The Long And Winding Road

dubai-metroEmaar is in the news on several fronts this week. The Spanish architect, Santiago Calatrava Valls, will be responsible for building its latest project – a US$ 1 billion tower, supported by a matrix of cables. Slated to be taller than the 828 mt Burj Khalifa, the project will be completed in time for Expo 2020. Located on The Creek, the structure will be more of an architectural tower (similar to the Eiffel Tower), than a working building, with perhaps only 20 upper floors for a hotel and observation tower.

In conjunction with Abu Dhabi-based Eagle Hills, it has launched The Address Fujairah Resort + Spa, including a luxury hotel and four residential buildings which will house 177 apartments and 10 villas. It is reported that the Dubai developer is also in talks with Rixos to become a 50% partner in a US$ 420 million Turkish theme park in Belek. To be fully completed over the next five years, phase 1 includes a 5-star 200-key hotel, retail outlets and an aqua park. This week, Emaar confirmed that it planned to demerge from its Indian JV partner, MGF Developments, but will continue to develop on-going projects and carry out new business in the country.

In direct contrast to pre-GFC, when developers seemed to collect most of the payments before and during development, the RERA CEO, Marwan bin Galita, is concerned that many plans now see up to 60% payments after delivery. This may result in buyers defaulting which could cause financial stress to developers.

Already with 75 Airbus 380s in service, and a further 65 on firm order, Emirates has arranged to acquire two more, valued at US$ 865 million, for delivery in Q4 2017. Over the intervening period, the airline plans to introduce 33 A380s and 24 Boeing 777s, as it retires 30 older aircraft.

A CBRE report has ranked UAE residents as the 3rd highest F&B spenders in retail malls – outlaying US$ 18.5 per person per visit, and only just behind Switzerland (US$ 20) and Norway (US$ 19). However, the country is in 8th place (US$ 57) when it comes to retail spend per visit – behind the top two, Switzerland (US$ 78) and Belgium (US$ 77).

A report by IHS Global Insight ranks the country as one of the 15 top EMEA investment hotspots and indicates that over the next decade, annual growth will be in the region of 3.5%. The UAE has benefitted from its oil diversification strategy, especially in the tourism, trade and travel sectors, which have seen it become a global hub.

Having earlier posted 2015 profits of US$ 327 million, Dubai Investments has declared a 12% dividend, amounting to US$ 132 million. Its latest strategy is to buy units in a US$ 46 million fund to develop industrial parks in Saudi Arabia, with phase 1 spend estimated to be up to US$ 136 million. The company’s 2015 asset base totalled US$ 4.2 billion and this is forecast to expand by 30.9%, to US$ 5.45 billion, over the next four years.

The Investment Corporation of Dubai has estimated that the emirate received over US$ 5.4 billion in foreign direct investment inflows last year – with 279 new projects established. 75% of the total emanated from five countries – Saudi Arabia, US, UK, India and Kuwait.

In a move to attract more Chinese business, Dubai Gold & Commodities Exchange has agreed to collaborate with two major banks – Agricultural Bank of China and Industrial and Commercial Bank of China – a month after becoming a settlement bank for the Bank of China. These moves will speed up the process, so that yuan transactions can be cleared locally, with the centre becoming a more attractive environment for Chinese investors.

A recent report by the Arab Petroleum Investment Corporation has estimated that US$ 611 billion will be invested in MENA energy projects over the next five years. The spend will be split between power (US$ 194 billion), oil (US$ 190 billion), gas (US$ 149 billion) and petrochemicals (US$ 78 billion). The UAE is slated to spend US$ 49 billion, of which US$ 20 billion is under contract bidding.

Emirates NBD is financing a US$ 225 million loan for two power plants to be built by the Egyptian Electric Holding Company.

The latest Emirates NBD Dubai Economy Tracker Index reinforces that the economy is heading in the right direction. March’s reading of 52.5 is a lot stronger than the 48.9 recorded a month earlier – any score over 50 indicates economic expansion and below – contraction. Encompassing the non-oil private sector, the survey pointed to an upturn in employment numbers, new order expansion and a general rebound in business activity. This goes hand in hand with news that the oil price continues to head north whilst the DFM seems to be in a bullish environment – 36.9% higher, compared to its 2591 low of 21 January 2016.

The bourse had a good week opening Sunday at 3386 to close 161 points higher at 3547 by Thursday (14 April 2016). Bellwether stocks, Emaar Properties and Arabtec, had a mixed week with the former well up by US$ 0.20 at US$ 1.84, and the latter unchanged at US$ 0.47. Trading volumes on Thursday were at 554 million shares, valued at US$ 257 million, changing hands, (cf 910 million shares for US$ 215 million, the previous Thursday).

