Mr Know It All!

panguna-pngHH Sheikh Mohammed bin Rashid Al Maktoum has approved the 2030 Dubai Industrial Strategy, with the aim of generating a further US$ 44 billion to the emirate’s GDP. Its focus will be on six sectors – aerospace, aluminum, equipment, food and beverages, maritime and pharmaceuticals.

Emaar has awarded a US$ 272 million contract to Trojan General Contracting to build 1.4k Mira Oasis townhouses in the 2nd phase of its massive Reem project. Located adjacent to Arabian Ranches, the development is spread over three phases, due for staggered completion dates – December 2017, September 2018 and December 2018.

Jumeirah Golf Estates has sold all phase 1 of its Redwood Park project, due to be handed over in Q4. Prices for the 3-4 bedroom townhouses – overlooking the Fire golf course – start at US$ 681k.

Despite the reported slowdown in the Dubai realty sector, Damac has announced that is has already awarded 25 contracts, valued at US$ 817 million, in the first six months of the year. Its main contract has been for the construction of 2.7k villas in Akoya Oxygen. Currently, the developer has 31k residential units and 13k hotel rooms in various stages, from planning to work in progress.

The emirate’s hotel room portfolio, totalling 82.8 keys, had further stock added this week with the opening of the 356-room W Dubai – Al Habtoor City. This follows the introduction of The St Regis Dubai late last year, in the same location on the banks of the new Dubai Canal. The operator’s third property, Westin Dubai – Al Habtoor City, with 1k rooms, will open in Q3. (It is estimated that this year alone, Dubai will see an extra 10k rooms added to stock – and this after only 621 keys were added in Q1).

Nepalese CG Hotels and Resorts plan to build their first regional hotel in JLT – a 200-room luxury property. The company currently operates 100 hotels, with 4.4k keys, in 12 countries – a number that it plans to double by 2020.

It is estimated that 2015 activities at the Dubai World Trade Centre contributed US$ 3.3 billion to the emirate’s economy, equivalent to 3.1% of GDP. With an additional 15.5k sq mt extension last year, the venue has increased its capacity to 122k sq mt and hosted 2.7 million visitors at 396 trade exhibitions and conferences; of the 2.6 million who attended the 104 large-scale events, 42.3% were from overseas – providing a much needed boost to the hospitality, airline and retail sectors. (The same sectors would have also benefitted from the one million visitors who have flooded into Dubai during the holy month of Ramadan).

There will be slight price increases in July for petrol and diesel for the 4th consecutive month. The Ministry of Energy has announced a US$ 0.054 (1.1%) increase in Super 98 to US$ 0.51, whilst diesel jumps 4.5% to US$ 0.50 per litre

Expolink Consortium, led by Alstom, and including the Spanish company Acciona and Gulermak from Turkey, has won a US$ 2.9 billion contract to expand the metro’s Red Line by 15 km to take in the 2020 Expo site. The project, due for completion by Q4 2019, also includes the supply of 50 trains, with 7 new stations, and is expected to service 125k passengers daily.

The RTA is also planning a US$ 1.1 billion investment in upgrading the city’s road infrastructure and will reportedly issue tenders in the coming months. It would seem inevitable that there will be increases in charges, such as licence fees, salik and parking, to help fund such massive transport undertakings.

DEWA has awarded a Masdar-led consortium to build the 800-megawatt 3rd phase of the Sheikh Mohammed bin Rashid Al Maktoum Solar Park, to be completed by 2020. The total US$ 13.6 billion project, due for completion by 2030, will eventually produce 5k MW.

The amount of money the government pours into Dubai’s infrastructure can be seen from the fact it accounts for 35% of its budget expenditure – compared to the US total of 8%, UK’s 3% and Saudi Arabia’s 3%. In the same Unitas Consultancy’s report, it is estimated that there has been a 16.3 times increase in the value of Dubai’s freehold housing market to US$ 132.2 billion, over the past ten years.

