visitors – is the fifth largest tourist destination in the world, after London (18.69 million), Bangkok, Paris and Singapore.

With the Jumeirah Group moving into its next three-year expansion phase as it plans, , to add a further 20 properties to its existing 22-portfolio, there has been changes to its Board. CEO of the highly successful flydubai, Ghaith Al Ghaith, is to become vice chairman, whilst Richard Hartman, the ex CEO of Millennium & Copthorne Hotels, will replace Sir David Michels as a director.

The luxury hotel company also launched its JRG Dubai (Jumeirah Restaurant Group) management company that already operates some 60 franchises, including The Noodle House (with 23 global branches), Pai Thai, Pierchic and 360°.

Starwood is one of a raft of hotel groups that have brought different branding to Dubai with an announcement that, in conjunction with wasl hospitality, it would introduce both Aloft and Elements into the local market. Located in Maritime City, both the 165-key Aloft Dubai Raffa and the 96-room Element Dubai Raffa will open in 2018 which will bring the total number of Starwood brands in the emirate to nine.

Carlson Rezidor, which manages the Radisson Blu and Park Inn by Radisson, is planning a further two properties in Dubai as part of its two year regional strategy of 12 additional hotels.

Later in the month, Taj Hotels will open its second Dubai property in Downtown. The Indian hotel group is confident of further expansion and is reportedly in discussions with investors in The Palm, JLT and SZR.

Emaar Properties recorded increases in both Q4 revenue and profit – 3.3% to US$ 777 million and 13.9% to US$ 235 million respectively. The company has invited bids for a Dubai Marina plot , with a minimum price set of US$ 76 million. The block could be used for a hotel building with a total gross floor area of 698k sq ft.

Drake & Scull, the Dubai-based mechanical, electrical and plumbing company, blamed a slowdown in its two major markets, UAE and Saudi Arabia, for disappointing 2014 results. Revenue was marginally down to US$ 1.32 billion whilst net profit flatlined 31.8% to US$ 30 million. However, its order backlog jumped 20.0% to US$ 3.92 billion.

Despite a 4.0% increase in 2014 revenue to US$ 1.1 billion, Dubai-based Dragon Oil reported a 15.9% fall in operating profit to US$ 158 million. The exploration and production company, 54% owned by the Dubai government, blamed the fall on a 9.2% hike in cost of sales, plus a US$ 24 million impairment cost in the Philippines.

Du reported its Q4 results – revenue up 12% to US$ 880 whilst profit fell 10.1% to US$ 140 million (although annual profit came in at US$ 676 million, 6.05% higher than in 2013). The telecom operator saw its royalty bill rise to 43% of profit to US$ 433 million, compared to 36% a year earlier.

Government-owned Meraas Holding is pursuing a US$ 234 million loan to finance retail development around the world’s largest Ferris wheel on Bluewaters Island, off JBR.

National Petroleum Services (NPS) has secured financing in the form of a US$ 150 million fixed rate sharia-compliant facility and US$ 50 million working capital funding. No other details were made available from the Dubai-based oilfield services company that was acquired last year by a group of regional investors, including Apicorp and Fajr Capital.

As widely expected, Dubai World finally won 100% creditor support for the amendment and extension of its outstanding  2011 US$ 14.6 billion debt. The new structure sees an early repayment of US$ 2.9 billion and a 4-year extension of a US$ 10 billion balance to 2022.

Due to launch in October 2016, the Dubai Parks and Resorts mega theme park, located in Jebel Ali, has forecast first year revenues at US$ 654 million. The Meraas Holding company recorded a US$ 6 million 2014 loss, with total assets valued at US$ 1.88 billion.

The Chalhoub Group, with 11k employees and 600 retail stores, is the first big name to set up headquarters in the upcoming Dubai Design District (d3). The retail group has franchise agreements with the likes of Louis Vuitton, Fendi and Michael Kors, as well as its own retail brands, including Wojooh and Tanagra. The development of d3 can only enhance the emirate’s edge in the luxury goods sector where it is estimated that it holds 30% of the regional market.

Another indicator of local economic confidence was that the Department of Economic Development (DED) reported a 13.0% jump in commercial licenses last year to 59.1k.

Yet another report points to a softening in the local real estate sector, with the three main causes cited being the global economic slowdown, flagging consumer confidence and new projects – 78 of which were launched last year – ratcheting up the supply curve. Standards & Poor’s indicated a 15% – 25% fall over the past nine months and suggest that the market is now in a stabilisation stage with a possible 10% – 15% future annual rise.

Having seen a 14.8% increase in 2014 net profit, to US$ 1.46 billion, and a confirmed cash balance of US$ 965k, DEWA announced that it will use its own funds to repay a US$ 1 billion bond maturing in April. It will also pay the government a dividend of US$ 136 million. The authority recently approved its 2015 budget of US$ 6.23 billion – up 11.3% on 2014 – and introduced a plan to reduce energy demand by 30%; this would cost US$ 8.2 billion but bring in revenues of US$ 22.3 billion – a potential  US$ 14.1 billion saving.

Beehive, the recently launched peer-to-peer online lending platform, has introduced a further financial aid for local SMEs. Such companies will now be able to list their 60 – 120 day invoices, at a monthly starting rate of 0.75%, and hope that investors buy into the scheme.

The Al Futtaim Group has added an aviation division to its expanding portfolio. DC Aviation Al-Futtaim, in a JV with DC Aviation GmbH, flew its first commercial flight from Stuttgart, having been issued an Air Operator Certificate from the federal civil aviation authority.

