The Way The Wind Blows

mark-carneyAccording to ValuStrat’s projections, there are already some indications of a slight firming up in home rents. Median asking rents were 1.3 per cent higher than in Q4-15 and 2.8 per cent over Q1-16. Clearly, some of Dubai’s landlords are confident enough to demand more. Whether they are getting is another matter. (The ValuStrat data is based on a selection of freehold clusters alone).

Tristar Engineering has won a US$ 82 million tender for infrastructure work in the Residential District of Dubai South (formerly known as Dubai World Central), for completion by the end of 2017. Last month, the authority awarded contracts totalling US$ 272 million for various project developments, within the same location.

Nakheel is planning another property in Dragon Mart – a 295-key, 3-star hotel – on a 5.6k sq mt site, with a built up area of 16.9 sq mt. The developer is scheduled to have 10 hotels in the emirate within the next five years.

Already with a presence in Nanaimo, Prince Rupert and Vancouver, DP World has signed a 30+ year lease to run one of Canada’s largest ports -St John in New Brunswick. The Dubai-based operator will start managing the container terminal next year and work with the port authority to manage and expand its operations thereafter.

With more than 90 brands in its portfolio, including Ace and Ikea, Al Futtaim is working with UK agency, Dalziel & Pow to create Homeworks – an upmarket DIY model. Initially, it has plans to open three trial stores in the MENA region.

According to a recent Alpen Capital report, a total of 1.4k new schools will be needed in the UAE within the next four years, as the number of students is set to rise by 19.0% to 15 million. The study indicates that the GCC will require 51k new establishments before 2020, of which 41.7k will be in Saudi Arabia.

Dubai Health Authority’s four main hospitals are seeing more patients, with H1 numbers up to 524k; Dubai Hospital accounted for 38.0% of the total followed by Rashid (33.1%), Latifa (16.6%) and Hatta (12.3%).

A break-up of the 273.5 million journeys made on Dubai’s public transport in H1 – up 0.8% on last year – is as follows:

Metro 96.5
Bus 69.9
Taxis 97.4
Marine 7.1
Tram 2.5

The RTA network accounts for 15% of Dubai’s total transport requirements, compared to just 6% a decade earlier. It is also considering a feasibility study for Dubai Tram’s phases 2 (Burj Al Arab and MoE) and 3 (Beach Road to 2nd December Street).

Emirates is reportedly planning to raise an 18-month US$ 2.5 billion bridging loan, at 135 points over Libor, to finance up to ten A-380s, for delivery this year. This may be replaced by funding from the European ECA, if it becomes available over this time period, before being converted to a standard 12-year facility.

Novus Aviation Capital has announced the purchase and leaseback of three Boeing 737-900ERs from Indonesia’s PT Lion Mentari Airlines. The Dubai-based private aircraft leasing company, established in 1994, co-owns and manages assets valued at around US$ 3 billion.

The Emirates NBD July manufacturing and services UAE PMI indicated that business activity rose from 53.4 to 55.3, as there were impressive growth in both output (up 3.2 to 62.1) and new orders (up 2.7 to 57.5).

The former head of the Ras Al Khaimah Investment Authority could face further charges relating to a US$ 1.5 billion fraud, after being convicted in absentia for causing “wilful loss to public funds and misfeasance in public office”. Dr Khater Massaad was chief executive of Rakia from 2007 – 2012 and reportedly had other business interests

The DIFC saw the value of cases heard in the Court of First Instance surge 47.6% to US$ 937 million in the first six months of the year. The number of enforcement and arbitration cases rose by 33 to 50 and 6 to 23, as the average claim rose to US$ 8.4 million (from US$ 1.6 million) and fell to US$ 22.3 million (from US$ 36.0 million) respectively.

MAF Group posted a 10.9% hike in H1 revenue to US$ 4.1 billion as its EBITDA (earnings before interest, tax, depreciation and amortisation) rose 5.6% to US$ 518 million. The local conglomerate, with total assets valued at US$ 14.2 billion and a net debt of US$ 2.7 billion, has several divisions including Retail, Properties and Ventures. The former saw both revenue and EBITDA up by 9.0% to US$ 3.4 billion and 2.0% to US$ 159 million; during the period, it opened 11 new stores, bringing its total number of outlets to 160 across 15 countries.

Dubai Investments, which owns over 40 JVs and subsidiaries, reported H1 total income up 18.1% to US$ 373 million, as profits, attributable to shareholders, nudged 2.0% higher to US$ 141 million, At the end of June, the firm’s total assets were valued at US$ 4.3 billion, compared to total liabilities of US$ 1.2 billion.

Dubai International Capital, the international investment arm of Dubai Holding, is reportedly seeking potential buyers for its UK engineering company – Doncasters Group – valued in the region of US$ 2.2 billion. The private equity firm acquired the aerospace parts maker from RBS in a 2006 deal, worth US$ 923 million.

