Nowhere Man

sepp-blatter-moneyAlthough local petrol prices, at US$ 0.47 per litre, are the highest in the GCC, they still have to go a long way to match the likes of Hong Kong, Norway, Netherlands and the UK, where they stand at between US$ 1.81 and US$ 1.96.  However, things are going to change on 01 August, as the long-standing oil subsidy is being abolished. According to the International Energy Agency, the cost of UAE government subsidies for oil, gas and electricity equates to 5.6% of the country’s GDP, or US$ 2.4k for every resident, every year. One estimate for the cost of the fuel subsidy would be in the region of US$ 1 billion. Assuming that there are two million vehicles in the country, the average contribution per vehicle to recoup this amount would be US$ 500 per annum.

Another week sees yet another real estate report – this time from Bayut.com. Their H1 study is one of the first to indicate that the Dubai property slowdown has been “exaggerated and inflated”, pointing to a 5% – 10% correction. Also it brought some realism to the supply factor this year, with estimates of some 15k units, compared to recent reports of up to 30k, as well as forecasting an upturn in 2016.

In 1982, Damac started business in the catering business and only entered the property sector 20 years later. Danube started in in 1993, as a small trading company, before becoming the largest building materials company in the region but only became a property developer in 2014. Now the supermarket group, Lulu, is planning to open a 365-room hotel, to be operated by the German group, Steignenberger. The 5-star hotel will be located in Business Bay.

Emaar Malls Group goes from strength to strength as it announces a 37% growth in H1 profit to US$ 230 million, with revenue up 16% to US$ 398 million. Q2 contributed US$ 112 million to the bottom line – up 43.0% on Q2 2014. Foot traffic for H1 was 11.0% higher, with more than 62 million visitors. However, there was little movement with tenant sales, which remained flat at USS 2.6 billion. 

Sister company, Emaar Properties is winding down its Indian JV with MGF Development. In 2005, the Dubai developer invested US$ 1.5 billion and it is reported that there are currently 55 projects in progress, a land bank of 3k hectares and saleable land of some 6 million sq mt – all with a total estimated value of US$ 5 billion.

IFA Hotelier Investments is to build a US$ 200 million, 600 sq mt housing complex to accommodate 10k hospitality staff. The project, which will include indoors sports facilities, will be completed by September 2016.

Habtoor Leighton Group has won a US$ 72 million contract from Abu Dhabi’s Khalifa Industrial Zone for infrastructure work on a 52 sq km site. The project, including road, water and sewage work, should be completed by March 2017.

The skewed ratio 44:56 of 5-star hotels to other properties is fast changing with JLL reporting that 69% of new rooms this year will be 4-star or less. By the end of 2015, the portfolio will rise to over 69k rooms with the increasing trend for budget hotels carrying on in the coming years.

Over the Ramadan period, occupancy rates continued to disappoint, dropping 15.4% to 63.0%, with daily rates and revenue per available room heading south by 8.6% to US$ 161 and 3.3% to US$ 60. With growth in supply up 4.6%, and demand falling 11.6%, this was always going to be a difficult time for Dubai’s hospitality sector.

Following its recent sale of StandardAero, Dubai Aerospace Enterprise has taken the opportunity to fully repay a US$ 705 million loan. The company, whose main shareholder is the Investment Corporation of Dubai, has a leasing portfolio of 63 planes, with a value of US$ 3.6 billion. 

Last week, three other local banks – NBD, Emirates Islamic and Mashreq – returned more impressive results but Commercial Bank of Dubai will be happy with a 4.9% hike in H1 profits to US$ 166 million. The bank recorded a H1 18.2% rise in loans and advances to US$ 10.3 billion, with new loans totalling US$ 3.0 billion. 

It can only be Dubai when it is announced that, within seven years, Al Maktoum International Airport will increase its capacity from its current level of 5k to becoming the world’s largest facility, managing 120 million passengers. Meanwhile, the existing airport is undergoing a US$ 32 billion expansion, so as to cope with traffic expected to hit the 100 million mark.

The latest JOC report once again ranked Jebel Ali Port as the most productive port in the world, as it handled 131 moves per ship – 10.1% better than the previous year. 

Arcadis has listed the UAE as the 8th best global retail market, with Hong Kong, Singapore and the US in the top 3. Major plus points were the country’s advanced infrastructure and its vibrant economic environment.

MAZ Gulf has signed a distribution agreement with WaterMicronWorld to set up an assembly plant in Jebel Ali, for a cheaper and more productive water generation system. The Dubai-based company is confident that it will be a great boon for countries, with major water shortages, and will prove to be a profitable venture.

