Something In The Air

royal-atlantisHH Sheikh Mohammed bin Rashid Al Maktoum has announced his global foundation – a programme that aims to consolidate 28 organisations and coordinate 1.4k development projects in 116 countries. With an initial US$ 272 million budget, its immediate targets are to combat both poverty and unemployment, spread knowledge, encourage innovation and empower communities.

Despite all the doom and gloom surrounding the local realty sector, it is interesting to note the impressive Q3 turnover in Emirates Hills. Eight sales, totalling US$ 87 million, were recorded including one for US$ 25 million (equating to US$ 621 per sq ft). This is in contrast to Palm Jumeirah where only two deals took place, totalling US$ 10.1 million.

Two realty reports this week confirm the continued softening of the market. JLL estimated that apartment prices have fallen 11% over the past 12 months – and 3% in Q3. Furthermore both sale numbers, at 4k, and value, US$ 1.6 billion, were at their lowest levels in four years. Meanwhile Tasweek reckoned that the annual fall in prices was at 12.7%. The industry consultancy firm also forecast an additional supply of 26.1k apartments and 2.6k villas by the end of 2016 – hard to square up when only 1.7k units were delivered in Q3, according to JLL.

Perhaps the gloomy picture painted by most analysts is not as bad as many think! Although oil prices are low, the currency strong and inflation relatively high, the IMF still forecast the country’s 2015 growth of 3%, whilst downgrading its global forecast. The plethora of upcoming projects, (both public and private), the airline sector continuing to boom and the raft of new companies being established point to an increased demand for housing that might not be met by an apparently flexible supply curve.

However, there is a definite over-supply in the office sector with estimates that 26% of all space is vacant. With the forecast that the portfolio will expand by 10.5%, over the 15 months, there could be a massive 2.7 million sq mt laying empty by December 2016.

The Investment Corporation of Dubai and Kerzner International are currently developing the Royal Atlantis Resort and Residences, adjacent to the current Atlantis The Palm. Enabling work on the US$ 1.4 billion project has already started and the 800-room hotel, with 250 luxury residences, is slated to open in 2018. According to Knights Frank, the hotel is already listed in the top ten influencers for new luxury development.

Nakheel moved a step further in the building of its 52-storey Palm Tower, by awarding a US$ 223 million joint contract to Trojan General Contracting and National Projects & Construction LLC. The 240 mt 5-star, 290-key hotel, and 504-unit residential complex, will also have catering and leisure facilities, commensurate with such a development.

Traffic congestion has become synonymous with Dubai but two projects announced this week set to ameliorate the problem. Parsons have won a contract to build the Shindagha Corridor, involving a 12-lane freeway. This will by and large replace the 40-year old, 4-lane Shindagha Tunnel that has to cope every year with 38 million cars. The other sees Dubai Properties appointing a consultant to look at traffic flow around the 8-year old JBR – a development with 20k residents and 10 million annual visitors.

The RTA has indicated that work on the Route 2020 metro expansion project, to link the Expo 2020 site, will start in H2 2016. The additional 15 km of track will connect the current Nakheel Harbour and Tower Metro Station with DIP, one of seven new stations which will include Discovery Gardens, Furjan and Jumeirah Golf Estate.

The RTA, along with Meraas Holding, has already started work on roads and bridges around the upcoming Dubai Parks & Resorts location. The US$ 68 million project will link the theme parks with SZR and will include one 1.5k mt 3-lane bridge and another 2-lane 1k mt, along with the extension of a 16 km dual carriageway.

This week, the operator announced that 50% of rides and engineering work have been completed in Legoland and is well on track to open in Q4 next year; the resort’s first roller coaster – the 16 mt high Dragon roller, the biggest in the park – has already been installed.

There is every chance that a new theme park will be announced shortly. It seems that Al Ahli Holding Group is planning a movie-themed resort which will only add to Dubai’s growing list of tourist attractions.

The UK-based Elegant Resorts was sold for US$ 22 million in 2014 by Thomas Cook to the Al Tayyar Travel Group. The Saudi-owned operator is now planning to invest US$ 1.5 million to open a Dubai office by the end of the year.

