The Last Time!

QE2_dubaiWith an expected opening later in the year, Al Habtoor City has started a major recruitment campaign for its mega hospitality and residential project. The multi-use development, located on SZR, includes three 5-star hotels, three residential towers, retail and restaurant outlets, tennis academy and a choreographed water-themed theatre.

Three Dubai banks returned impressive Q2 figures this week. Emirates NBD, 55.6% owned by the Investment Corporation of Dubai, reported a 26.0% hike in Q2 profits to US$ 450 million. Although the dip in oil prices has had a negative knock-on effect in the private sector, the bank has been able to reduce its impairment charges by 24%, as well to increase both its loan portfolio (up 6.0% to US$ 69.8 billion) and fee income.

Its sister bank, Emirates Islamic saw a massive 97% surge in H1 profit to US$ 122 million, on a 33% rise in total operating income to US$ 332 million.

Meanwhile the emirate’s 3rd biggest lender, Mashreq, reported a 10.9% increase in its Q2 profit to US$ 177 million bringing its H1 profit to US$ 354 million. The main profit drivers were a 12.7% hike in net interest and a 3.6% rise in fees and commission.

Since the November 2008 US$ 100 million purchase of the QE2 by Istithmar, the vessel has been docked in Dubai, gathering more than dust. Over the years, there have been plans to renovate the 48-year old liner to a luxury floating hotel but nothing has resulted. Now it seems that the Scottish government is backing a campaign for its return to its country of origin.

There is no doubt that Arabtec is going through a time of great changes, in order to return the construction company to profitability. This week has seen the resignations of three senior staff – CFO, Iyad Abdalrahim, Yazan Hatamleh, Chief Human Resources Officer, and Wassel Al Fakhoury, General Counsel. In May, Mohamed Thani Murshed Ghannam Al Rumaithi replaced Khadem Abdulla Al Qubais as Chairman.

WCT, the Malaysian contracting company with a JV agreement with Arabtec to build Meydan, won its long standing dispute. The company was awarded a US$ 1.25 billion, 2-year contract in 2007 to build the racecourse by October 2009. In December 2008, the contract was cancelled and a month later a claim was lodged with the Dubai International Arbitration Centre. This week the ruling went the Malaysian way, with a final settlement of US$ 300 million and costs of almost US$ 10 million. (Arabtec had withdrawn from legal action in February 2013).

With Q1 imports at US$ 55.9 billion, reexports of US$ 25.6 billion and exports reaching US$ 8.7 billion, Dubai’s Q1 foreign trade balance rose 2.5% to US$ 90.2 billion. The emirate’s four main trading partners were China (US$ 12.8 billion), India (US$ 6.7 billion), USA (US$ 5.3 billion) and Saudi Arabia (US$ 4.7 billion).

The DIFC legal system is gaining traction with H1 claims showing a massive 447% jump in value to US$ 618.5 million; the value of each individual claim also rose – up 490% to US$ 29.0 million.

Following last week’s US$ 500 million Noor Bank sukuk, the value of the sharia-compliant bonds on Dubai’s two bourses – Nasdaq and DFM – has reached a total of US$ 36.7 billion. This fivefold increase, over the past two years, has seen Dubai now surpass the likes of Kuala Lumpur (US$ 26.6 billion), Dublin (US$ 25.7 billion) and London (US$ 25.1 billion) as the leading global sukuk financial centre.

Subsequent to its Sunday launch on the Cairo bourse, Emaar Misr shares fell by 14% on Tuesday leading to a brief suspension, before closing 9.0% down. Consequently, there have been reports that the company has offered to buy back its own shares to stem any further declines.

The DFMI jumped 4.2%, starting on Sunday at 4,017 to close the shortened week on Wednesday (15 July) at 4184. Bellwether stocks headed north with both Emaar Properties and Arabtec up US$ 0.07 (to US$ 2.16) and US$ 0.01 (to US$ 0.69) respectively. 

The week that two major sponsors, McDonald’s and Coca Cola, have called for major reforms  within FIFA, their profits have taken a tumble. The 75-year old burger chain has reported a 16.0% fall in Q2 profit to US$ 1.74 billion, as revenues continue to sink by 10.7% to US$ 12.4 billion.  Coca Cola is expecting another quarterly profit fall – this time, 6.8% to US$ 3.4 billion. It appears that these two companies want to see a healthier FIFA, whilst some of its customers just want to eat healthier.

Both oil and gold have continued their on-going falls and, by Thursday, were both down 3.0% to US$ 57.20 and 1.0% to US$ 1,147 respectively. Oil prices slipped as Iran and six world powers finalised a nuclear deal. In the short-term, Iran could add 200k barrels in exports which will only exacerbate the current daily surplus of an estimated 2.6 million barrels.

One casualty of the low oil price is Canada whose economy has every chance of falling into recession, once Q2 figures are released. With Q1 showing a 0.6% contraction, there is every likelihood that this quarter will see similar negative figures. The country has not been helped by relatively high unemployment figures, a property bubble that will burst once the record low interest rates begin to rise and consumer credit at dangerous over-borrowing levels. Prime Minister, Stephen Harper, will be lucky to hang on to power at the upcoming October general election.

The Chinese stock markets continued their recent downward trend, despite government efforts including caps on short selling, postponing IPOs and a six-month ban on large investors selling shares in companies. In addition, over 1k companies have suspended trading as share values sank. Unlike most global bourses, over 90% of daily trading is initiated by retail investors with 10% institutional (compared to 90% institutional elsewhere). Furthermore, two months ago margin financing reached a staggering US$355 billion and when a market falls 33% in just four weeks there is bound to be blood on the trading floor.

Following the Greek referendum, Prime Minister Alexis Tsipras announced that his country had secured a US$ 38 billion financing deal with its creditors and would be staying in the eurozone. He expects, rather naively, that this will help the nation pull out of its long recession. In reality, the eurozone leaders have brought the country more time but in doing so have not solved the underlying problem, so that in the future the debt problem will be bigger. In short, Greece cannot afford to repay its debts and it seems that monies received will be used to pay back the same parties who are providing the finance in the first place! This third patched-up bailout plan is bound to fail and for Greece, this is definitely not The Last Time.

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