So Happy Together!

new-creek-towerHH Sheikh Mohammed Bin Rashid Al Maktoum has approved a new tower – “comparable in greatness and in height” to the Burj Khalifa – for the 6 sq km Dubai Creek Harbour project. No further details were forthcoming from the developer, Emaar, but the building will be linked with the central island district of Dubai Creek Harbour.

The Dubai Ruler also opened the US$ 272 million, 1 million sq ft, phase 2 of Dragon Mart. Now the complex is considered the largest hub for Chinese products outside of China.

Accor is expanding its operations in Dubai, with two new properties due to open by 2018. The agreements with Hasabi Real Estate cover the Majlis Grand Mercure Hotel & Residences Al Garhoud (250 keys and 100 apartments) and the 350-room ibis Styles Al Garhoud.

With one property currently being built in Dubai Healthcare City, Action Hotels has acquired a plot of land in Dubai Media City’s Innovation Hub for a reported US$ 10 million. The Kuwait-owned company is planning to develop the 5.6k sq mt site and open a hotel within the next two years.

It has been confirmed that phase 1 (equivalent to 25% of the total size) of the proposed 745k sq mt Mall of the World will be completed by 2020, with the complex being completed in stages in line with market demands. Dubai Holdings will finance about 30% of the US$ 21.8 billion cost, with the balance being picked up by investors.

Two different reports this week have slightly different findings. According to the latest ValuStrat study, 14k apartments and 3.4k villas were added to Dubai’s real estate portfolio last year; this figure would have doubled if not for 50% of expected units being delayed and now expected to be handed over in the next two years. It also reported a 6.4% Q4 decline in selected residential values, with a 2.3% rental decline.

Meanwhile Asteco added that Dubai’s 2015 property portfolio was up by the addition of 13.5k apartments and 800 villas; average selling prices fell 11%, with rentals dropping by 9%. However, rentals in Umm Suqeim, Arabian Ranches and Jumeirah Park all fell by 20.0%, 19.0% and 15.5% respectively. For sales, the two biggest losers were The Meadows, down 15%, and Palm Jumeirah – 13%. The report indicated that 22k apartments and 7.7k villas are expected in this year’s pipeline. (Although this seems on the high side, even if it is not. the emirate will probably have 130k added to its population this year – and they have to live somewhere).

Medicina Futura Group became the latest international entrant to tap into the expanding healthcare sector. The Italian multi-disciplinary clinic is to open its first overseas facility in Umm Suqeim, with the aim of establishing a regional network. The company has four hospitals and 10 clinics in its home country, employing 1k medical staff.

Aster DM Healthcare is investing US$ 30 million on three hospitals in India this year. The Dubai-based operator, with a 2015 turnover of US$ 560 million, already has six hospitals in that country within its international portfolio of 15 hospitals, 80 clinics and 200 pharmacies.

Dubai Aerospace Enterprises has a fleet of 97 aircraft and a net book value touching US$ 4 billion – with a US$ 1 billion order for 40 ATR 72-600s, for delivery over the next three years. Although Iran, with economic sanctions recently lifted, has just signed a European deal for 158 aircraft, there will be an immediate need for planes – an order that DAE could meet.

Majid Al Futtaim has announced that it will spend US$ 3.7 billion in Saudi Arabia to build two malls in Riyadh, one of which, the 300k sq mt Mall of Saudi, will be the largest in the country and will include a ski slope.

With part of the proceeds going to the Al Jalila Foundation, Du’s latest auction raised US$ 1.94 million, with the number – 052 1111111 – selling for US$ 695k. This is some way off the record of last April, when 052 2222222 was auctioned off for US$ 2.18 million.

It is reported that UK engineering company, Atkins, has retrenched 5% of its regional staff, as the large-scale infrastructure sector weakens. Although it is working on Emaar’s Dubai Opera District, much of their work is outside of the emirate.

Although 2015 revenue was up 9.6% to US$ 1.34 billion, flydubai reported a 59.7% decline in profits to US$ 27 million. The budget carrier has been bedeviled by external factors, such as network disruption due to regional hotspots, a strong greenback and a sluggish trading environment.

History will be made later in the year when the federal government issues government bonds on international markets for the first time. Before the expected paper issue of some US$ 25 billion, legislation will have to be amended to allow this financing arrangement to occur. Last year, the UAE recorded a 13.2% budget deficit.

Although the latest Emirates NBD UAE Purchasing Managers’ Index, down 0.6 points to 52.7, is still in positive territory, the growth rate continues its slowing trend and is at its lowest level in four years. Two other economic indicators also show a marked slowdown in Dubai’s business environment. The Economic Composite Index (at 50.7) and Dubai Economy Tracker both reported that the economy had weakened to its slowest rate in almost six years. With public purse strings being tightened and oil prices still struggling, it is inevitable that any economy would suffer – and Dubai is no exception.

