A Drop In The Ocean!

airbnb-banLast year, CBRE predicted 20k new residential units would be completed – the figure turned out to be less than 10k. This year, the consultancy estimates 15k new properties for Dubai. If the emirate is set to grow at 6% pa over the next four years and the current population is 2.5 million, then Dubai will have an extra population of 656k by 2020. In other words, at current levels, demand is going to outstrip supply by a long chalk, with the inevitability of residential prices (and rentals) heading up!

Due for completion in June 2021, Emaar Properties has launched phase 1 of ‘Fairway Vista’ – 63 large luxury villas in Dubai Hills Estate, within Mohammed bin Rashid City. This master development, encompassing 2.2 million sq mt of green areas, will eventually have 26.4k residential units, with rail links to both international airports.

Azizi Developments has awarded Keilani Construction Company two contracts, valued at US$ 55 million, for its Al Furjan projects. Both the 271-unit Roy-Mediterranean and 222-apartment Montrell will be completed by the end of next year.

With the main aim of promoting the hospitality sector, Dubai Tourism and Airbnb have signed an agreement. The US-based website, with 1.5 million listings, covering 34k cities in 190 countries, provides an online facility for interested parties to list, find and rent lodgings. Surprisingly, there are a reported 3.5k Airbnb listings already in Dubai, with the number having doubled over the past year. It will be interesting to see what other players in the sector think of this development.

Early data from STR Global points to disappointing reading for Dubai’s hospitality sector, as all April indicators head south – including average daily rates (15.4% to US$ 210), RevPAR (16.0% to US$ 168) and occupancy rates (0.9% to 79.7%) – compared to a year earlier. The month witnessed a 6.1% increase in supply, marginally higher than the demand figure of 5.2%. Over 25% of Dubai’s 4.1 million Q1 visitors were from the GCC, whilst India recorded a double-digit increase in numbers.

Of the 80.9k rooms and 251 properties under construction in the ME (40.9% higher than last year), Dubai lays claim to 20.3k and 65 hotels of that total.

Within a year, the emirate’s first dedicated furniture shopping mall will open for business in Al Barsha. The US$ 82 million MMS Gulf project, the Art Centre, is to be built by Airolink and will comprise over 100 retail outlets.

The world’s largest themed retail mall, Ibn Battuta, just got bigger, with the opening of a further 60 retail outlets encompassing a 300k sq ft extension. This will be followed over the next four years by an additional 4.7 million sq ft of space, bringing the total area to over 7 million sq ft.

IKEA has opened its first ME distribution centre in Dubai South. With 200 employees, and covering 100 sq mt, the facility will service the Swedish retailer’s 7 GCC stores.

In a bid to ease traffic congestion on SZR, the RTA has awarded a US$ 91 million contract to upgrade infrastructure in the Business Bay area. Work will include two bridges, three underpasses and 4 km of new roads.

Dubai Municipality has confirmed a massive US$ 3.4 billion, 5-year contract with Parsons Overseas to build a 70 km underground sewage system. Disruption will be minimal, as the building of the 90 mt deep tunnel, supported by 140 km of link sewers and pumping stations, will utilise micro technology, so that there will no digging up of roads.

DP World opened its first Turkish terminal, covering an area of 460k sq mt, with a 1.3 million container capacity. Located in Izmit Bay, DP World Yarimca is one of the country’s largest facilities and will be a welcome driver to boost the current US$ 6.9 billion trade between Turkey and Dubai.

In a bid to attract more airlines, Dubai Airports is offering special incentive deals for those who move operations to the new Al Maktoum International – Dubai World Central. With a current capacity of 5 million – building up to 26 million by 2018 and 250 million when fully operational – the facility serviced only 258k passengers in Q1.

The DMCC goes from strength to strength, with latest data indicating a massive 18% surge in company numbers to over 12k, including 500 retail outlets and 92 educational facilities, housed in 66 mixed-use tower blocks. The Dubai Gold & Commodities Exchange has also expanded actual numbers by 23.0% to 14.5 million traded contracts.

One of the main aims of the newly launched Dubai Health Strategy 2016-2021 is to boost medical tourism. Comprising 98 initiatives, the comprehensive plan is in line with international best practices and will transform Dubai Health Authority into a world-class body.

The Department of Economic Development has instructed Dubai businesses to use Arabic as the main language for invoices, receipts and menus, as from next year. The move will be phased in over a period of time.

