Time To Say Goodbye

brexitAlthough there are still pundits who forecast that residential prices will continue to fall, basic economic laws dictate otherwise. Over the past 18 months, it is estimated that 23k units have been handed over, including 5.5k in H1; supply is being manipulated and phased in, with developers keen not to flood the market. During that time, supply has expanded only 5.9% to 405k, whilst Dubai’s residential population (demand) has grown by 8.1% (189k) to 2.516 million.

According to Global Capital Partners, Emaar and Nakheel deliver about 44% of all residential units in Dubai, as government-owned developers have accounted for 56% of all new homes released over the past 4 years. However, with Damac having 40k units in the pipeline, private developers may predominate in the future.

Damac has reported that it has already sold 800 apartments in its mixed-use Aykon City development, overlooking the Dubai Canal. With phase 1 having sold out, the developer is launching phase 2 before the end of the holy month of Ramadan.

After a sell-out of the initial launch of its Sharia-compliant apartments development, Ghalia, Damac has announced a further release. The 742-key, 38-storey project, located in Jumeirah Village, is an opportunity for the Dubai developer to tap into the expanding global halal tourism market which was worth US$ 145 billion last year. The emirate is the second most popular global destination in this sector after Malaysia.

Eastern International LLC has secured a US$ 62 million Limitless contract to complete the final 30% work on its two residential towers at The Galleries, at Downtown Jebel Ali. The mixed use development, comprising 641 apartments, should be completed by the end of next year – a decade behind schedule.

To help fund on-going developments, the Meydan Group has sourced finance of Dhs 272 million, by dint of a US$ 190 million sukuk and a US$ 82 million term facility.

Official approval has been given for the RTA to build the US$ 91 million EC3, in readiness for Expo 2020. The Green Enterprise Command and Control Centre will be used to manage public transport, as over 20 million visitors descend on the site over a six month period starting October 2020.

Using funds from its own cash resources, Emirates has repaid a 5-year, US$ 1 billion bond on maturity and will settle a US$ 110 million facility later in the month: this brings the total of its repaid sukuks over the past five years to US$ 2.8 billion. The airline is expecting delivery of 36 aircraft this year.

Dnata has bought a shareholding in Destination Asia Group, its first foray in the Asian inbound travel sector. Details of the size and value of the stake are unknown. The Bangkok-based company, with 700 staff, was founded in 1996 and has a presence in 11 regional countries.

Dubai International recorded a 7.2% increase in April passenger traffic to almost 7 million, as YTD numbers moved 6.9% higher to 27.9 million. There were double digit growth figures emanating from Eastern Europe (12.6%), Asia (12.1%) and GCC (10.3%). Cargo traffic for the month came in 4.8% higher, at 214k tonnes, whilst the YTD rise was 3.8%, at 829k tonnes.

With net current liabilities of US$ 165 million and accumulated losses of US$ 64 million, 30% of Gulf Navigation’s shareholders have failed in a bid to raise the company’s authorised equity from US$ 150 million to US$ 1.36 billion.

Government-owned, ENOC, has signed a financing agreement for a US$ 230 million unsecured loan from the Industrial and Commercial Bank of China Ltd (ICBC). The funds will be used for future business expansions, including both its retail and exploration sectors, which will see its revenues grow even faster than the 45% seen over the past five years.

The UAE Space Agency and NASA have signed an agreement that could see both countries sharing spacecraft, technology and research information in their joint quest to explore Mars. This is an important step in further improving long-standing political, cultural and economic bilateral ties that will see both nations uniting to go where no man has been before.

Alubond, the Ajman-based company, that supplied the cladding panels for The Address Hotel that caught fire on New Year’s Eve, will no longer manufacture the inferior non-fire rated panels. Over the past three and half years, there have been at least 11 towers that have caught fire and it is inevitable there will be imminent changes to the UAE Fire and Life Safety Code. The company, which has 50% of the country’s cladding market, will focus on panels that are fire resistant and able to withstand temperatures of 332 degrees.

By the end of March 2016, Dubai’s non-oil trade topped US$ 87 billion, with imports, exports and reexports at US$ 53 billion, US$ 10 billion and US$ 24 billion respectively. The top 3 items, accounting for almost half of the total imports, were mobile phones (21.9%), gold (16.3%) and diamonds (11.7%). The emirate’s top 3 trading partners remained unchanged, with China (US$ 10.6 billion), India (US$ 6.3 billion) and USA (US$ 6.0 billion).

Dubai’s inflation rate continues to head south with May’s year on year CPI of 1.4% compared to the previous month’s figure of 1.9%. The main drivers were the cut in many food items (with the onset of the holy month of Ramadan), along with slowing housing and utility costs.

The Ministry of Finance issued early notice of the upcoming VAT regulations. In phase 1, there is compulsory registration for all companies, with annual revenue of US$ 1 million, whilst it remains an option for entities with revenue of between US$ 510k and US$ 1 million. At a later date to be disclosed, Phase 2 will see registration being mandatory for all participating companies. It is thought that the tax, at 5%, will be introduced in all GCC countries by 01 January 2018 and education, health care and staple foods will be exempt. The UAE is forecast to generate first year tax revenues of between US$ 2.7 billion and US$ 3.3 billion –collection and other indirect costs are unknown.