Next month’s air show is forecast to be the biggest ever with 1.1k exhibitors (up 5.2% on 2013) and over 65k trade visitors. However, one record unlikely to be broken is the massive US$ 206.1 billion in orders taken last time. Despite the recent negative sound bites form its three leading airlines, the US pavilion will be double the size seen at the 2013 exhibition. So much for biting the hand that feeds you!

The trading arm of Dubai Holding, Dubai Holding Commercial Operations Group, has four main operating units – Dubai Properties Group, Emirates International Telecommunications (including Axiom and du), Jumeirah and TECOM. Without any further details available, the company has forecast a 17.5% hike in 2015 net profit to US$ 1.5 billion, following a H1 24.0% profit jump to US$ 708 million.

Avivo Group, with 32 regional health care centres, is planning a 2017 London IPO and to this effect, the Dubai-based private equity firm has invested US$ 300 million to finance expansion plans in the GCC, Malaysia and Singapore. The company, formerly known as Healthcare Mena and founded in 2011, employs 1.3k professionals and treats over 1.3 million patients annually.

As it plans to increase its shareholding from 25% to 40% in Indonesia’s Bank Panin Syariah, Dubai Islamic Bank is hoping to tap into the ever-growing Sharia-banking sector in that country.

Established in Berlin in October 2014, foodora is already testing the waters here in Dubai. The company only deals with high-class restaurants (30 to date) and arranges motor cycle deliveries to Dubai residents, within 35 minutes. Nothing new here then.

The Dubai government repaid a 5-year US$ 500 million Fixed Rate Note; the paper was part of a US$ 4 billion 2009 facility which matured on Monday.

Next month, Dubai will see the introduction of new legislation covering public-private partnerships that will allow the private sector to partly fund major government projects. This will be a major fillip for the economy that is being hamstrung by low oil prices, with resulting budgetary constraints on spending. The RTA, DEWA and other GREs will benefit by the availability of this additional form of new finance. For once, Dubai is not leading the GCC – similar legislation already exists in Bahrain and Kuwait.

The Mohammed bin Rashid Fund for SME Support, launched six months ago, has doubled its seed capital loan limit to US$ 272k  but maintained its credit scheme loan cap at US$ 1.4 million. This will boost this sector for Emirati entrepreneurs who have had financing problems from traditional sources.

UAE’s Energy Minister, HE Suhail bin Mohammed Al Mazroui, has announced that the country will be investing US$ 35 billion to boost natural gas production, so as to reduce imports, whilst diversifying its current energy resources.

The Minister of Economy, HE Sultan bin Saeed Al Mansouri, has forecast that UAE’s 2015 GDP will grow 3.5% to US$ 436 billion – and this despite the slump in oil prices. Because of its diversification strategy, the country has seen double digit expansion in the industrial sector, with expectations that this would increase twofold over the next five years.

Abraaj Capital renewed its interest in the Americas by raising US$ 191 million in Certificates of Development Capital (CKD). The monies will be used in mid-sized Mexican companies with expansion potential in a range of sectors, including health and education. The Dubai-based private equity firm has already carried out 14 investments in Columbia, Mexico and Peru.

The government is actively considering the establishment of a Dubai Ex-Im bank which would be the first Sharia-compliant of its kind in the world. Such a facility would certainly boost the emirate’s goal to become the global Islamic finance capital. A recent Reuters report estimated the current value of the Islamic financial market at US$ 1.8 trillion, set to rise over 80% by 2020.

The DFM opened Sunday at 3619 and jumped 2.4% to 3706 by Thursday (08 October). Of the bellwether stocks, Emaar Properties was up US$ 0.11 to US$ 1.89, whilst Arabtec fell US$ 0.01 to US$ 0.52. Yet again, trading volumes on Thursday were desperately low, at only 134 million shares, valued at US$ 64 million changing hands, (cf 219 million shares for US$ 108 million, the previous week).

Oil and gold both regained ground on the previous week’s losses so that by Thursday (08 October), Brent crude closed a creditable 11.4% higher at US$ 53.05, with gold up US$ 31 to US$ 1,144.

It is estimated by Financial Fraud Action UK that the country’s H1 financial fraud totalled US$ 91 million, with telephone banking scams up 95%, over the same period, and on-line banking losses up 27%, to US$ 78 million. It would be interesting to ascertain the figures in this region. (Currently, the DFSA has issued an alert about a scam involving a US$ 150k payment to the (non-existent) ‘Financial Services Authority (Dubai Regional Office)’. The fraudulent scheme gives a bank account and issues a tax receipt and requests a contribution to ensure a certain Dubai road project goes ahead).