The Investment Corporation of Dubai posted a 3.5% fall in profit to US$ 2.4 billion, mainly because of the collapse in energy prices, as that revenue sector fell 30.2% to US$ 13.5 billion. Nevertheless, the state-owned entity, with major stakes in local high profile companies – including Emaar, Emirates, Emirates NBD and Flydubai (transferred in last August) – increased its distribution to the government by 247% to US$ 1.9 billion.

Over the past 12 years, the government’s smart initiatives have resulted in direct cuts of US$ 1.2 billion. It has been independently calculated that there have been savings of US$ 5.6 for every US$ 1.0 spent under the Smart Government Dubai strategy.

Following similar developments in India and Malta, Dubai Holding is set to roll out its Smart City concept in Nigeria, following an agreement signed with the state of Lagos. This new African set up will be run on the same lines as Kochi Smart City in Kerala, expected to create 90k jobs by 2020, which includes 6.5 million sq ft dedicated for information technology and knowledge services.

The local healthcare group, DM Aster Healthcare, started in Dubai by Dr Azad Moopen as a single surgery, has filed papers with the Securities and Exchange Board of India for a possible IPO on the Mumbai bourse. The company, which now runs several hospitals, clinics and pharmacies and employs 1k doctors, will use the funds for future expansion plans in this booming sector.

It is reported that Emirates has appointed Christoph Mueller as its CTO (chief transformation officer), in charge of digitisation. The German was CEO with Aer Lingus from 2009 – 2015 and currently holds the same position with Malaysia Airlines.

Dubai-based RKN Global has pulled out of building a planned US$ 98 million factory in Slovakia, citing local opposition hostility and EU political uncertainty, mainly arising from the recent Brexit referendum. The facility would have manufactured ID and e-cards and provided employment opportunities for up to 1.4k in an area where unemployment tops 14%.

With a 70-year history in Dubai, HSBC has confirmed the transfer of its Middle East subsidiary (HBME) from Jersey to the DIFC that will see the transfer of US$ 40 billion in assets. The new addition will be housed in the bank’s 20-storey tower, being built in Downtown, that will also house all the bank’s 4k local employees when opened in 2018.

Yet another major bank – following the likes of SCB and HSBC – is planning to move its HQ to Downtown. Mashreq has awarded a contract to Arabian Construction Company to build a 151mt tower, which will be completed within three years.

DIB, the emirate’s biggest Sharia-compliant bank, reported that its US$ 272 million recent rights issue was more than three times oversubscribed. Consequently, the bank’s updated share capital has increased to US$ 1.35 billion, with the new cash being used for expansion purposes and to meet the more stringent regulatory requirements.

On Tuesday, shareholders of Dubai Parks & Resorts voted to change the company’s name to DXB Entertainments ahead of its planned October opening of three theme parks – Bollywood, Motiongate, and Legoland, along with a Legoland Water Park. The park operator also has an exclusive contract with the US-based Six Flags and is to open a park in the same location by 2019. (Notwithstanding this agreement, and following a directive from HH Sheikh Mohammed bin Rashid Al Maktoum, the company has agreed to provide all support if Six Flags were to set up in Saudi Arabia).

Nasdaq Dubai, the largest global exchange of its kind, now has Islamic bond listings totalling US$ 43 billion, following DP World’s latest US$ 1.2 billion sukuk.

The DFM opened on Sunday at 3368 and shed most of the previous week’s gains, falling 1.7% in ever so thin trading to close on 3311 by Thursday (30 June 2016). Trading volumes on Thursday were at 134 million shares, valued at US$ 65 million, changing hands, (cf 153 million shares for US$ 55 million, the previous Thursday). Bellwether stock, Emaar Properties, was down US$ 0.05 to US$ 1.69, whilst Arabtec dropped US$ 0.01 to US$ 0.37. YTD both shares showed rises of 8.96% and 8.80%, as the DFM rose by 5.08%.

Brent crude fell back – shedding US$ 0.40 to US$ 49.71 – whilst gold recovered – up US$ 22 to US$ 1,320 by the Thursday (30 June 2016) close. Evidently, the Brexit referendum, seeing the possibility of the UK pulling out of the EU, had little effect on these commodities.

