Money’s Too Tight To Mention

dubai-creekThe RTA expects to make a surplus this year, from a 14.5% hike in revenue to US$ 2.04 billion, less total budgeted expenditure of US$ 1.92 billion. The authority has also reconfirmed that the much-vaunted Dubai Canal project will be completed by year-end.

Damac became the first big developer to purchase land at the site, acquiring 4 million sq ft for US$ 343 million. With more deals forthcoming, it proves that the government’s decision, to spend US$ 463 million to extend the waterway by 3 km to connect Business Bay with the sea, has been justified.

The latest property report – this time courtesy of KPMG – paints a glum picture on the 2016 state of Dubai realty. The sector will continue to suffer because of the many expounded reasons – a strong greenback, the slump in oil revenues, geopolitical regional turmoil and the slowing global economy. The Big 4 accounting firm sees a brighter future from 2017, as the hype around Expo 2020 starts to kick in. As indicated in previous blogs, many other firms see further declines this year but seem to be using unreliable and/or incorrect data to reach these conclusions.

The first Rove brand hotel, an Emaar concept, is currently being built, near to the Dubai Parks and Resorts in Jebel Ali. The 458-key property is part of the developer’s strategy, in association with Meraas Holding, to have 10 hotels operating by the time of Expo 2020.

An Alpen Capital report estimates that the UAE healthcare sector will grow by 12.7% per annum and will be worth US$ 19.5 billion by 2020. The country accounts for 26% of the total GCC spend of US$ 40.3 billion, with a per capita of US$ 1.6k.

Following the recent visit of HH Sheikh Mohammed Bin Zayed Al Nahyan, DP World announced a US$ 1 billion investment plan in India. The ports operator has six port concessions in the country, where it has already spent US$ 1.2 billion. Last month, the company signed a Russian US$ 2 billion deal to develop ports in that country.

Cargo traffic at Dubai World Central – ranked 18th for international freight volumes – showed a 7.7% rise, to 889k tonnes, in 2015, despite a Q4 blip which registered a 10.0% decline to 229k tonnes. Not surprisingly, passenger numbers dropped over the year by 45.2% to 463k; this is mainly because of Dubai International’s runway maintenance work in July of that year which saw increased use being made of the second airport. Q4 passenger numbers were up 62.1% to 180k as a result of a partial shift of flydubai flights.

The Al Habtoor Group has purchased the Hotel Imperial in Vienna for US$ 79 million, bringing its international property portfolio to seven – the same number of hotels it has in Dubai. The seller, Starwood, will continue to manage the establishment that will see a complete renovation over the next four years.

It is reported that government-owned Nakheel is in initial bank negotiations for a US$ 1.4 billion 10-year loan to be used for future construction projects. The developer has a US$ 1.2 billion sukuk, maturing this August, and has sufficient funds to meet its obligation.

The government has resubmitted a bid for the newly named “Khor Dubai” (formerly Dubai Creek) to be recognised as a UNESCO World Heritage Site. The new name – translated to “The Traders’ Harbour” – highlights the waterway’s history in making Dubai an international trading hub.

Dubai International Financial Centre’s 2015 company registrations rose by 27.7% to 309, as the total work force was up 11.0% to 19.8k. The number of active registered firms is at 1.44k – an annual increase of 27.7%.

Emirates REIT returned an impressive 26.0% rise in 2015 profits to US$ 61 million, as its net assets grew 8.7% to US$ 470 million. The NASDAQ-listed Sharia compliant real estate investment trust also reported a hike in its investment properties to US$ 673 million.

Mainly because of a 4.1% year on year fall in transport costs, Dubai’s January inflation rate dipped to 1.9%, from 3.1% a month earlier. However, increases in education costs may see this sort of reversal short-lived.

It is the time of the year when school fee hikes are posted for the next academic year. The increases are based on the Education Cost Index (set by the Dubai Statistics Centre at 3.21%) and a school’s individual rating. This time, the KHDA (Knowledge and Human Development Authority) confirmed rises of 3.21% – for ‘acceptable’, ‘weak’ and ‘very weak’ schools – and 4.81%, 5.61% and 6.42% for ‘good’, ‘very good’ and ‘excellent’ schools respectively.

With the reporting season in full swing, both telecoms reported mixed results. Etisalat posted a 2.7% rise in Q4 profits to US$ 632 million, as its annual profit fell by 3.8% to US$ 2.25 billion. On the other hand, Du announced a 10.1% fall in Q4 profits to US$ 126 million, whilst its 2015 profit dropped 8.1% to US$ 529 million, as revenue was flat at US$ 3.36 billion.