The IMF has forecast that GCC countries could boost their GDP by 1.5%, with the implementation of this 5% VAT levy. Interestingly, this is just slightly less than the contribution made by the oil and gas sector to Dubai’s GDP which has fallen to less than 2% from 55% in 1981. When all factors and ancillary costs are considered, the question is whether this will prove beneficial to the emirate’s future progress. One inevitable impact of its introduction will be higher inflation.

The Bank of Khartoum has agreed to buy Etisalat’s 92.3% stake in the Sudanese fixed line operator Canar for US$ 95 million, after a move to sell its share to Kuwaiti firm Zain was blocked by Sudanese authorities. Having spent US$ 125 million in 2008, to more than double its share in Canar, the UAE telecom provider took a US$ 125 million impairment charge in 2012.

The DFM opened on Sunday at 3371 and fell 1.9% in exceptionally thin trading to close on 3308 by Thursday (16 June 2016). Trading volumes on Thursday were at 120 million shares, valued at US$ 49 million, changing hands, (cf 410 million shares for US$ 158 million, the previous Thursday). Bellwether stocks, Emaar Properties and Arabtec, both fell – by US$ 0.06 to US$ 1.70 and US$ 0.01 to US$ 0.38 respectively.

Having sailed past the US$ 50 mark the previous week Brent crude took a battering – down US$ 4.72 to US$ 47.21, whilst gold continued its recent bullish run – up US$ 25 to US$ 1,298 by the Thursday (16 June 2016) close.

In a surprise – and maybe desperate – move, Microsoft has made a cash bid to acquire LinkedIn for US$ 26.2 billion; at US$ 196 per share, this represents a premium price of 50% above current market value. This figure is well below the networking and job-search firm’s 52-week high of US$ 258. The tech company’s previous major acquisitions were in 2011, US$ 8.5 billion for Skype, and, in 2014, US$ 7.2 billion for Nokia’s mobile devices business; Microsoft’s CEO, Satya Nadella, will hope that this venture is more successful!

With the easing of international sanctions taking effect, there are reports that Iranair has agreed to purchase 100 Boeing jets, in an order worth US$ 30 billion. This follows Airbus winning a US$ 27 billion provisional order for 118 aircraft earlier in the year.

Sports Direct’s Mike Ashley has written to Duff & Phelps confirming his interest in BHS, the high street chain that has collapsed, with a loss of 11k jobs and a US$ 825 million pension black hole. There is hope that if dialogue can be reopened, parts of the former shopping empire can be saved.

With Chinese authorities seen to be cracking down on corruption, gaming revenues have been hit in Macau, the only place in the country where casinos are allowed. Consequently, Australia’s Crown Resorts, 51% owned by James Packer, has decided to demerge most of its assets there, represented by a 27.4% shareholding in two casinos, into a new entity allowing the parent company to focus on its domestic market and interests in Las Vega and Manila. On Thursday, its share value rose 15% on the news.

Established in 2006, the Libyan Investment Authority is claiming US$ 1.2 billion from Goldman Sachs, relating to 9 disputed trades carried out in 2008. The case, expected to last 7 weeks in London’s High Court, involves claims that the US bank encouraged the US$ 67 billion sovereign wealth fund to make risky and worthless investments. The LIA is also expected to take Société Generale to court over similar trades amounting to US$ 2.1 billion.

With news that the Japanese central bank was not to add further stimulus to boost the economy, the yen rose to its highest in almost two years to 104 v the US$, whilst the Nikkei fell 3% to 15,434 on export price worries.

Even after two years of trying, the Bank of England is still some way off its 2.0% inflation target, as May’s CPI remained unchanged at 0.3%. Comparatively low energy prices, coupled with low economic and wage growth, would indicate that the BoE target is still at least months away. However, the country’s unemployment total at 1.67 million, equating to under 5%, is the lowest since October 2005.

Next week’s Brexit referendum continues to spook global financial markets. It was a reason that the Federal Reserve did not move on rates and Chair Janet Yellen warned that it could have consequences for economic and financial conditions in global financial markets. Australian shares shed US$ 19.7 billion on Monday, as yields on German10-year sovereign bonds moved into negative territory for the first time ever.

Although other issues are in play – including the apparent ineptness of central banks to boost local economies, the continuing slowdown in not only the Chinese but also the world economy and US interest rates – the common factor is nervousness that the UK may indeed exit the EU. It is interesting to note that reports that sterling has tanked are untrue – on 31 March it was trading at 1.437 to the US$ – on Thursday (16 June) 1.436. (Whatever the decision next week, sterling will fall but only in the short-term).

With the Brexit poll only 7 days away, nobody really knows whether the country will be better off in or out of the 28-country EU bloc. For many, there are only two factors – economic and immigration – to consider but there is a third important issue. Just like in the US, where voters have ditched mainline political incumbents in favour of a maverick like Donald Trump, a majority of UK residents could be dumping the UK political establishment – manifested by the BBC (Blair, Brown and Cameron) – the European bureaucracy and international establishments such as the IMF and World Bank. Time To Say Goodbye?

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