The Abu Dhabi government has announced that it is considering a US$ 135 billion tie up between its investment fund, Mubadala International, and International Petroleum Investment Company. The former is responsible for investments that will add value to Abu Dhabi’s economy, whilst IPIC’s role is to make investments in the energy sector; it already owns Spain’s Cepsa and Canada’s NOVA Chemicals and is currently in dispute with Malaysia’s SWF, 1MDB, over a US$ 6.5 billion debt. Having made profits of US$ US$ 1.5 billion and US$ 2.2 billion in the preceding two years, IPIC posted a 2015 loss of US$ 2.7 billion, citing low energy prices, write-downs and difficult market conditions for the reversal in fortunes.

It is reported that VW has come to a final settlement, totalling US$ 14.7 billion, arising from its fraudulent emission tests in the US. The disgraced German carmaker has set aside US$ 10 billion to repair or buy back the 475k affected vehicles and pay compensation to owners of up to US$ 10k. A further US$ 2.7 billion will be set aside to offset excess diesel emissions and US$ 2 billion for research. VW posted a US$ 7.3 billion provision in its 2015 accounts but the final figure could be in excess of US$ 40 billion when a potential US$ 20 billion penalty for Clean Air Act violations is considered.

Another carmaker with problems is Toyota that has announced a 3.4 million-vehicle (half of which are 2008-2012 hybrid Prius and Lexus CT200h models) recall owing to faulty airbags and/or fuel emission controls.

In a moribund environment that has seen no technology IPO, of more than US$ 150 million in 2016, the news from Tokyo is welcome. Japan’s number 1 mobile-messaging service, Line Corp, plans a US$ 1.1 billion IPO later in the year and to use the funds to target both the local and US markets. The company had hoped to carry out this exercise two years ago and the delay may have seen its value drop by US$ 3 billion, as competition from the likes of Tencent Holdings and Facebook has eroded their share in the Japanese market. The IPO puts the market cap of Line at US$ 6.6 billion, compared to US$ 10 billion in 2014, although it made a loss of US$ 75 million on revenue of US$ 1.2 billion.

In what would result in the world’s largest confectionary company, with 18% of the market, Mondelez has offered US$ 23 billion for Hershey, currently the second biggest behind Mars which controls 13.3% of the sector. The main shareholder, the Hershey Trust – a US$ 12 billion charity – has rejected the initial bid.

Airbnb is currently sourcing finance for future domestic and international expansion plans, following which the San Francisco-based company could be worth in excess of US$ 30 billion, having tripled its value over the past two years; this includes a sevenfold increase from Chinese travellers.

As happened last year, both US operations of Deutsche Bank and Santander have again failed the Federal Reserve’s annual stress test, with all other 31 banks tested passing; however Morgan Stanley only received approval on condition that it submitted an updated capital plan later in the year. The tests are used to see whether financial institutions could keep operating in the event of a severe economic crisis, such as occurred in 2008.

Rio Tinto has transferred its 54% stake in Bougainville Copper to an independent trustee, some 27 years after the Panguna mine closed due to civil unrest. What makes this a surprising move is that in its 2014 annual report, the world’s second biggest miner reported the mine’s reserves at 19.3 million oz of gold and 5.3 million metric tonnes of copper – which would be valued today at US$ 51 billion! There were many reasons for the civil war that closed the mine, including a growing support for secession from the mainland and a belief that the PNG government was receiving a disproportionately large share of benefits from the mine.

With a Q1 revision, the US economy grew faster than initially reported – from 0.8% to 1.1% – on the back of stronger exports; on the flip side, consumer spending was adjusted down to 1.5%. Q2 growth is expected to come in at the higher rate of 2.4% but later in the year, the figures could be affected by the recent Brexit vote.