Dubai’s 2015 trade in perfumes and cosmetics stood at US$ 5.6 billion, comprising imports at US$ 3.3 billion, reexports – US$ 1.7 billion – and exports, totalling US$ 0.6 billion; this equates to a 25% hike in the five years to 2015.

The DED has established Dubai Ventures Network – an angel investor service with the aim to help SMEs with investments of up to US$ 100k, as well as to set up a SME-dedicated “ecosystem”. Having teamed up with European Trade Association for Business Angels, the venture already has a pool of 25k potential investors, in addition to a further 200 locally. It is estimated that, despite US$ 820 million having been invested in regional SMEs, more than 80% of such entities rely on self-financing.

With the sector forecast to grow 30% over the next five years, Dubai Investments has signed a US$ 68 million 51:49 agreement with Abu Dhabi’s Bildco to construct a steel plant. When operational next year, the factory will be able to produce 300k tonnes of reinforced steel bars per year.

It is reported that Abraaj Group is in discussions to team up with other investors to acquire a minority share – up to 35% – in Barclays’ African unit. With more than 12 million customers, in 12 countries, Barclays Africa is South Africa’s third largest bank and could be worth in the region of US$ 7.5 billion. The Dubai-based private equity firm is also active in the African health sector; last week it announced plans to spend US$ 500 million for a mid-tier hospital business and is targeting key cities, including Nairobi, Lagos and Johannesburg, to create much needed healthcare ‘clusters’.

Meanwhile Fajr Capital has acquired a stake in Cravia Group, a food franchiser, with UAE rights to brands including Cinnabon and Zaatar W Zeit. Details of the investment were not disclosed but the cash injection could be used for expansion both locally and in the new markets of Bahrain and Qatar. The Dubai asset manager has also teamed up with KKR as one of four bidders for a majority share, valued in the region of US$ 1.5 billion, in National Food Products Company; the Abu Dhabi company’s brands include Lacnor, Milco and Oasis Water.

A member of Emaar Properties, Emaar Industries & Investments, has acquired a major stake in Leaders Fort Contracting for an undisclosed fee. The UAE-based LFC specialises in industrial flooring, protective coatings, concrete repair technology and MEP.

After a successful debt restructure with its creditors, Limitless is set to pay its creditors their outstanding balance of US$ 1.2 billion in three equal instalments – 2016, 2017 and 2018 year ends. However, the real estate developer has indicated that it will pay the first instalment and 80% of the second, totalling US$ 564 million, this month, with the banks receiving US$ 518 million (being 43% of their outstanding balance) and trade payables US$ 44 million, equating to 28% of monies owing.

Since the establishment of its Zakat fund in 2004, Emirates Islamic has supported over 28k needy cases and in 2015 it disbursed US$ 7 million for charity purposes; this year to date, the bank has already distributed US$ 8 million. Now with its recent growth, it has set up a formal charity fund.

CBI is planning to raise its capital base by over 50% to US$ 708 million; the bank will issue 869 million shares of US$ 0.27 each.

Network International has raised a 6-year, US$ 350 million loan facility to acquire Emerging Markets Payments, a leading regional payments processing company. NI is jointly owned by Emirates NBD (51%) and 49% by Warburg Pincus and General Atlantic (49%).

Drake & Scull’s woes continue as the embattled contractor recorded a 61.0% fall in Q1 profit to US$ 3 million, with revenue dropping 7.2% to US$ 281 million.

Although still in negative territory, Arabtec’s Q1 figures showed an improvement over the same period in 2015; revenue was up 8.4% to US$ 529 million and a loss of US$ 13 million, compared to a US$ 76 million deficit last year. The full 2015 results had a bottom line loss of US$ 640 million.

The DFM opened on Sunday at 3345 and dropped 3.4%, in thin trading, and lack of market liquidity, to close on 3230 by Thursday (19 May 2016), debunking the theory that its progress or not is tied to the oil price. Bellwether stocks, Emaar Properties and Arabtec, lost ground – both down by US$ 0.05 to US$ 1.69, and US$ 0.03 to US$ 0.38 respectively. Trading volumes continue lower on Thursday at 279 million shares, valued at US$ 87 million, changing hands, (cf 370 million shares for US$ 113 million, the previous Thursday).

Brent crude is fast approaching US$ 50, up this week – 4.5% (US$ 2.11) to US$ 48.81 – whilst gold weakened, losing US$ 17 to US$ 1,255 by the Thursday (19 May) close.

