Picking Up The Pieces!

MontenegroCBRE’s latest report indicated that slowing job growth and the negative impact of new supply were the main drivers behind Dubai Q1 residential rents and sale prices dropping on average by 2%. This comes on the back of a 4% slump in the previous quarter. The consultancy estimated that 15k residential units could be completed this year, with Dubailand, Dubai Silicon Oasis and Jumeirah Village the top locations.

A shortage in prime office space has seen a 20% Q1 hike in certain locations, such as DIFC, compared to 2015, but the falling vacancy rates are not apparent in other areas. The JLL Global Office Index indicated that Dubai maintained its position as MENA’s top performer in this sector.

Emaar Properties has awarded Arabian Construction Company the contract to build Boulevard Point. The luxury 63-storey tower, comprising 297 apartments, will be the ACC’s third project in Downtown.

Choice Hotels International has signed an agreement with Equinox Group and Al Tayyar Travel Group to develop its three mid-scale brands – Clarion, Comfort and Quality – into the UAE and Saudi Arabia. It is expected that 25 hotels, with 8k rooms, will be built over the next five years.

Lemon Tree Hotels has also announced that it will introduce at least 8 properties, in the 3 / 4 star brackets, over the next three years. The Indian chain has signed an agreement with the Australian real estate company, Raine and Horne.

The Wyndham Hotels Group is another interested party looking to expand operations in the UAE and is in negotiations with potential investors. The US-based operator is one of the largest in the world, with several well-known brands that could gain traction including Dolce Hotels & Resorts, Days Inn, Howard Johnson and budget chain, Super 8.

Dubai (with 361k sq mt) has been ranked, along with Abu Dhabi, as 17th in CBRE’s Global Shopping Centre Development report, with a total of 627k sq mt of total retail space under construction. Dubai still rates a worldwide 2nd for international brand presence. Within the next two years, two malls, Palm Mall in Dubai (111k sq mt) and The Point (48k sq mt), are expected to open.

It is reported that both Emirates NBD and CBD are in the market to raise finance; the former may be looking at refinancing a 2013 US$ 800 million facility and the latter a US$ 450 million loan due to mature this December. This could be a move to source funds before rates start moving upwards and comes after liquidity tightens, in the wake of falling oil prices.

In the same vein, S&P anticipate that Gulf banks will see a marked weakening in growth for the next 18 months, as assets increased much slower last year – Islamic banks fell from 12.3% to 7.0% whilst conventional banks slipped from 9.6% to 5.7%. The agency sees asset growth this year for both banking sectors at 5.0% but it also estimated oil prices would reach US$ 50 in 2018 (today’s price is almost there at US$ 46.70).

The Somaliland government and DP World have agreed to invest US$ 442 million, over time, in the Port of Berbera. The aim of the investment and management arrangement is to make the facility a ‘regional and logistic hub.’

Following last November’s decree, the emirate’s first PPP – public private partnership – has been announced, involving the government and a special purpose company established by Prince Khaled Bin Alwaleed bin Talal’s KBW Investments and the Indian transport firm ITNL. A 30-year concession has been granted for the building of one of the world’s largest automated car parks, to be located adjacent to the Dubai Courts. The total project includes a new Supreme Court building, 3k sq mt of retail area and 18.6k sq mt of office space.

Under new regulations, it is now easier for private homeowners to rent out their residences on short-term lets. If a proper holiday home licence is not obtained from the Dubai tourism authorities (DTCM), then owners could face penalties of between US$ 54 and US$ 5.4k. Repeat offenders could be fined up to US$ 27k. Furthermore, tenants can obtain a ‘no objection’ letter from their landlord and, if they meet the all the other requirements, they too can lease out their accommodation.

Dubai-based Green Energy Tomorrow will be the prime supplier for phase 1 of DP World’s initiative to install photovoltaic solar panels on all its buildings. The solar project, that generates electricity, is the largest of its kind in the ME and is part of the Dubai Integrated Energy Strategy 2030.

Bloomberg reports that GEMS Education could be considering an IPO as early as next year. In 2014, Blackstone, Fajr Capital and Mumtalakat acquired a significant minority stake in the business, whilst last month the school operator sought US$ 250 million finance, for expanding its school numbers, which currently stand at 78. Whether the 2017 economic environment will be suitable for a public listing remains to be seen.

The Investment Corporation of Dubai has bought a majority share in one of the world’s largest super yacht marinas – Porto Montenegro in Sarajevo. ICD reportedly spent US$ 288 million for a 53.2% stake from Canadian billionaire Peter Munk and joins other shareholders including Bernard Arnault, Lord Jacob Rothschild and Oleg Deripaska.

The April Emirates NBD Dubai Economy Tracker Index moved marginally higher to 52.7, as positive momentum returned to the market. The non-oil private sector index is an amalgam of individual indices, with all three key sub-sectors pointing to improved business conditions.

London-based Investec Bank has agreed a US$ 1 billion sale-and-leaseback arrangement with Emirates to finance four A-380s. The deal involves the bank to purchase the jumbos before leasing them back to the airline.