By and large, it has been a good 2016 to date for the global economy if figures below are anything to go by. 13 of the 16 indicators point north, with the biggest half yearly gains being Brent (36.57%), silver (34.80%), gold (24.53%) and the rouble (14.71). Sterling’s problems began well before Brexit and can be seen from the latest current account deficit figures whilst the other big loser CSI300 is returning to its pre-bubble level.

The FTSE 100 is 4.20% higher YTD but it is its performance since the referendum that needs noting – up 3.9% – on the back of the fact that most of the companies on this bourse have large non-sterling revenue streams. A better barometer on the health of UK businesses is the FTSE 250 where the improvement has been slower and although 1.7% higher at 16,271, it is still 6.1% lower than its 22 June reading of 17,333.

H1
% Unit 30 Jun 22 Jun Mar 16 Dec 15 Sep 15 Jun 15 Dec 14
24.53% Gold US$ oz 1,320 1,276 1,242 1,060 1,114 1,174 1,186
12.77% Iron Ore US$ lb 53 52 55 47 57 62 73
36.57% Oil – Brent US$ barrel 49.71 50.05 37.52 36.40 48.70 63.05 57.33
17.74% Coffee US$ lb 146 143 128 124 121 131 161
1.56% Cotton US$ lb 65 65 58 64 60 68 62
34.80% Silver US$ oz 18.63 17.38 15.45 13.82 14.57 15.68 15.77
1.40% Copper US$ lb 2.17 2.17 2.18 2.14 2.38 2.62 2.88
1.37% AUD US$   0.74 0.75 0.77 0.73 0.71 0.77 0.81
-10.81% GBP US$   1.32 1.48 1.44 1.48 1.52 1.57 1.53
1.83% Euro US$   1.11 1.14 1.14 1.09 1.11 1.11 1.21
14.71% Rouble US$   0.16 0.15 0.14 0.14 0.15 0.18 0.17
4.20% FTSE 100     6,504 6,262 6,175 6,242 6,061 6,521 6,548
-15.47% CSI300     3,154 3,134 3,214 3,731 3,195 4,409 3,532
2.69% S&P 500     2,099 2,085 2,060 2,044 1,887 2,063 2,091
5.08% DFMI     3,311 3,376 3,356 3,151 3,593 4,087 3,774
-0.65% ASX AllOrd     5,310 5,350 5,083 5,345 5,021 5,451 5,415

The market has not been helped by the fact that the two main parties in the UK – Conservatives and Labour – are facing leadership races with current incumbents, David Cameron and Jeremy Corbyn, little more than dead ducks. The process could take up to three months, during which time a lot of dirty washing will be hung out. Democracy at work is sometimes not a pretty sight!

It seems that, in Luxemburg, whistle-blowers are hung out to dry, as two former PwC employees have been found guilty in the so-called Luxleaks tax scandal. The huge exposé of favourable corporate tax deals that many companies – including Apple, Ikea and Pepsi – had with the duchy occurred when the current President of the EU, Jean Claude Juncker was Prime Minister. An apparent case of the poacher now turning gamekeeper!

Just as the eurozone moved out of negative territory – up a marginal 0.1% – it seems that the Brexit vote will see the bloc return to deflation. This seems to be a poor return for the huge ECB stimulus programme that has failed to jump-start the sluggish economy. It will be some time before the ECB attains its target of 2% inflation, despite introducing negative interest rates and acquiring corporate bonds – a programme that could be seen to favour the corporate heavyweights. The fragile state of the economy was reflected by its credit rating being cut from AA+ to AA.

Meanwhile the UK’s credit rating was cut two notches from AAA, as a direct consequence of the Brexit vote that also pushed sterling to its lowest level against the greenback in over 30 years, closing Thursday at US$ 1.32. The UK’s current account deficit topped a record high US$ 43.4 billion in Q1, as the economy grew 0.4%. Three of George Osborne’s main aims have been to remain in the EU, to protect the country’s AAA rating and cut back the deficit. Not a good week for Mr Know It All!

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One Response to Mr Know It All!

  1. shallowthinking says:

    Reblogged this on Shallow Thinking.

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