The DFMI rose 17 points starting the shortened week on Monday at 4184 to close on Thursday (23 July) at 4201. Bellwether stocks were mixed with Emaar Properties up US$ 0.03 (to US$ 2.19) and Arabtec down US$ 0.01 (at US$ 0.68). 

Both oil and gold have continued their on-going falls and, by Thursday, were both down on the week, 2.0% to US$ 56.06 and a worrying 4.6% to US$ 1,094 respectively.  (Over the past year, the falls have been 15.7% and 20.2%). 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.

As the US economic recovery gathers pace, the Fed’s Janet Yellen has indicated that there will be a rate increase this year. This will only see the greenback becoming even stronger – and with that comes more pressure on the oil price as most countries will have to pay more for oil as their currencies weaken to the US$.

This week saw three mega IT companies announce mixed results. Having taken a US$ 7.5 billion impairment charge, relating to its Nokia acquisition, it was no surprise to see Microsoft with a US$ 3.2 billion loss, compared to a US$ 4.6 billion profit for the corresponding period in 2014. This effectively takes the tech firm out of the smartphone sector, now dominated by Samsung and Apple.

On the other hand, both Apple and Google returned impressive results. The former, despite a continuing fall in sales of its its iPads (18% to 10.9 million units), reported a Q2 profit of US$ 10.7 billion, as a result of impressive sales of its iPhones (up 35% to US$ 36.4 billion)), Mac PCs and even the new Apple Watch. Quarterly revenue was up 32.6% to US$ 49.6 billion, compared to the same quarter last year.

Having reported a 11.1% increase in Q2 revenue to US$ 17.7 billion and net profit rising 17.3% to US$ 4.8 billion, Google saw its share value jump 16.3% (equivalent to US$ 65.0 billion) which equates to a market capitalisation of US$ 471.5 billion. It is fast catching up with Apple’s market cap of US$ 740 billion, especially when watch time in YouTube jumped 60% over the quarter and its video service has the most viewers, aged between 18 -49, in the US.

Another tech savvy company in the news was PayPal which was acquired by eBay in 2002 for US$ 1.5 billion. Last week, the company was spun off as a separate entity on the Nasdaq exchange and, at Monday’s close, was valued at US$ 49 billion! eBay Shareholders received one share in PayPal for every share they held. Last year, PayPal processed payments to the value of US$ 235 billion, generating over US$ 8 billion in revenue.

Toshiba, the 140-year old Japanese maker of nuclear reactors, appliances and chips, has seen mass resignations following the discovery of an accounting scandal. Over the past six years, the company has been overstating its profits by US$ 1.2 billion, by delaying booking losses in order to meet unrealistic profit targets.

Boeing recorded a 22.7% fall in Q2 profit to US$ 1.11 billion as it took a US$ 536 million charge relating to a fuel system problem on its military KC-46A tanker plane. However the news was better from its commercial division as revenue jumped 11% to US$ 24.5 billion, with airplane deliveries rising to 197. This week, it also secured a US$ 10.0 billion order from FedEx for 50 767Fs.

Despite opposition from his own party, prime minister, Alexis Tsipras managed to pass a bill approving drastic changes to the country’s tax, pension and labour laws. These were part of the conditions that the troika had demanded before further negotiations on a third bailout could continue. Despite the IMF indicating that Greece needed debt relief, the EU will see that this will not happen. That being the case, Greece should use this time to prepare for an orderly exit from the eurozone sooner rather than waiting for the problem to deteriorate even further.

New Zealand has cut its borrowing rate by 25 basis points to 3.0%, as the country continues to face slower economic growth and low inflation. Compared to other countries, this rate is still on the high side and it is highly likely that more cuts are in the offing basically to support the country’s flagging exports. 

Coincidentally, several companies associated with the tarnished and scandal-ridden FIFA have had disappointing financial results.  Last week, two major sponsors of FIFA, Coca Cola and MacDonald’s, announced Q2 profit falls – 6.8% to US$ 3.4 billion and 16.0% to US$ 1.74 billion respectively. This week, Hyundai reported a 23.8% plunge in quarterly profits to US$ 1.55 billion, blaming the strengthening won and increased competition. These three companies, along with other sponsors, are now demanding urgent reform of the world football body. This can only be done when its head – and his cronies – depart the organisation. In late May, Sepp Blatter announced that “I am now president of everybody” – now he is nothing more than a Nowhere Man.

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