Two weeks after taking over from Mohammed Sharaf, Sultan Ahmed bin Sulayem has been appointed chief executive of DP World on a permanent basis, whilst still holding the Chairman’s role. The port operator’s 2015 figures were positive, with annual gross container volumes higher by 2.4% on a like to like source (and 3.0% on a reported basis), as the number of TEUs (20’ equivalent units) nudged higher 3.0% to 61.7 million.

Emaar Malls returned impressive 2015 results; profit surged by 22.6% to US$ 451 million, as rental income jumped 11.1% to US$ 815 million. Mall visitor numbers rose by 9.0% to 124 million (with Dubai Mall having 80 million visitors), as retail occupancy touched an impressive 96%. The company’s gross leasable area covers over 6 million sq ft, with a further 1 million sq ft to be added to Dubai Mall’s Fashion Avenue.

A US$ 82 million write down, because of the New Year’s Eve fire at The Address Downtown Hotel, was the reason why Emaar Properties Q4 profit was down 1.0% at US$ 281 million, although revenue surged 58.3% to US$ 1.04 billion. For the year, both revenue and net profit headed north – by 32.0% to US$ 3.7 billion and 9.0% to US$ 1.1 billion respectively.

As with Emaar, Damac’s Q4 was down – 12.0% to US$ 230 million. However, its 2015 profit increased by 29.6% to US$ 1.23 billion with a strong balance sheet, epitomised by a gross debt to equity ratio stands of 0.38. It is interesting to note that the chairman, Hussain Sajwani, considered that the total 2015 supply was less than 8k (of which Damac contributed 2k) and going forward, the total supply in Dubai will be shy of 10k by the end of this year. This is in sharp contrast to figures from other sources and, if credible, will see a housing recovery later in 2016.

The bourse opened Sunday at 3058 and slipped 2.5% to 2981 by Thursday (11 February 2016). Both bellwether stocks, Emaar Properties and Arabtec, were marginally down by US$ 0.01 to US$ 1.46 and US$ 0.02 to US$ 0.30 respectively. Trading volumes on Thursday were slightly down on last week at 330 million shares, valued at US$ 130 million, changing hands, (cf 458 million shares for US$ 165 million, the previous Thursday).

This was a bad news and good news week; after a great start to February, oil got savaged in erratic trading, as Brent crude sank 12.5% to US$ 30.06. Conversely, the yellow metal continued its upward trend, jumping another US$ 90 to US$ 1,248, by Thursday (11 February) close.

With growth stuttering in the US, sluggish in the eurozone and dipping in China, it is no surprise to see global bourses falling – 19 of the 21 international markets are down on the same period last year. The authorities are struggling – the Fed indicates rate hikes this year and then appears to change its mind; the Chinese fidget with the currency – both up and down – and change direction every month on market intervention; the eurozone introduces US$ trillions of economic stimulus which has not worked, and then brings in negative interest rates.

Stock prices have not followed fundamentals and have enjoyed a boom period because of the huge amounts of printed money pumped in by central banks. Now the day of reckoning has arrived and a huge sell-off is inevitable, aided and abetted by low commodity prices and the fact that banks are paying for their past misdeeds with massive fines, increased regulation, higher impairment costs and falling business revenue.

Compared to other majors such as BP and Shell (which saw 2015 profits down more than 50%), Total’s results were better, posting only an 18% decline to US$ 10.5 billion. However, with the company’s cash break-even of US$ 45 per barrel – and current prices hovering around the US$ 30 level – the French oil major has had to slash this year’s investment programme by 17.4% to US$ 19 billion and plan asset sales of US$ 4 billion.

Australian miner, Rio Tinto posted a 2015 51.2% slump in underlying earnings to US$ 4.54 billion. With impairment charges of US$ 1.8 billion, it reported a US$ 886 million net loss.

Because of the recent allegations that senior officials from the International Association of Athletics Federations received bribes to protect doping cheats, Nestle has pulled the sponsorship pin. Its claims, that it would suffer reputational damage and has consequently cancelled its backing of the IAAF Kids’ Athletics programme, have not been well received by Seb Coe. The embattled president is reportedly angered by the Swiss company’s actions and that “it’s the kids who will suffer” The blame game seems a little one-sided.

There have been reported merger talks between US toymakers, Mattel Inc and Hasbro; if a deal is brokered, the new entity would have a market capitalisation of over US$ 20 billion. 20 years ago, Mattel tried to acquire its rival for US$ 5.2 billion.