In a bid to boost its LNG development portfolio, Australia’s Oil Search is planning to acquire the PNG’s InterOil for a reported US$ 2.2 billion.

As the oil services industry still reels from the oil price collapse, an all stock deal, valued at US$ 13 billion, sees Technip and FMC Technologies merge. The French company shareholders will receive 2 shares, whilst the Houston-based equity holders get one for one in the new entity.

A much bigger merger is on the cards as German drug-maker, Bayer, with a US$ 90 billion market value, makes a bid for agricultural conglomerate Santano, valued at US$ 43 billion. If the deal were to go through, it would create the world’s biggest supplier of pesticides and seeds.

A month after its US$ 160 billion plans to acquire Allergan were scuttled by US regulators, Pfizer is hoping to buy Anacor Pharmaceuticals Inc in a US$ 5.2 billion deal.

The Dutch electronics firm, Philips, is planning a US$ 792 million IPO, as it tries to hive off 25% of its lighting business. It is expected that trading in Philips Lighting will start on the Amsterdam’s Euronext bourse before the end of the month; the new entity will focus on the LED lighting market, whilst the remaining part of the company will target the health technology market.

Billionaire investor Warren Buffett has shocked the market by buying a US$ 1 billion stake in Apple – a move that saw its stock value, which had fallen over 30% in the past year, jump 3.7% to US$ 94. The purchase makes his company, Berkshire Hathaway, the tech company’s 56th largest shareholder.

With a further recall of 21 million vehicles, bringing the total to 51 million, Honda has seen the charge to address its Takata airbag inflator problems surge 263% to US$ 4.0 billion; the end result is that the carmaker made a Q4 loss of US$ 853 million, whilst annual profit fell 32.0% to US$ 3.1 billion.

On the basis that the US$ 1 billion investment in China’s Uber equivalent, Didi Chuxing, was to help Apple better understand the Chinese market, Chief Executive Tim Cook may have had ulterior motives. Perhaps the fact that the tech company needs to boost its iPhone turnover in China, and also to get a foothold in car technology, may have prompted this investment.

Confirmation that China is expanding its gold reserves came with news that ICBC, the world’s biggest bank by assets, was acquiring a huge vault in London, capable of holding 2k metric tonnes. Currently, the country accounts for more than 25% of the global demand for the yellow metal.

With its economy growing at an annualised 1.7% rate in Q1, having fallen into negative territory in Q4, Japan has averted going into recession. The world’s 3rd largest economy continues to have export and business investment problems to overcome and the outlook for increased consumer spending, which accounts for 60% of economic growth, is unclear. Prime Minister Shinzo Abe still has to maintain negative interest rates and expand his QE program to maintain momentum and stimulate the economy. What seems certain is that he will have to postpone this month’s proposed 2% sales tax increase to10%.

A recent World Bank report warns that over the next 30 years, 1.3 billion people and a massive US$ 158 trillion in assets will be affected by extreme weather and changing climatic conditions. Two examples cited were Indonesia, where chances of flooding from rivers overflowing will increase by 166%, and Kathmandu could witness 50% more earthquakes, in the wake of increasing numbers of slums being built.

As trade tensions heighten, the US has more than quintupled import duties on Chinese-made cold-rolled flat steel, with the accusation of them selling products below market price, i.e. dumping. Along with many other countries, including the UK, the US is unhappy with this unfair competition which it is claimed has cost 12k jobs.

There were three April indicators that the US economy is on the way up; consumer prices at 0.4% rose at their fastest pace in three years, whilst housing starts were up by 6.6% equating to 1.17 million units annually as industrial production rose 0.7%. With the economy picking up steam, there is a good chance of the Fed hiking up rates at their June meeting.

Figures recently released by the Treasury Department show that the UAE holds US$ 62.5 billion of US government debt – some way behind its neighbour, Saudi Arabia, with US$ 116.8 billion but well ahead of other GCC countries, including Kuwait (US$ 31.2 billion) and Oman (US$ 15.9 billion). (The two global leaders of US public debt are China – US$ 1.25 trillion – and Japan – US$ 1.13 trillion).

Coincidentally, this week, the US Senate passed legislation on Tuesday to allow 9/11 families to sue the Saudi government which had earlier threatened to pull out funds if this event happened. However, with latest estimates of US public debt at US$ 19,188,102,413,249, this Saudi balance is little more than A Drop In The Ocean!

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