As widely expected, Emirates reported record profits – up by 56% to US$ 1.6 billion – for the year ended 31 March 2016. Although revenue was down 4% to US$ 23.2 billion, most other indicators headed north including passenger numbers by 8% to 51.9 million and capacity by 11%. It appears that the strong greenback cut US$ 1.6 billion off the revenue stream and US$ 1.1 billion from the bottom line. The carrier saw its fuel bill fall by 31% – now accounting for only 26% of its operating costs, compared to 35% last year.

Meanwhile Emirates Group declared a US$ 681 million dividend for ICD on the back of a 49.1% hike in profits to US$ 2.2 billion, despite a 3% reduction in revenue to US$ 25.3 billion. Over the year, employee numbers jumped 13% to 95k.

With flydubai and Qatar increasing their services, Q1 passenger traffic at DWC (Dubai World Central) rose 79.8% to 258k, whilst cargo fell 6.9% to 198k tonnes.

On a federal basis, the cabinet has approved a Shariah authority to monitor the expanding Islamic finance sector. The UAE Central Bank will be responsible for its establishment, with the new body supervising the Shariah boards of the individual financial institutions. In Q4, Islamic banks accounted for 22.2% of domestic credit, compared to 20.8% a year earlier.

Not known for their forecasting skills, the IMF has estimated the country’s 2016 fiscal deficit will widen to 7.2% of GDP but will improve thereafter, as oil prices and the global economy head north. It also expects that inflation will fall from 4.1% to 3.2%. The august body also commented that the Dubai diversified economy is holding up well and expects this year’s 3.3% growth forecast to jump to 5.0%, by the time of Expo 2020.

Damac Properties posted falls in both Q1 revenue and profit – by 33.3% to US$ 441 million and 14.6% to US$ 286 million – compared to the same period in 2015. During the quarter, the developer recorded sales of US$ 545 million, whilst delivering 0.3k units, and expects a further 2.7k to be completed this year.

Amlak Finance posted a 249% hike in Q1 revenue to US$ 99 million, whilst its profit figure jumped from US$ 2 million to US$ 28 million, compared to a year earlier. However, US$ 37 million of the turnover was attributable to a one-off sale of land. Total assets dropped 2.0% to US$ 1.8 billion.

Dubai-based Amanat Holdings reported a six fold increase in Q1 profit to US$ 3 million, as revenue doubled to US$ 5 million. During the quarter, the healthcare and education provider invested a further US$ 4.4 million in Sukoon International Holding, bringing its total investment in the Saudi company to US$ 14 million; it now owns a 33.25% stake.

Marka posted another quarterly loss, with a Q1 deficit of US$ 5 million. However, despite the strong US$ hurting revenue, the Dubai-listed company is confident in a turnaround of fortunes, with plans to double its retail space over the next year.

The DFM opened on Sunday at 3308 and nudged 1.1% higher to close on 3345 by Thursday (12 May 2016). Bellwether stocks, Emaar Properties and Arabtec, gained ground – both up by US$ 0.03 to US$ 1.74, and US$ 0.01 to US$ 0.41 respectively. Trading volumes were marginally lower on Thursday at 370 million shares, valued at US$ 113 million, changing hands, (cf 433 million shares for US$ 137 million, the previous Wednesday).

Brent crude surged this week – up 5.4% (US$ 2.38) to US$ 46.70 – whilst gold was flat at US$ 1,272 by the Thursday (12 May) close.

Recent figures show that Nigerian oil production of 1.7 million bpd is at its lowest level since 1994, largely because of the increased number of attacks on facilities. The latest has resulted in Chevron having to close down a platform producing 90k bpd.

After over 20 years as the country’s oil minister, former health minister and current chairman of Aramco, Khaled Al Falih, has replaced Ali Al Naimi. Last month, Saudi Arabia’s King Salman initiated major economic reforms, as the kingdom readies itself for a life with reduced dependence on oil revenues – emphasised by its 2015 budget deficit ballooning to US$ 98 billion.

After admitting that it had not been following the Japanese fuel consumption tests for the past 25 years, Mitsubishi Motors has seen its shares drop 40%. Now it seems that rival Nissan is in talks to take a 33.3% share, valued at US$ 2.2 billion, in the troubled automaker. Meanwhile the world’s largest car company, Toyota, has announced a Q1 4.0% drop in profit to US$ 3.9 billion; worryingly, it is expecting a further 35% profit plunge over the next 12 months.

Having acquired Sharp in March for US$ 3.5 billion, its new owner, Foxconn Technology Group, has a tough job ahead with the ailing tech company posting a massive US$ 2.4 billion annual loss (US$ 2.0 billion for the year ended 31 March 2015).

The EC has blocked the US$ 14.9 billion O2 sale to Three because of the fear of reduced customer choice and price rises, as the number of UK operators would have dropped to just three. The Hong Kong-based purchaser, CK Hutchinson, is considering the merits of an appeal.