It seems that relations between the local airlines and some of the bigger US carriers have worsened as Delta Airlines’ boss is reportedly arguing that local airlines, such as Emirates, “are not airlines but governments”. Richard Anderson is claiming that regional carriers have received over US$ 40 billion in subsidies, blaming 9/11 – “involving terrorists from the Arabian Peninsula” – for the company’s 2005 bankruptcy and denying that Delta ever received government hand-outs – although it was allowed to forego US$ billions in debt. Perhaps it would help Mr Anderson if he flew Emirates and saw the difference in the quality and service between the two carriers; he may then realise why one is making money and the other not as much.

The International Civil Aviation Organisation has announced that the UAE has been ranked number one in the world in complying with global aviation standards. Its award of 98.86% is the highest ever awarded.  Furthermore, its result of 98.86% is the highest ever awarded by the international body and is an indicator on the amount of time and money, the authorities have spent on air safety and infrastructure..

Since 2007, the GCC has been considering the possibility of the introduction of VAT for the six-bloc nation. It is reported that discussions are on-going and that an upcoming meeting will try and iron out areas of disagreement. Although nothing has been finalised, any new tax rate will be no higher than 5%.

A 4.5% year on year inflation rate in January was Dubai’s highest level since May 2009. The main driver was a 7.6% jump in housing and utility costs (that equates to 445 of total expenditure) whilst the food basket , accounting for 11%, actually fell by 1.6%.

Nasdaq Dubai will introduce a new company next month as Orascom Construction Industries is planning to list its construction division. Having delisted from the Cairo bourse, when the Mohammed Morsi government was in charge, it will offer 15% of the new entity in an IPO and will see trading in three locations Dubai, Cairo and Euronext Amsterdam.

The DFMI started the week trading on Sunday at 3903 and fell 45 points (1.15%) to close at 3858 on Thursday (2.2% higher than its January opening of 3774). Bellwether stocks, Emaar Properties and Arabtec, were trading at US$ 2.04 and US$ 0.84 – up 2.5% and flat,in turn, on the week.

The HSBC fiasco continues with the bank publicly apologising for its misdeeds, including possibly helping clients to evade tax, and confirming its cooperation with the Swiss authorities. The bank is facing criminal investigations in Switzerland, as well as in Argentine, Belgium, France and USA but not to date in its home country UK. Meanwhile informant Herve Falciani has indicated that he has much more harmful information to reveal, including damaging details of a major oil company

Brazilian court papers indicate that a Petrobras employee, turned informant, received US$ 200k in kickbacks from Rolls Royce, manufacturer of gas turbines used on the company’s oil platforms. With the UK company also being investigated by the Senior Fraud Office over similar cases in China and Indonesia, it has stated that it does not “tolerate improper business”.

A security firm has alleged that a gang from Russia, China and Ukraine, has been involved in an on-going cyber robbery that may have cost some 100 banks, in 30 countries, over US$ 1 billion. Their modus operandi seems to have been the use of viruses to corrupt banks’ networks with malware, with each attack netting the criminals US$ 10 million on average. This is a timely reminder to all computer users to take preventative measures, with the latest software, to stop potential hackers.

There was a smidgen of good news for the eurozone with Q4 growth of 0.3%, and 0.9% year on year, with the 18-member bloc being led by Germany’s 0.7% and 1.6% returns. However the likes of France and Italy still give rise for concern as they recorded 2014 growth of 0.4% and negative 0.4% respectively and the Greek problem will not be going away soon. However optimists will point to the fact that the fall in the oil price and the massive inflow of new money from QE should stimulate growth.

By Thursday, it seemed likely that a short-term compromise would be reached with the ECB agreeing a short-term extension to Greek bailout funds. How much and for how long remain to be seen but any arrangement is only delaying the inevitable Grexit.

A 0.4% January decline in Chinese new home prices – the ninth straight month of declines – sees the asset class in deep trouble. With the country reporting its worst annual growth in 24 years, an oversupply of inventory and the stock market becoming a more attractive investment vehicle, the global economy will feel the shockwaves when the inevitable bubble bursts and the banks left with massive debts. These factors, along with slowing government investment and a weakening export market, will ensure that China’s 2015 growth, of 7.0%, will be less than its disappointing results last year.

Following two quarters of negative growth, Japan’s economy moved northwards as Q4 saw the embattled economy expand by 0.4% but as the world’s third largest economy had zero 2014 annual growth, following a 1.6% increase in 2013, it is inevitable that more monetary easing by the Bank of Japan will be needed. However there was welcome news that January export volume had surged 11.2% – a sign that the weak yen could be the driver that pulls the country out of recession.The Nikkei index topped the 18,000 level for the first time in seven years and then on Wednesday was heading for 15-year highs.

HH Sheikh Mohammed bin Rashid Al Maktoum’s quote, “although we live in a civilised society, the business world remains a jungle”, could hold true for the shenanigans going on in the EU. By Thursday, it seemed likely that a short-term compromise would be reached with the ECB agreeing a short-term extension to Greek bailout funds. How much and for how long remain to be seen but any arrangement is only delaying the inevitable Grexit. 

The Dubai Ruler has always demanded the best and the newly planned Zabeel Park 1 main tower, in the shape of number 1, signifies his continued quest for Dubai to be number one. This reflects his vision that “Dubai will never settle for anything less than first place”. One Vision.

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