LinkedIn, the world’s leading professional online network, saw its market capitalisation fall by over US$ 11 billion, as its shares sank 43% on Friday (05 February) because of a reported Q4 loss of US$ 8.4 billion.

Although its Q4 loss of US$ 90 million was better than the US$ 125 million deficit a year earlier, and its revenue was up 48.0% to US$ 710 million, Twitter’s share value took a beating on Wednesday. Following the announcement, and the fact that the number of monthly active users had remained flat at 320 million, the market showed its disappointment, slashing 10% off its market value.

On the beer front, the two big European brewers had contrasting results. As Heineken (with a 9.1% share of the global market) recorded an impressive 25% hike in profits to US$ 2.13 billion, its Danish counterpart, Carlsberg (having 6.1% of the global market) posted a US$ 262 million loss.

Meanwhile, Japan’s Asahi is set to acquire both Grolsch and Peroni from SABMiller for US$ 2.55 billion. The South African brewer (with a 9.7% global share and revenues of US$ 26 billion) has had to divest these brands so that it can be taken over by Anheuser-Busch InBev. The Belgian company is the largest in the sector, with 20.8% market share, and has global revenue of over US$ 47 billion.

According to local media reports, ANZ may face legal action by the Australian Securities and Investments Commission for alleged interest rate rigging.

Almost four years after five US banks – Ally, BoA, Citi, JP Morgan and Wells Fargo – reached a US$ 25 billion settlement over illicit mortgage activities, HSBC has done likewise. The UK bank seems to have got off rather lightly, settling for US$ 470 million which includes US$ 370m in relief to some 136k borrowers and homeowners.

UK’s Rothesay Life, founded in 2007, is in negotiations with Aegon UK to acquire a US$ 11.6 billion annuity book – a major share of the Dutch-owned company’s assets. Goldman Sachs backs the insurance and pensions group, which includes Blackstone and GIC among its investors. There have been recent similar deals – such as the merger between Just Retirement and Partnership Assurance – as the industry faces tougher regulations, introduced by UK Chancellor, George Osborne.

Subsequent to a 2012 US court finding, the Argentine government has now agreed to settle its long-standing creditors’ dispute. The offer of US$ 6.5 billion is almost 75% of the original settlement and would be payable to investors, many of whom bought heavily discounted bonds in 2002 after the country’s economy imploded.

Following a 0.8% drop in November, UK December industrial output fell again by 1.1% – its biggest fall in three years. This data does not bode well for the economy which has been recognised as one of the fastest growing in the developed world.

The US labour figures indicated that the January unemployment rate fell to 4.9%, although only 151k jobs were added in the month – down from December’s 292k. Furthermore, Q4 slowing growth – at a disappointing 0.7% rate, down 1.3% from the Q3 return – is one of the prime reasons why a March Fed rate rise is off the cards.

In her latest announcement, Fed chair, Janet Yellen, indicated that the December hike of 0.25% (the first in 9 years), is unlikely to be repeated in the foreseeable future. Citing the fact that both US financial conditions had become “less supportive” of growth and the current global stock market volatility, she indicated that US economic activity will expand at a moderate pace

As the yuan has weakened, China saw its January forex reserves lose US$ 99.5 billion, to US$ 3.23 trillion – its lowest level in four years – after a US$ 0.5 trillion fall in 2015. With the market betting on further declines, the massive private capital outflows seem set to continue this year, resulting in further depletion of these reserves. Last year, capital outflows of over US$ 1 trillion were 7 times higher than in 2014.

With its latest quarterly growth rate of 7.3%, India has surpassed China to become the fastest growing large economy in the world. Prime Minister Narendra Modi must take some credit for this achievement but he still has a long way to go to introduce much needed taxation and labour structural reforms. However, with the country ranked 130 out of 189 countries, in the 2016 report of the World Bank for Doing Business, he has a long way to go to entice more foreign investment.

HH Sheikh Mohammed bin Rashid al-Maktoum announced major UAE government changes, including reducing the number of ministries and the private sector taking over many government services. This will ensure that ministers can spend more time on governing – i.e. focussing on national and strategic issues. As part of the reshuffle, the largest in the country’s history, there has been the installation of three new ministries – all held by women. 22 year-old Oxford graduate, Shamma Suhail Faris Al Mazrouei, is the Minister of State for Youth, Sheikha Lubna Bint Khaled Al Qasimi has been appointed Minister of Tolerance and Ohoud Khalfan Al Roumi is the Minister of State for Happiness.

This innovative move may well pay dividends as research shows that happy companies usually have better financial results. If this can work for companies, why not a country? So Happy Together!

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