After last week’s acquisition of 9.9% of Aramex, Mohammed Alabbar has led another company, Jaona Investment, to buy a further 6.55% in the Dubai-based courier. It seems that this is part of a strategy to build an extensive regional e-commerce platform. Interestingly, this week, Australia Post (the world’s 4th biggest ecommerce logistics firm after DHL, UP and FedEx) has acquired a 4.5% stake in the courier company for around US$ 100 million.

Having sold his 9.9% holding in Aramex, its founder, Fadi Ghandour, is reportedly launching a US$ 500 million e-commerce venture capital fund. The Wamda Capital II fund will aim for early start up regional tech companies, with average investments of up to US$ 5 million and lower.

Gulf Navigation posted a 43.0% jump in H1 profit to US$ 4 million, as revenue increased by 6.1% to US$ 20 million; Q2 profits were up 40% to US$ 2 million on flat revenue of US$ 10 million. The Dubai-based shipping company still carries net liabilities of US$ 160 million and has accumulated losses of US$ 62 million.

Whilst Etisalat posted a 51.0% surge in Q2 profits to US$ 627 million, the country’s second telco, Du recorded an 11.3% slide in quarterly profits to US$ 121 million, as revenue remained flat, at US$ 836 million.

Emaar Properties posted a 7.6% hike in Q2 net profits to US$ 346 million, as revenue pushed up 6.6% to US$ 1.02 billion. Its shopping malls/hospitality sector and international operations contributed US$ 371 million (36.5%) and US$ 145 million (14.3%) respectively to the turnover figure. H1 revenue at US$ 2.84 billion was 23.0% higher than last year and resulted in a 12.0% increase in profit to US$ 676 million.

The DFM opened on Sunday at 3519 and fell back 1.3% to close the week on 3472 by Thursday (04 August 2016). Volumes, on the last day of trading, were at 171 million shares, valued at US$ 65 million, changing hands, (cf 461 million shares for US$ 156 million, the previous Thursday). Bellwether stock, Emaar Properties, was down US$ 0.03 to US$ 1.84, whilst Arabtec was US$ 0.01 higher at US$ 0.41.

Brent crude arrested its recent downward trend, closing the week US$ 1.59 higher at US$ 44.29 – whilst gold was much higher, up US$ 35 to US$ 1,367 at Thursday’s (04 August 2016) close.

Because of the state of the industry, there was no surprise to see Chevron record a 27.5% fall in Q2 revenue to US$ 29.3 billion, resulting in a net loss of US$ 1.5 billion. In H1, the oil giant had made a US$ 2.2 billion loss, compared to a US$ 3.1 billion profit over the same period in 2015.

Bedevilled by depressed commodity prices, Rio Tinto reported its worst profit figures in 12 years, as H1’s figures fell 46.6% to US$ 1.56 billion. Over the period, the mining giant has slashed spending by 48% to US$ 1.3 billion, sold under-performing assets, maintained capital spending at US$ 4 billion and managed to cut its net debt by 6.5% to US$ 12.9 billion.

In a US$ 35 billion deal, Uber has agreed to merge its Chinese business with its larger local rival, Didi Chuxing. The US firm has failed to make much impact in China since its 2014 launch and has put its annual losses at over US$ 1 billion; this deal sees it holding a 20% stake in the new entity. Also this week, Uber announced a US$ 500 million investment in a global mapping project, as a precursor of the driverless car era. The executive in charge of the project, Brian McClendon, was formerly head of Google Maps.

Having bought the Californian-based navigation software firm Telogis for an undisclosed amount and Yahoo for US$ 4.8 billion, Verizon is planning another acquisition. To further expand its reach in the vehicle tracking sector, the leading US wireless company hopes to conclude a US$ 2.4 billion deal for Fleetmatics Group – a company that saw its Q1 revenue increase by 21.0% to just US$ 79 million!

It is rather surprising to see that, despite the vehicle emission scandal, VW has taken over the top spot mantle from Toyota in H1 vehicle sales. The Japanese carmaker had held its No1 position for the past four years but its 4.99 million unit sales (down 0.6%) was not enough to beat VW’s 5.12 million (up 1.5%). GM’s unit sales fell by 1.2% to 4.76 million – but still good enough to secure 3rd place.

Tesla reported their 13th straight quarterly loss with a Q2 US$ 293 million deficit, as sales reached US$ 1.6 billion. Elon Musk’s electric car company also missed production targets of 17k units by 15.3%, whilst new orders were 67% higher than the same period last year.

Sony posted Q2 profits of US$ 205 million and remains on course to meet its annual target of US$ 775 million.

Alphabet, Google’s parent company, came out with stellar figures a week after Apple posted a disappointing 27.0% fall in Q2 profit to US$ 7.8 billion, on a 14.6% drop in revenue. It reported a 21.0% jump in revenue to US$ 21.5 billion, as its bottom line rose to US$ 6.9 billion.

It seems that new PM, Theresa May, is having second thoughts about the US$ 21.6 billion Hinkley Point nuclear power plant – the most expensive ever built! Just a day before its official launch, the government announced a 3-month delay to further review the details. Whether it is the costs, Chinese involvement (30.5% stakeholder) or the rate (US$ 122 per megawatt hour) agreed to pay the French builder, EDF, there are many that think it is a too high a price to pay.

