Those Were The Days

bill-clintonThe big story of the week is the proposed Meydan One. Being Dubai, the 3,671k sq mt development will include three world firsts – tallest residential tower (at 711 mt), largest indoor ski slope (three times bigger than the current Ski Dubai) and the largest dancing water fountain at 420 mt long. The project will be home to 78k residents and will include the usual leisure, residential and hospitality facilities, along with a 60k capacity civic plaza, a 9 km walkway, a 4km canal and a 100-berth marina. Despite being located between Meydan and Al Khail Road, it will also boast a 300 mt beach. 

HH Sheikh Mohammed bin Rashid Al Maktoum has approved the construction of 1.4k villas in Wadi Safa (Nad Al Sheba) and 1.0k in Al Tai (Al Aweer). Eligible citizens will be entitled to a block of land, measuring 12k sq ft, and both communities will be fully serviced. 

Dubai Land Department indicated that in H1, 19.9k investors spent over US$ 14.4 billion in real estate transactions, equating to US$ 728k per transaction. Of that total, 23.6% were either Indian or UK nationals spending US$ 2.1 billion and US$ 1.3 billion respectively; however Emiratis were the leading buyers purchasing property, valued at US$ 3.1 billion.

Landmark Zenath Group is expecting to open four 4-star properties over the next two years – two, totalling 370 keys – in Dubai Investment Park, one in the Mazaya Centre on SZR (185 rooms) and the fourth, a 175-room hotel in Deira. The Dubai-based developer will invest US$ 27 million.

Local operator, Rotana, is planning to open its 16th Dubai property in Dubai – a 598-key, 5-star hotel with serviced apartments – on SZR. This will bring its portfolio of rooms in the emirate to 4.6k.

DWC has reportedly signed an agreement with Emaar for a Golf District project, encompassing an area of 1.4 hectares. Work on the integrated urban centre and golf destination will start in 2017 and will include a golf course community and several hotels.

There is no doubt that the local hospitality sector is under pressure on several fronts, including the strong dollar, falling oil prices and a marked decline in the number of Russian visitors. It is not surprising then to see numerous international hotel chains recording disappointing regional results. For example, IHG had a 9.0% increase in H1 global operating profit to US$ 337 million, yet reported weaker UAE business – without giving any further details – but a 9.9% growth in Saudi Arabia. Starwood, operator of the Westin and Sheraton brands, posted falls in MENA average room rates to US$ 184 (down 6.2%) and revenue per available room to US$ 115 (minus 8.25%). Accor also announced weaker figures for the region, as its H1 global profits rose 68% to US$ 100 million.

The decline in Russian tourists is also the main reason for a slowdown in luxury retail sales. JLL’s latest report indicated that this was the main driver for the recent slowdown in annual rental growth levels and retail sales. Over the next four months, extensions to MoE, Ibn Battuta and Dragon Mart will see an additional 194k sq mt of gross leasable area added to Dubai’s burgeoning retail sector.

Emirates REIT will finance and build a new Jebel Ali School within Damac’s Akoya project. The Sharjah-based sharia-compliant trust has bought the freehold land for US$ 27 million and will build the facility for an estimated US$ 30 million. The school will then take a 26-year lease on the property. (The company’s H1 profit rose by 7.9% to US$ 19 million).

The latest IMF forecast puts UAE 2015 growth at 3.2%, slightly down on last year’s 3.6% but still one of the best performing economies in the ME. However, the world body estimates that, because of the fall in oil prices, the current balance surplus to GDP will contract from 12.1%, last year, to 5.3% in 2015, whilst average general price inflation will be 2.1% – marginally lower than this year’s 2.3%.

According to the latest Nielsen Report, UAE consumer confidence had its biggest quarterly drop in six years, as it fell 7 points to 108. Nevertheless, it still remains the best in the region but there are increasing worries about the effect of government spending cuts and job security, in the wake of falling oil prices.

Emirates NBD UAE Purchasing Managers’ Index, a leading indicator on the health of the economy, recorded a bounce back in July with a 1.1 point month on month improvement to 55.8.

It seems that Arabtec is still in discussions with Egyptian authorities about the implementation of phase 1 for the construction of one million homes, at a cost of US$ 40 billion. 

For six years, ENOC (with 54% of the shares) have been trying to buy out the remaining Dragon Oil minority investors and have now finally succeeded, with their latest US$ 12.51 per share offer – 6.7% higher than their last attempt in June. Baillie Gifford held 7% of the equity and has seen the value of its 35.5 million shares jump 58.8% to US$ 444 million since April, just before Enoc’s latest buyout offer.

Dubai Investments Park has seen a 9% increase in the number of companies to 4.5k in the first five months of 2015. DIP is home to 90k residents and 20 residential buildings, with the community boasting 6 schools, 3 hotels (with 8 more planned) and other facilities.

