It Is Time To Say Goodbye

platini-sarkozyA recent Central Bank report indicates that the government is planning a 4.1% cut in public spending to US$ 125.5 billion, in the wake of the massive fall in oil revenue. This is in sharp contrast to recent annual hikes of up to 10%. The main driver behind this is oil that has seen government revenue fall by 22%, leaving a US$ 8.4 billion shortfall. Part of the cuts will be in scaling back subsidies, by 34%, to US$ 3.5 billion, and 48% in grants to US$ 3.1 billion. It also seems likely that some form of taxation (maybe corporate, payroll or VAT) could be introduced in the not too distant future.

01 August will see the petrol subsidy abolished and pump prices up 24.4% to US$ 0.58 per litre, whilst diesel heads the other way down 29.0% to US$ 0.56. Moody’s has estimated that it will cost each of the country’s 9.6 million residents an annual average of US$ 387, equating to a total of US$ 3.7 billion boost for public funds; this has been based on the former annual subsidy rate of US$ 7.3 billion being discounted by 47% for “external” costs – such as congestion and environmental.

The Dubai government-owned Emirates National Oil Co has long been losing millions of dollars because of its requirement to sell fuel at well below market rates. With the subsidy now lifted, it is in a position to go ahead with expansion plans, both locally and regionally. (Ironically, ADNOC has indicated that it will use profits accrued from this to fund 125 new petrol stations).

According to a recent report by ADIB and MPM, the current stock of Dubai’s residential units is 479k, of which 6.7k came on stream in Q2. It also indicated that average rents fell by 3% – a sign of a softening market, with villa rents falling by some 5% over the past twelve months. However, some areas fared worse than others with JBR, SZR and Palm Jumeirah falling 7%, 7% and 6% respectively, with increases of between 6% – 12% witnessed in DSC, DSO and IMPZ.

This week the Land Department released figures that would seem to indicate that the slowdown in real estate is not as bad as most pundits would let us believe. In H1, there were 23k real estate transactions, totalling US$ 35.1 billion, which compares favourably to the whole of 2014’s value of US$ 59.4 billion. 50.4%, or US$ 17.7 billion, of deals were mortgage-related. Of that total, there were 15.4k buildings and units transactions, with a total value of US$ 5.5 billion, with the balance attributable to land sales. The 7.4k residential unit sales in H1 were worth US$ 3.5 billion.

The UAE/Greek Al Ghandi and Consolidated Contractors International (AGCC) has won a US$ 230 million Emaar contract for The Hills project. The four-tower project, two of which will be Vida-run hotel and serviced apartments and the other two residential, is located by Emirates Golf Club and will be handed over late next year.

One casualty of the property slowdown has been S&K Estate Agents, which has filed for liquidation. The company, with a staff of 80, could not generate enough revenue to cover its costs (including an office in Los Angeles), as competition became more intense, with increased undercutting in commission income.

The government-owned Wasl Hospitality and Leisure is planning to double its room portfolio to 10k, with plans to build 14 new hotels over the next five years. It will offer a mix of 3, 4 and 5 star properties with its flagship being the Wasl Tower, due to be built on the Toyota Building site on SZR. The 60-storey construction has been described as a vertical tower with a 5-star hotel, 100k sq ft of office space and apartments, along with landscaped park areas. In addition, the company will start work on three other projects which will bring its spend to US$ 10.9 billion; these will be the 6 million sq ft Nad Al Hammar Gardens, the 12-tower Al Wasl Park 1 and Al Wasl Gate.

The Ajman-based R Holding has awarded ANC Contracting the second phase of its US$ 136 million Palm Jumeirah property. The 4-star, 253-key hotel will be the first sharia compliant facility on the Palm.

Drake & Scull has won a US$ 59 million MEP contract for work for a Kuwaiti educational centre. The company has gained US$ 428 million of work in the first seven months of 2015.

The tender for the long-awaited construction of Dubai World Central’s staff village, to house up to 52k, should now be awarded in Q4.

DEWA has awarded a US$ 3 million, 6-month contract for a further 8.3 km of glass reinforced epoxy pipeline to connect Al Qudra with the MBR Solar Park.

The Dubai Health Authority estimated that public hospitals treated more than one million patients in 2014. Already in H1, it has issued licences for 171 health facilities and 6.2k professionals.

flydubai has refuted media reports that it is in negotiations to purchase a share in the Indian carrier SpiceJet. At the same time, it seems that Qatar Airways is in possible investment discussions with its owner, Ajay Singh.