Brent crude had a magical week – surging 10.6% (US$ 3.98) to US$ 41.50 – whilst gold dropped US$ 16 to US$ 1,226 by Thursday (14 April) close.

Despite its biggest ever loss of US$ 5.2 billion, its payroll slashed by 5k and its share value having fallen 23% over the past year, BP’s chief executive, Bob Dudley, was hoping for a 20% pay rise to US$ 19.6 million! The company consider it justified following an “excellent” operating performance, whilst many shareholders think differently.

In the wake of falling prices and unable to pay its debts, the world’s largest privately owned coal miner, Peabody Energy, has filed for bankruptcy. Like others in the industry, the company, which bought the Australian miner MacArthur for US$ 3.8 billion in 2011, has been hit by low energy prices, a shift to natural gas and enhanced environmental regulations. According to official data, producers accounting for 45% of US coal output have already filed for bankruptcy – maybe the frackers are next on the list?

Its bid, to escape paying US$ 128 billion in US tax, has collapsed with news that the US$ 160 billion Pfizer/Allergan deal has been abandoned. The merger would have seen the world’s largest tax inversions deal but its failure has now seen similar arrangements, totalling US$ 376 billion, being scrapped so far in 2016. US legislators may now block the proposed US$ 25 billion takeover of Baker Hughes by Halliburton – a deal that would have seen the 2nd and 3rd largest oil service providers combining. Earlier attempts by the two largest cable TV companies – Comcast and Time Warner Cable – to merge were also thwarted by Washington regulators.

It seems that the ailing internet company, Yahoo, may have a buyer in the UK’s “Daily Mail”. The company is going through a torrid time and has seen its share value fall 30% in the past two years. Consequently, Starboard Value, a major investor, is trying to oust CEO Marissa Mayer and the company board who have overseen the payroll slashed by 15% to under 10k as it continues to haemorrhage business to Google and Facebook.

Due to declining revenue (falling 3.0% to US$ 24.1 billion), mainly from trading and investment banking as well as potential losses from its energy-based clients, JP Morgan posted a year on year 6.6% fall in Q1 profits to US$ 5.52 billion, as its loan loss provision surged 87.7% to US$ 1.8 billion.

Bank of America, the country’s second largest bank, fared even worse with an 18.4% drop in Q1 profits to US$ 2.2 billion as they made a 30% increase in provisions, equivalent to US$ 1 billion. Revenue fell 6.6% to US$ 19.7 billion.

After a decade’s absence, Argentina is expected to re-enter the global bond markets, following clearance by a US court to overturn claims by dissident creditors, unwilling to settle the country’s US$ 9 billion offer to settle its long-standing debt. Next week, the Mauricio Macri government will raise a further US$ 12.5 billion in new bonds, partly to pay off this debt.

As the AUD hits a 9-month high of 0.77 this week, the country reports a 4.0% month on month fall in consumer confidence, following a 2.2% dip in March. A rising currency sees exports become more expensive, and less competitive, whilst overseas tourist numbers will inevitably drop. Both will have an adverse impact on the country’s future growth prospects.

Meanwhile Chinese investment in the “lucky country” has hit its highest level since 2008 and, of the US$ 11.6 billion total, 45.6% is in real estate, most of which is in New South Wales. Although the country is China’s second most favoured location for investment, it is still a long way off the US$ 118 billion that is spent in the US.

China continues to spook global markets as the country tries to get to grips with its transition to a more consumer driven economy and managing slowing growth in its economy. The IMF has highlighted a potential US$ 1.3 trillion black hole of risky bank loans in the Chinese banking system – both official and shadow.

However, this week was full of good news for the Chinese economy as March exports jumped 18.7% – year on year – and with imports down 1.7%, the country posted a US$ 30 billion trade surplus. Although marginally down on the previous quarter’s 6.8%, Q1 growth figure of 6.7% was in line with exceptions. Positive figures, including a 10.7% jump in infrastructure investment and March consumer spending up 10.5%, point to the fact that the country’s transition is taking shape and the economy may be on the rebound.   .   . if the figures are accurate!

Rising debt levels and low inflation rates are both drivers that could further stall global growth, with the IMF urging more to be done by central banks and governments to restore consumer confidence. The organisation is not renowned for its forecasting, as it seems to change its outlook every other month. It has cut its previous January global growth by 0.2% to 3.2%, with emerging markets down 0.5% to 4.1%, G7 down to 1.9%, the UAE falling to 2.4% (from 2.6%) whilst China actually nudges up 0.2% to 6.5%. For some countries, recovery is going to be a Long And Winding Road.

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