UAE’s second telecom operator, Du saw Q2 profits down 8.3% to US$ 137 million, on revenue of US$ 842 million, whilst its royalty payments to the government went up 18.7% to US$ 130 million. 

MAF announced that H1 profits were flat at US$ 490 million, as revenue rose 7.0% to US$ 3.7 billion, mainly because of a sluggish hospitality sector and higher promotional expenses. Its shopping malls recorded 97% occupancy as footfall rose 2% to 85 million.

The Dubai government owned Noor Bank released its H1 results, with a record 26% increase in profits to US$ 74 million, as total assets expanded 28.6% to US$ 10.2 billion.

H1 has seen Damac increase its Q2 profit by some 50% to US$ 381 million, as revenue rose12% to US$ 627 million. So far this year, the developer has booked a credible US$ 1.39 billion of new business. The good news was reflected in its share value which jumped limit up 15% to US$ 1.00 on the day and closed the week marginally down at US$ 0.99. 

Emaar also kept the markets happy with an impressive 15.7% increase in Q2 profits to US$ 322 million, although revenue was only up 4.2% to US$ 948 million. Over H1, both revenue and profit increased – by 13% to US$ 1.77 billion and 12% to US$ 602 million.

Following its disappointing start on the Cairo Bourse, Emaar Misr has announced the resignations of both its Chief Investment Officer, Ahmed Fathallah, and Chief Development Officer, Walid El-Hindi. The bourse has been notified that Mohammed Alabbar was now non-executive chairman – and no longer managing director. As of Sunday (02 August), its share value had fallen 9.2% to US$ 0.44 from its debut price on 05 July. Despite this dismal performance on the Cairo bourse, Emaar Misr reported a massive 283% surge in H1 profit to US$ 67 million, as revenue grew 56% to US$ 199 million. It also indicated that committed net sales were up 20% to US$ 498 million.

The DFMI started the week at 4143 and edged down 0.5% by Thursday (06 August) to close at 4123. Bellwether stocks, Emaar Properties rose 0.1% US$ 2.16 whilst Arabtec moved down US$ 0.02 to US$ 0.63. Trading volumes on Thursday were up compared to seven days earlier but still on the low side, with 253 million shares, valued at US$ 150 million, being exchanged (cf 140 million shares for US$ 95 million, the previous Thursday).

Both oil and gold have continued their on-going falls and, by Thursday, were both down on the week, a huge 8.7% to US$ 49.56 and 0.2% to US$ 1,085 respectively. Despite the low oil prices, OPEC continues to maintain high production levels with July averaging 32 million barrels daily. In a bid to defend market share in a volatile market, with falling demand, the cartel has ramped up production by 5.6% since November and now it is at its highest level since 2008 (when prices were at record highs of US$ 147).

On Wednesday, President Al Sisi officially opened the new Suez Canal. It will double capacity to 100 vessels and it is hoped that annual revenue will also double to US$ 11 billion – by 2023 – as well as cutting down shipping times. However, whether the US$ 8.2 billion spent is a wise investment remains to be seen – no doubt the capacity is there but whether the demand will match the supply is open to question. (Over the past 14 years, the annual rate of growth for global merchandise has only been estimated at 3.4%).

The highly successful German supermarket chain is planning a further 130 new stores in the UK and an increase in manpower by almost 30% to 35k. The US$ 960 million expansion plan will see the fast growing company continue to increase its market share from its current level of 5.3%. Such an enterprise would surely be a welcome addition to the Dubai retail sector! 

Airbus has returned with a 34% surge in H1 profits to US$ 1.63 billion, as group revenue was up 6.0% to US$ 31.4 billion. Its order book over the period rose 20.0% to 348 commercial aircraft. 

IAG, owners of BA, has posted a 40.0% jump in quarterly operating profits to US$ 576 million The international operator, which also owns Iberia and Vueling, is hoping to soon close the sale of Aer Lingus and is awaiting Ryan Air’s formal acceptance for its 30% share.

Despite disappointing global results, ME carriers recorded strong cargo of 15.3% growth in H1, with capacity expanding at the faster rate of 19.2%. IATA indicated that June witnessed global growth of only 1.2%, compared to the previous year, with many carriers reporting declines or, at best, flat returns.

The German car triumvirate – Mercedes, BMW and Audi – is buying Nokia’s Here mapping service for US$ 4 billion. Not one of the three will have a majority share and will not interfere in the everyday running of the company. 

With quarterly revenue up 7.2%, Dutch brewer, Heineken, posted a 81.0% surge in profit to US$ 1.25 billion, helped by a tax gain on the recent US$ 1.3 billion sale of its Mexican packaging facility for US$ 1.3 billion.

Apple pie is a staple American dessert but now Apple crumble could take over as shares in the world’s most valuable public company begin to tumble. It does seem incongruous that Apple has become a victim of its own success and will be unable to keep up its spectacular sales growth levels, as iPhone and smartwatch sales fail to meet market expectations. By Thursday, its share value had fallen 14.5% to US$ 115.05 from its 28 April high of US$ 134.54, equivalent to a staggering US$ 113 billion loss in market capitalisation.