Despite a 58.0% hike in revenue to US$ 10.9 million, Shuaa Capital saw a Q4 US$ 44 million loss, compared to a US$ 4 million deficit over the same period in 2014. Over the year, the finance company recorded a 21.0% hike in revenue to US$ 44 million but had a net loss of US$ 52 million, largely due to a US$ 42 million bad debt provision taken by Gulf Capital.

Troubled Gulf Navigation surprised the market with a doubling of 2015 profit to US$ 5.5 million, as revenues rose 12.0% to US$ 39 million. The improvement came about mainly due to increased revenues from its shipping services division and rising tanker rates. However the shipping company still carries US$ 168 million of current liabilities on its balance sheet.

Following a US$ 23 million loss in 2014, Amlak Finance, 45% owned by Emaar Properties, posted a US$ 38 million profit. This follows a restructuring in late 2014 which saw the company return to the DFM, after an absence of 6 years, when it suffered from the GFC and the sinking of Dubai property prices.

The Dubai-based retailer, Marka, reported a more than doubling of its losses in 2015 to US$ 9.4 million, of which US$ 4.1 million was attributable to an acquisition. Its revenue for the year reached US$ 62 million, whilst its assets were valued at US$ 289 million.

With 2015 revenue up 15.0%, the Dubai Holding Commercial Operations Group posted a 25.0% hike in net profit to US$ 1.59 billion. This Dubai Holding unit has Dubai Properties (which leases 15k residential units), Jumeirah and TECOM in its portfolio. The latter has seen the number of companies, operating in its business parks, increase by 11.0% last year to 5.1k, employing over 76k.

Drake & Scull announced a Q4 profit of US$ 4 million, with revenue jumping 27.2% to US$ 381 million. However, the annual 2015 loss came in at US$ 255 million (after a US$ 27 million profit the previous year), mainly because of substantial impairment costs in Q3.

Emirates REIT returned an impressive 26.0% rise in 2015 profits to US$ 61 million, as its net assets grew 8.7% to US$ 470 million. The NASDAQ-listed Sharia compliant real estate investment trust also reported a hike in its investment properties to US$ 673 million.

Brokers will be badly hit as the Securities and Commodities Authority’s moved to cut their commission from 0.15% to 0.125%. They are already reeling from Q4 data that sees trading volumes down 40% on the same period in 2014.

The bourse opened Sunday at 2981 and jumped 3.8% to 3093 by Thursday (18 February 2016). Bellwether stocks, Emaar Properties and Arabtec, were mixed – with the former up US$ 0.09 to US$ 1.55 and the latter dipping US$ 0.01 to US$ 0.29. Trading volumes on Thursday were well up on last week at 584 million shares, valued at US$ 170 million, changing hands, (cf 330 million shares for US$ 130 million, the previous Thursday).

This was a bad news and good news week; Brent crude regained all last week’s 12.5% losses and surged 14.0% to US$ 34.28. Conversely, the yellow metal lost a little of its lustre, dropping US$ 22 to US$ 1,226, by Thursday (18 February) close.

Four major oil exporters – KSA, Qatar, Russia and Venezuela – have agreed to cap production at January levels – only if other producers follow suit. Some hope! Meanwhile Bloomberg reports indicate that parts of the shale oil sector could be facing financial problems, with interest payments of U$ 9.8 billion due this year. It could be a precursor for a major banking crisis, if cash-strapped and highly geared fracking companies go under and asset sales come under pressure.

Anglo American, hit by tumbling commodity prices, has posted a US$ 5.5 billion annual loss – more than double the loss of 2014. Consequently, the mining giant is planning to divest itself of Kumba Iron Ore – the world’s 4th biggest iron ore operation – and some of its coalmines to claw back up to US$ 4 billion, to shore up its finances. Little wonder that Moody’s cut its credit rating to junk status.

Apple was one of several companies in the corporate bond market this week and is expected to raise US$ 12 billion, with the sale of 10 tranches of bonds.

Despite problems with their economy, Chinese firms are still splashing out big money for overseas acquisitions. The latest has HNA paying US$ 6.1 billion for Ingram Micro, a US distributor for Apple and Microsoft. On the flip side, US-based Uber estimates that it is losing US$ 1 billion a year in China, as it tries to make a profit in a fiercely competitive market.

India has not given up hope in collecting a US$ 2.1 billion tax bill from Vodaphone. The disagreement between the parties involves the telecom giant’s 2007 US$ 11 billion takeover of Hong Kong-based Hutchison Whampoa’s Indian division. It is claiming that as the transaction was conducted offshore, Indian tax was not applicable.