Two of Dubai’s waterparks featured in the top seven best facilities in the world as per TripAdvisor Travellers’ Choice; Aquaventure, located at the Atlantis hotel, was ranked 5th with Wild Wadi coming in 7th position.

DP World started work this week on its new US$ 1.6 billion Jebel Ali container terminal – T4. Phase 1 will see the addition of 3.1 million 20’ equivalent units, bringing the port’s capacity to 22.1 million TEUs. T4 will be located on a reclaimed island that requires the building of a 3k mt causeway. In H1, DP terminals handled 7.9 million TEUs – a 6% growth.

A JV between Dubai Aluminium and Emirates Aluminium, Emirates Global Aluminium, has reported a 75% hike in net profit, as its gross revenue jumped 30% to US$ 5.4 billion. Although the metal price has fallen 24.0%, over the past year to US$ 0.76 / lb, the company is going ahead with an ambitious US$ 3 billion alumina refinery, as well spending US$ 5 billion to develop a Guinea bauxite mine.

With the acquisition of Schiphol’s cargo handling operations from Aviapartner, dnata now manages 26 such facilities worldwide, including 10 in Europe. The Dubai operator currently handles over 2 million tonnes of cargo globally.

In June, Dubai International recorded a 16.7% increase in passenger numbers to 5.9 million and, with a YTD total of 38.3 million (up 10.4%), is well on the way to meet its record target of 79 million by year end.

H1 saw a 3.34% rise in the number of people using Dubai public transport to 271.3 million. The Metro showed the biggest increase – 8.4% to 88.2 million – whilst taxis, buses and water transport carried 107.5 million, 66.5 million and 7.4 million respectively.

According to Dubai Trade, there was a 12.5% Q1 increase in the number of new companies to 9.3k, bringing the total number of registered entities to 106k.

It seems likely that the proposed RBS sale of its UAE business to the ADCB will not now go ahead. What the troubled bank (62% owned by the UK government) will do now is uncertain but two options would be to close the local operation and refer clients to BNP Paribas or hold an auction. It has already divested itself of much of its ME business and had sold US$ 817 million of loans to CBD three months ago.

The reporting season is in full swing with more companies releasing their latest results, including Nakheel with an impressive H1 53.0% surge in profits to US$ 771 million.

Following the accounting scandal of its Saudi affiliate company, Mobily, it was no surprise to see Etisalat Q2 profits sink 40.2% to US$ 409 million, although revenue was 6.0% higher at US$ 3.6 billion. Last month, the telecom operator warned that profits would be affected by the restatement of profits by Mobily (of which it has a 27.5% share).

The country’s largest sharia-compliant lender, Dubai Islamic Bank, surprised the market by posting impressive Q2 results – profit up 35% to US$ 246 million, with impairment losses falling 12.6% to US$ 28 million.

Courier company, Aramex posted a 14.6% increase in Q2 profit to US$ 25 million, as revenue rose by 5.7% to US$ 263 million, due mainly to a growth in online shopping.

Dubai Investments, 11.5% owned by the Investment Corp of Dubai, saw its Q2 profits sink 58.6% to US$ 61 million, attributable mainly to the one-off gain last year on the sale of Globalpharma for US$ 47 million. H1 profits were down 37.2% to US$ 138 million.

As its trading volume slumped dramatically in Q2, the Dubai Financial Market (79.6% owned by the Dubai government) reported a 47.6% slump in net profit to US$ 36 million, as revenue fell 40.0% to US$ 49 million. H1 trading volume has dropped significantly by 56.5% to US$ 28.1 billion, resulting in a 57.0% fall in profit to US$ 54 million.

The DFMI started the week at 4201 to close 1.4% down on Thursday (30 July) at 4143. Bellwether stocks were both down with Emaar Properties, lower by US$ 0.04 (to US$ 2.15), and Arabtec by US$ 0.03 (at US$ 0.65). Trading volumes on Thursday were very low with only 140 million shares, valued at US$ 95 million being exchanged. The market started the year on 3774, and this month on 4087, which has resulted in a YTD increase of 9.8% and rise of 1.4% in July.

Both oil and gold have continued their on-going falls and, by Thursday, were both down on the week, 3.1% to US$ 54.30 and 0.6% to US$ 1,087 respectively.  (YTD and monthly, the percentage falls have been 5.3% and a huge 13.9% for Brent crude, with 8.3% and 7.4% for the yellow metal). Notwithstanding an expected drawdown of US stock, there are still major concerns about a global oversupply and, with OPEC maintaining production levels at 30 million barrels, downward price pressure will continue.