Later in the month, Deutsche Bank is expected to disappoint investors when it declares a US$ 6.9 billion Q3 loss, with analysts initially forecasting at least a US$ 1.1 billion profit. Three main reasons for the loss were unexpected impairment charges of US$ 6.4 billion, a US$ 1.3 billion provision for legal fees and a US$ 660 million write down on its 20% stake in Hua Xia Bank.

Air France is an airline in trouble as it needs to shed 2.9k positions (1.7k ground staff, 900 cabin and 300 pilots) and cut 10% of its long haul routes to maintain commercial viability. Staff voiced their disapproval at recent talks which ended with two dishevelled senior managers taking evasive action by climbing a high fence.

During the GFC, the UK taxpayers pumped in more than US$ 30.6 billion to save Lloyds Bank and now Chancellor George Osborne is planning to sell over US$ 3 billion of shares on the open market early next year. They will be sold at a 5% discount, followed by a 10% bonus share issue, if held for more than a year.

Weakness in the Chinese markets was the main driver of an 18% fall in the shares of Yum Brands on Wednesday The company, that has Pizza Hut and KFC in its portfolio, has seen Chinese sales up only 2%, compared to a double digit forecast. It has been dogged by bad press including reports of the use of excessive levels of antibiotics in its products.

Five years after the Deepwater Horizon oil spill in the Gulf of Mexico – and a budget spend in excess of US$ 54 billion – BP has finally settled with the federal and five state governments. The final bill has risen a further US$ 2 billion, from a July agreement, to US$ 20.8 billion.

It is reported that the troubled Swiss conglomerate, Glencore, could have more than US$ 100 billion of exposure to global banks, much of which is unsecured. This is more than triple the US$ 30 billion touted by the company and this exposure could present a major problem if their situation deteriorates. A further warning for banks came from the IMF that estimated that there is a potential US$3.3 trillion “over borrowing” by banks and companies in emerging markets.

The world body also indicated that the strengthening greenback is causing economic problems in many countries – including Chile, Hungary, Indonesia and Mexico. Payments become more onerous as dollar debt repayments become more expensive to settle.

At the annual meeting of the IMF and World Bank in Peru, Christine Lagarde has espoused the need for a tax on carbon emissions. This would have the double whammy of bringing more funds for cash-strapped governments, as well helping the fight against global warming.

There were disappointing figures emanating from the US with only 142k jobs created in September – well down on the 205k estimate – as July and August figures were cut by a combined 59k to 245k and 136k respectively. The poor figures seem to highlight the fact that the Chinese slowdown is having a negative impact and the probability that any Fed interest hikes will wait until early next year.

German trade is going through a rocky period, with its economic performance weakening in the light of recent slumps in exports and imports; August data reported a 5.2% drop in exports (its steepest fall in over six years), a 38.8% fall in its trade surplus to US$ 17.3 billion, and a halving in its current account surplus to US$ 13.8 billion. The VW crisis will not help matters in a country where most indicators are heading south and this year’s growth will be lucky to reach 2.0%.

A major economic bloc was formed this week – the Trans-Pacific Partnership. The free trade deal – which includes the likes of the US, Japan and Australia among the 12 participating Pacific Rim countries – will see tariffs cut and common trade standards introduced. The TPP, which still needs ratification from all 12 governments, covers almost 40% of the global economy – and this despite the absence of China.

Only two major sponsors – Adidas and Gazprom – continue to support Sepp Blatter whilst Budweiser, Coca Cola, McDonalds and Visa have called on the deluded FIFA president to resign immediately. This follows the news last week that Swiss proceedings were imitated against him on the grounds of making a “disloyal payment” to UEFA president Michel Platini and signing a contract that was “unfavourable to FIFA”. The former involved the payment of US$ 2.3 million to the Frenchman in 2011 for work as Blatter’s technical adviser, carried out a decade earlier – between 1999 and 2002. Sensibly, both men have been subsequently suspended for 90 days by FIFA and maybe at last There’s Something In The Air.

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