It is estimated that the UK’s Big 4 banks – Barclays, HSBC, Lloyds and RBS (73% owned by taxpayers) – will award 2015 bonuses totalling US$ 7.2 billion. HSBC fat cats will award themselves 50% of that total, followed by 24% for Barclays. The bonus payout is roughly the same as the four banks’ new provision for PPI mis-selling which seems to indicate that the banks’ executives continue with bad habits, without any pecuniary penalties.

After months of discussions, HSBC has decided to maintain its head office in London’s Canary Wharf. The previous government had introduced a banking levy, that badly hit the bank’s profits, prompting it to discuss moving to Hong Kong. But a change in government policy saw the levy changed to a surcharge which was a boon for the bank – but not so for banks with mainly British business.

Rolls Royce has cut its dividend for the first time in 23 years, as a result of dismal 2015 results, which has seen its share value dive by almost 40% in the past year. The company posted a profit before tax fall of 12.0% to US$ 2.0 billion and has consequently halved its dividend payment to US$ 0.103 per share. Its marine division, where profits have plummeted by 94%, has been badly hit by the depressed oil and gas sector.

In the UK, the “battle of the grocers” is on in earnest, with the German discount stores Aldi and Lidl now having a combined 10%+ market share – doubling their stake in the past three years. This should increase even further, as the former is expanding its store numbers by 16.7% to 7k by the end of the year; this will see an additional 5k to its current 28k workforce. To add to the impact overseas companies are having in the retail sector, Which? has just named Iceland the leading national online shopping supermarket, although the UK’s Waitrose maintains its position as the top in-store brand.

With a US$ 5.03 cash / 1 share bid, equivalent to US$ 6.44 billion, Qube Holdings outdid the Canadian infrastructure giant Brookfield to finally acquire Asciano, the Australian rail and ports operator. The winning Qube consortium comprises Canada Pension Plan Investment Board, China Investment Corporation and GIP.

After taking over as MD of the IMF from the disgraced Dominique Strauss-Kahn in 2011, Christine Lagarde has been nominated unchallenged for a second term.

Even after two years in power, PM Shinzo Abe’s attempts to kick start the Japanese economy have stalled, as Q4 saw a 0.4% contraction, with an annualised rate dip of 1.4%. Despite a massive QE programme and negative interest rates, his efforts have failed because of continuing weak domestic demand, disappointing investment, a stalling yen and a too-low inflation level.

Along with Japan, Greece has had poor economic news – now edging back into recession, following a Q4 contraction of 0.6%, on top of the 1.4% fall in the previous quarter. This week witnessed high-profile protests from farmers who disagree with proposed industry tax breaks being abolished – in line with the terms of their latest EU and IMF bailout conditions which also includes unpopular pension reforms. Troubles are again welling up in the Hellenic nation that has seen its bourse lose almost 30% in the first 7 weeks of trading this year – the worst global performer.

The OECD has cut its 2016 global growth rate to 3.0%, as trade, wage growth and investment weaken, despite monetary policies including QE and interest rate cuts. Major economies such as US, UK and Germany have had their forecasts cut to 2.0%, 2.1% and 1.3% respectively.

2015 Growth in the 19-bloc eurozone was up 1.5%, whilst the 28 countries in the EU recorded slightly better at 1.8%. Worryingly, December industrial production was down 1.0% – an indicator that more stimulus measures are required by the ECB, probably in the form of further QE.

To calm market fears, ECB chief Mario Draghi has played down any problems with the European banking system. His assertions – that banks were now better protected than ever from financial collapse, with improved “capital buffers” than was the case during the 2012 crisis – came after many banks had seen their market value fall almost 25% in the first weeks of 2016.

Trade figures in January reaffirmed that all is not well with the Chinese economy, with year on year falls for both exports, by 11.2% to US$ 177.5 billion, and imports down 18.8% to US$ 114.2 billion. The world’s second largest economy continues to suffer from weak demand – both domestically and globally – as rival countries becoming smarter and more competitive. The country is in the process of trying to transform to a more consumer-spending focus economy and is not being helped by massive capital outflows – in December totalling US$ 160 billion – as traders bet on a further weakening of the yuan.

Some more worrying news from China as its Banking Regulatory Commission announced that Q4 non-performing loans had jumped 7.0% to US$ 196 billion. Troubled loans, where there is a risk in future repayment but still considered ‘performing’, rose to US$ 648 billion, equal to 5.5% of total advances. When the country’s shadow banking, estimated at over US$ 6 trillion, also comes into play, it is becoming more of a case of Money’s Too Tight To Mention.

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