Despite announcing a H1 25% profit increase to US$ 4.8 billion, Barclays is still paying for all its past wrongdoings. The bank has put aside a further US$ 1.56 billion provision – US$ 390 million for customer redress on packaged accounts and an additional US$ 1.17 billion relating to the PPI scandal, bringing that particular provision to US$ 9.4 billion. The bank has already announced 19k job cuts, with perhaps 30k more in the offing.

It has been a bad week for Fiat Chrysler who have been forced to recall 1.4 million vehicles in the US. Hackers have been able to remotely control cars from afar even when they are in operation, so new software is needed to rectify the problem.

Ford Motor Co reported a 44.0% hike in Q2 profits to US$ 1.9 billion as revenue fell slightly to US$ 37.3 billion – although unit sales were 2% higher at 1.7 million. Although the strong greenback saw the company take a US$ 2 billion hit in revenue, it is confident of attaining its 2015 profit target of around US$ 9 billion.

A week ago, Pearson surprised some analysts by selling the Financial Times to the Japanese media group Nikkei for US$ 1.4 billion; this week there are reports that it is planning to sell a 50% share in The Economist for an undisclosed amount, but probably in the region of US$ 620 million. The Italian investment firm Exor could be one of the interested parties. The UK company has indicated that it wants to focus on its prime business interest – education publishing.

Following Amazon’s Q2 results which saw revenue up 20% to US$ 23.2 billion, its share value (US$ 568) rocketed 19% higher giving the company a market cap of US$ 267 billion. Based on this value, it would make Amazon the most valuable retailer in the US, eclipsing Walmart’s market value of US$ 235 billion. The 20 year-old company has seen its shares up 55% so far in 2015, with its Chief Executive, Jeff Bezos now reportedly worth US$ 43 billion. (With his money, Mr Bezos could just afford to acquire the 5-year old Uber that seems to be too highly priced and ready for a major fall).

Rather bizarrely, it is reported that Google is interested in buying a vegetarian burger business for US$ 300 million. However, Impossible Foods has rejected their bid as being too low.

Low oil prices, together with a further US$ 10.8 billion charge relating to the Deepwater Horizon disaster, are the two main factors why BP recorded a 64% slump in Q2 profits, as revenue tumbled 35.5% to US$ 61.8 billion. It has slashed its annual capex to below US$ 20 billion, following a 13% cut earlier in the year.

On Monday, Shanghai’s CSI300 index fell 8.1% – its biggest drop in 8 years. On Thursday, it closed at 3777, still 9.5% up YTD and 65.0% over the past twelve months but a huge 29.8% down on its June high of 5380. There are still major concerns over the level of borrowing in this sector, along with the role of the grey market; however, the central government will never allow the market to collapse and the past month’s trading can be seen as a much needed market correction.

As discussions continue about the third Greek bailout of US$ 95 billion, the ECB has decided to leave its emergency credit lifeline unchanged. Earlier in the week, the Emergency Liquidity Assistance increased its funding by US$ 1 billion to US$ 99 billion.

UK’s economic growth is back on track and at levels last seen prior to the 2008 GFC. Q2 growth of 0.7% indicates that the annual forecast of a 2.6% expansion in GDP will be achieved. The 1% jump in industrial production is the biggest in five years, whilst higher wage growth and low inflation have been important drivers.

An Iranian government official has indicated that the country has total foreign reserves of US$ 125 billion, with 80% held by the Central Bank, 15% by the National Development Fund and the balance by government entities and private companies. Furthermore, according to US officials a further US$ 100 billion is still blocked overseas by sanctions.

The Iranian government has announced ambitious US$ 85 billion investment plans to reboot its petrochemical industry and ramp up production by 30% to 60 million tonnes over the next six months. It is estimated that when the country is working at full capacity it will be producing 180 million tonnes per annum. Along with Russia, Iran has one of the largest gas reserves in the world and will be able to export 75% of its petrochemicals production.

It seems incongruous that a former protégé of disgraced FIFA president Sepp Blatter is reportedly standing to replace him. UEFA head, Michel Platini, has been on the FIFA executive committee for 13 years and surely association must have tainted his credentials, at least. It is obvious that a new independent leadership, untainted by past practices and corruption, is required. For the Frenchman and the rest of the senior executives, who apparently have done little to improve corporate governance, transparency and accountability at the scandal-ridden organisation, It Is Time To Say Goodbye.

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