Last month, it was the previous EU chief getting flak for joining a financial institution. Now it is the turn of the former Bank of England governor, Mervyn King, joining Citigroup as a senior adviser. This is the same man who has, in the past, reportedly described bankers as “incompetent and greedy” and he joins a long list of ex-government technocrats “going to the other side”; Ben Bernanke, the ex-Fed Reserve Chairman is employed by Pacific Investment Management Co and former US Treasury Secretary Timothy Geithner is with Warburg Pincus.

With all the scams and scandals in the industry, the surprising thing is the paucity of corrupt management being prosecuted and sent to jail. This week, three Anglo Irish Bank con men were sentenced to up to 42 months inside for manipulating US$ 8.0 billion in deposits by obvious sham transactions. The subsequent 2009 government bailout cost Irish taxpayers US$ 33.5 billion!

Despite doubling its H1 profits to US$ 3.3 billion, Lloyds expects a slowdown in growth, as interest rates will inevitably fall. Accordingly, it is taking measures to slash this year’s costs by a further US$ 530 million (and US$ 1.85 billion by the end of 2017). In the 4-year period to December 2017, UK’s largest bank will have seen its payroll reduced by 12k and the number of branches by 400.

Last week, major US banks and Deutsche had disappointing Q2 results – this week it is the turn of Barclays, as H1 profits tumbled 21.0% to US$ 2.7 billion. The bank is still paying the price for its past misdeeds and took a further US$ 530 million provision for costs associated with the Payment Protection Insurance (PPI) scandal.

HSBC posted a Q2 49.2% fall in pre-tax profit to US$ 3.1 billion, with H1 profit down 28.7% to US$ 9.7 billion; 83.5% of this total emanated from its Asian operations. The bank is also planning a share buy back in the region of US$ 2.5 billion this year. Meanwhile Standard Chartered reported a profit before tax figure of US$ 1 billion.

Barclays and RBS are among the 15 weakest of 51 leading European banks, based on tests by the European Banking Authority measuring how large financial institutions would fare in a major economic crisis. (RBS could still be fined up to US$ 10 billion by US regulators over its role in sales of mortgage bonds before the GFC). There is also real concern about the state of certain banks in countries like Italy and Portugal.

The RBA has cut Australia’s interest rate 25 points to 1.5% – a new record low. With inflation – at a 17-year nadir of just 1.0% – expected to remain at these levels, on the back of margin*      al growth in labour costs and low levels of business spending, this move is an attempt to boost growth.

As expected, Prime Minister Shinzo Abe approved a US$ 132 billion fiscal package to try and reboot the flagging Japanese economy. Three years of Abenomics – including promised structural reforms, a robust monetary policy and enhanced government spending – have failed to increase consumption and stimulate demand in the world’s 3rd largest economy. Whether these moves will meet the government’s aim to raise GDP by a further 1.3% is a moot point.

It seems that in 2010, the IMF defied its own rules by helping in the Greek bailout, despite widespread doubts about the country’s creditworthiness. Although involved in the first two bailouts, this last deal for a third US$ 96 billion rescue package did not include the fund’s participation – but there is mounting European pressure for their involvement again. It remains to be seen whether the fund will cow-tail to European (German) pressure, at the expense of the rest of the world. Under My Thumb

Q2 growth in the eurozone halved to 0.3%, compared to the previous quarter, as inflation rose 1 notch to 0.2% and the unemployment rate remained flat at 10.1%. Uncertainty following the Brexit vote is the reason given for these weak figures but the bloc’s problems have been apparent for a long time, with very little remedial action having been taken.

US Q2 figures disappointed the markets, growing at an annual rate of 1.2% – less than half of analysts’ expectations; Q1 figures were also revised downwards from 1.1% to 0.8%. Business investment lost 9.7% in the quarter, as inventories fell for the first time in five years, by US$ 8.1 billion. Furthermore, the country’s trade deficit widened, month on month, by US$ 2.2 billion to US$ 63.3 billion. However, it was not all bad news as consumer spending showed a major improvement at 4.2%. Nevertheless, the data seems to point to a rate hike later in the year, rather than next month.

Sterling took a tumble, falling at least 1% against other major currencies, when the Bank of England announced the expected reduction in interest rates from 0.50% to a record low of 0.25% – the first cut in over seven years. To help boost the flagging economy, governor Mark Carney increased BoE’s asset purchases by US$ 79 billion (buying gilts over the next 6 months) to US$ 570 billion and will oversee the buying of US$ 13.1 billion of corporate bonds.

Furthermore a US$ 131 billion Term Funding Scheme will allow high street banks access to cheap funding for both corporate and private consumption. Whether the triple whammy of almost negative interest rates, quantitative easing and further funding will work remains to be seen. Perhaps a weaker pound will help the country over the coming months as the Brexit turmoil continues to maintain economic uncertainty but we will have to wait to see The Way The Wind Blows.

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