Banks are still in the news. Tom Hayes, the so-called ringmaster behind the Libor rigging scandal, has been sentenced to 14 years in jail. The 35 year old worked for RBS, RBC and UBS before joining Citibank in 2009, where he earned US$ 5.5 million in nine months. It is not hard to believe that he has become a fall guy for an industry where many would have had their noses in the proverbial trough.

Although there was a 38% jump in Lloyds H1 profit to US$ 1.9 billion, it was well below market expectations. Furthermore, the bank has put an extra US$ 2.2 billion provision to deal with claims relating to misselling PPI, with its total provision now over a staggering US$ 21 billion. 

Last week, Barclays revealed that it was setting aside a further US$ 1.17 billion provision for PPI misselling, bringing its total to US$ 9.4 billion – still well behind that of Lloyds Bank. This week, HSBC has announced a US$ 15.6 billion profit, despite taking another provision of US$ 1 billion to cover its role in the forex rigging scandal. More hefty fines for the scandal-ridden banks are expected.

The UK government divested itself of 5.4% of its 78.3%  shareholding in RBS. With 333k shares sold at US$ 5.15, the exchequer has lost US$ 1.7 billion on its 2008 enforced purchase, when the shares were at US$ 7.83. The bank was then bailed out to safeguard the country’s financial security at the height of the GFC.

It seems that the Swiss Central Bank has taken a H1 US$ 51.4 billion hit as their currency continues to climb against the euro since abandoning its 4-year peg in January. Then it was capped at 1.20 but now 1.06 francs will buy 1 euro. Furthermore there has been a negative impact for the country’s exports (down 2.6% this year) with a decline in tourist numbers. Swiss consumer prices continue to go down with latest July figures indicating a 1.3% fall from the same month in 2014 – its largest ever fall since 1959.

The Australian unemployment rate is on the rise again with July’s 6.3% almost at a 13-year high and 0.2% higher than the June return.

China continues to spook the markets as July factory activity fell again amidst concern that 2015 will be more disappointing than expected. Hopes for an upturn in capital spending and exports have been dampened, whilst the stock market antics have been doing little for consumer confidence.

Recent returns from China continue to disappoint with the July Caixin’s Purchasing Managers’ Index posting a figure of 47.8 – down 1.6 points month on month. This key indicator shows that the contraction in the manufacturing sector is beginning to cause concern, as China’s growth loses traction. Last year’s figure of 7.4% was the weakest since 1990 and this year will probably dip again to end at around the 7.0% level.  

Indonesia has been dogged by sluggish growth and Q2’s figure of 4.67% was the country’s lowest quarterly return since 2009. Most indicators – including mining, trade and manufacturing – are heading south. President Widodo’s ambitious 5.2% target for this year seems a pipe dream as Indonesia, like other countries, is not being helped by China’s slowdown and falling commodity prices.  

The July eurozone inflation remains flat at 0.2% – still well down on the 2.0% target – showing that any growth has been, at best, modest. Unemployment continues at the relatively high 11.1% level, with 17.8 million out of work, but an improvement on last year’s comparative figure of 11.8%.

Greece is still negotiating with the troika for a third bailout agreement – this time for US$ 95 billion. Its next deadline payment is 20 August when it has to repay US$ 3.8 billion to the ECB. The country has already spent most of its recent US$ 7.8 billion bridging loan as it had to repay the IMF and the ECB US$ 2.2 billion and US$ 4.5 billion respectively.  It seems inevitable that there will have to be some form of debt relief (maybe as high as 45%) as the country will never have the capacity to repay its total outstanding balance of US$ 350 billion.  

The Athens bourse opened on Monday after a six-week hiatus and, by Thursday, the General Index was at 667, down 16.4% from its 26 June closure level, following the introduction of capital controls. The banks have been badly hit, with the Athens banking index now worth only 4% of its pre-GFC value in 2008. Worst hit of the four major banks is NBG that has seen its share value diminish by 98.6% over the same period, costing its poor shareholders over US$ 110 billion in the process. It is obvious that more than one bank will fail in the coming weeks, with Piraeus and Alpha looking vulnerable.

The Dubai-based GEMS Foundation works with former leaders such as Bill Clinton, Tony Blair and Bertie Ahern – a member of its Global Advisory Board. It has been reported that, over the past four years, Bill Clinton, in his role as honorary chairman of its charity foundation, has received payments, totalling US$ 5.6 million. In his recent tax return, the former US president also disclosed that he was paid US$ 500k for a 2013 speech in Abu Dhabi which was included in the US$ 139 million income the Clintons have earned since 2007. The ex-US president used to have an annual salary of US$ 400k salary – Those Were The Days!

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