Nokia reported a disappointing Q1 US$ 583 million loss, compared to a US$ 200 million profit in the same period last year. Revenue surged 89.6%, to US$ 6.3 billion, following its US$ 17.6 billion acquisition of French telecom operator Alcatel-Lucent during the year.

Disney is set to close its Infinity line of video games, as it booked a US$ 147 million charge mainly in regard to unsold inventory. It has found that developing games from scratch is a risky business and, in future, will go down the safer route of licensing its screen characters.

Shares in the US department store Macy’s dipped to a 4-year low, as its Q1 revenue fell 7.4% to US$ 5.77 billion and profits tanked 40%. After five straight quarterly falls, the retailer is not expecting any better news forecasting like to like sales down 4% for the rest of 2016.

Despite the Crown Office confirming that individuals associated with the near collapse of RBS will not face any legal action, shareholders may now continue with civil claims. The bank, 73% government owned, that had made a US$ 17.3 billion shareholder cash call in 2008, was “run” by Fred Goodwin, known as “Fred The Shred”. He was in charge when the bank paid US$ 72 billion for ABN Amro and racked up losses of US$ 34.6 billion in 2008 and lost 90% of its market value, resulting in the government bailout.

Australia’s biggest bank, Commonwealth reported a 4.5% hike in Q3 profits to US$ 1.7 billion, despite a jump of US$ 316 million in impairment expenses.

A PWC study indicates that regional IPO activity has all but dried up in Q1, with only one listing. The global slowdown, regional unrest and low oil prices continue to be the main drivers for the paucity of listings that has seen only two transactions completed over the past six months. In Q4 2015, the only regional IPO raised US$ 101 million on the Saudi stock exchange Tadawul, whilst this quarter has had the Middle East Healthcare Company (MEAHCO), for 30% of its shareholding raise US$ 471 million, on the same bourse. Meanwhile, on a global scale Q1 figures show a 72% decline to US$ 14.2 billion – its lowest level since the GFC.

The effect of the global economy continuing to slide can be seen from the fact that Q1 private aircraft sales recorded their biggest decline – 16% – in over five years. Billings fell to US$ 3.5 billion, compared to the US$ 4.2 billion in the same period of 2015. Drivers behind the decline include the energy sector slashing costs, record low commodity prices, just starting to rise, and the strong greenback – now beginning to lose some of its recent lustre.

The fact that its foreign exchange reserves rose to US$ 3.22 trillion is a sure indicator that Chinese capital spending is easing. March forex commercial bank sales of US$ 36.4 billion were 33.1% lower than recorded in January. Last June, the reserves peaked at US$ 3.99 trillion but, following a burst of international activity, there has been a marked slowdown in capital outflows. If this continues, it could have a positive impact on the stabilisation of the yuan.

Once again China’s trade figures cause concern in global markets as April exports and imports both fell by 1.8% and 10.9% respectively, compared to a year earlier. These figures were a lot weaker than expected and could point to further fragility in domestic demand, despite public capital spending projects.

The US April labour figures disappointed the markets, as only 160k jobs were added, compared to March’s 208k and recent months’ averages of over 200k. The slowdown, in tangent with an increase in wage levels, up 2.5%, could see the country’s inflation move north that in turn may prompt the Fed to look at upping bank rates as early as next month. The jobless rate was static at 5.0% but there was a marked increase in numbers no longer in the work force.

There was more bad news for the UK economy, ahead of next month’s Brexit vote as the Q1 trade deficit of US$ 19.2 billion was the biggest since 2008. This figure was US$ 1.6 billion more than the previous quarter, largely because of a US$ 2.7 billion hike in imports, whilst exports rose by only US$ 725 million. (This was in direct contrast to Germany, whose March trade surplus hit a record high of US$ 26.9 billion). For the third time since the GFC, UK manufacturing has gone into recession, having fallen 0.4% for each of the past two quarters. This is the main driver in slowing the country’s growth prospects that have now been pegged back.

The weekend saw the start of a 3-day general strike in Greece in protest to more austerity programmes as a quid pro quo for further US$ 5.8 billion bailout funds. For Prime Minister Alexis Tsipras, this continues to be a fine balancing act, as he was elected on an anti-austerity platform and his parliamentary majority is wafer thin, having 153 seats in the 300-seat house. On Sunday, parliament approved a bill reforming the country’s debt-ridden tax and pension systems.

With the number of consumers expected to increase by 1.1 million by 2020, many UK lenders have extended their mortgage age limits, with the likes of Nationwide increasing the maximum age to 85, Halifax 80 and Santander to 75. The fact is that people are working and living for longer and that many expect to be paying off mortgages during their retirement; this has prompted a major turnaround by some financial institutions. In another move, Barclays has offered 100% mortgages to those whose parents or friends deposit 10% of the value of the house with the bank for three years. Banks have still not learnt from the GFC – wait until house prices begin to fall, and rates move up, then once again who will be left Picking Up The Pieces!

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