Something Going Wrong

old-traffordThe big local financial story of the week was the launch of the region’s largest e-commerce platform, the US$ 1 billion Noon.com, headed by Emaar chairman, Mohamed Alabbar. Saudi’s Public Investment Fund will finance 50% of the project whilst several unnamed local investors will cover the balance. With the principal aim of becoming the dominant online retail portal, the website goes live in January, with 20 million line items for sale.

Sporter.com has seen Investment House Gulf Capital buy a controlling stake in its online sports and nutrition supplements business; no figures were made available. The Dubai-based retailer is a major player in the local nutrition supplements market.

Souq.com has launched its online hypermarket – Souq Superstore. The Dubai-based e-retailer is hoping to tap into the expanding online groceries sector as a recent Morgan Stanley Research study expects such shopping to grow from 21% to 34% this year.

Dubai’s car booking service Careem has signed an agreement with Apple that now allows users to book rides by using Siri.

Work has started on Shapoorji Pallonji’s first ever project in Dubai – the 45-storey Imperial Avenue residential tower. The US$ 350 million development in Business Bay will house 424 apartments, ranging in price from US$ 400k (1-bedroom) to US$ 3.1 million (5-bedroom penthouse).

In their fifth deal, the Intercontinental Hotels Group has agreed with Al Futtaim to manage its 520-key Holiday Inn Dubai Festival City, slated to open within a year.

Q3 saw an upturn for Dubai hotels as profit per room moved up 7.8% to US$ 62 – compared to a 13.0% year on year fall in H1, when both occupancy levels and average room rates dipped. By reducing staff numbers (payroll costs down 3.0%) and cutting other costs, the industry saw September profit per room nudge 0.4% higher. However, sobering October figures showed falls across the board, with Occupancy down 2.0% to 77.9%, ADR by 10.3% to US$ 209 and RevPAR by 12.0% to US$ 163. Furthermore, supply jumped 6.0% as demand only increased by 3.9%, year on year – never a good sign!

DWC reported Q3 passenger numbers up by 161% to just 192k (boosted by flydubai moving over some services), with cargo actually falling 1.6% to 216k tonnes. The airport’s capacity is expected to quintuple to 26 million passengers over the next twelve months; whether demand is up to this supply level remains to be seen in November 2017

When it comes to diamond exports, it is interesting to note that the UAE is the third largest behind India and the EU. Recent figures indicate that the country accounts for 15% of global trade, valued at US$ 84 billion.

Mubarak Rashid al Mansouri, the Central Bank governor, is concerned that local commercial banks are in danger of missing out on utilising dollar trades, via the US banking system. It seems that several international banks are becoming increasingly reluctant to deal with Gulf financial institutions, as regulations and due diligence on local customers become more onerous.

With three major indicators higher – education, clothing and utilities, up 7.17%, 5.68% and 4.59% respectively – it was no surprise to see Dubai’s October annual inflation rate higher at 2.67%. However, month on month, the rate decreased by 0.13%.

HE Sultan bin Saeed Al Mansouri estimates that the country could attract over US$ 70 billion in industrial investments over the next decade. The Minister of Economy reckons that this would push up the sector’s current 16% contribution of the GDP to 25%.

The Ministry of Finance announced that its e-dirham payment system has generated revenues of US$ 1.6 billion in the first nine months of the year, with transactions surging 20% to 15 million. Over the past nine months, there were 40.6% more e-cards issued, totalling 2.25 million.

For the second time in four years, the DFM-listed General Investment Company (GGICO) is trying to restructure its US$ 643 million loan portfolio; in 2012, it completed a similar US$ 763 arrangement. The current deal involves a creditors’ settlement of US$ 573 million, with the balance of US$ 70 million, relating to a 30 September outstanding balance.

Although troubled construction firm, Drake & Scull, posted another quarterly loss of US$ 13 million, Q3 was a major improvement on the US$ 239 million deficit recorded in the same period last year. The improvement came on the back of almost doubling its revenue to US$ 237 million and cutting costs, including impairment provisions.

In a similar vein, Arabtec has followed the same route in Q3 with revenue up 24.8% to US$ 545 million and a reduction in the quarterly loss from US$ 257 million to US$ 61 million. Its current backlog amounts to US$ 5.4 billion.

Union Properties posted a 70.8% plunge in Q3 profits to US$ 9 million, as YTD surplus sank 7.7% to US$ 40 million. Both Q3 and YTD income headed south – by 22.9% to US$ 69 million and US$ 231 million respectively. The developer’s assets were marginally higher at US$ 2.3 billion.

Shuaa Capital reported another quarterly loss of US$ 10 million as revenue climbed 42.0% to US$ 13.3 million. YTD, the Dubai-based company has reported losses of US$ 31 million, compared to US$ 8 million a year earlier. Abu Dhabi Financial Group has received approval to purchase 48.36% of Shuaa Capital from Dubai Banking Group, a subsidiary of Dubai Group. No financial details were made available but the deal should be finalised shortly.

AMAN (Dubai Islamic Insurance and Reinsurance Co) returned to profit of US$ 227k in Q3, after posting a loss of US$ 310k in the same period last year; however, YTD, the company headed into negative territory with a loss of US$ 894k, following a profit of US$ 1.61 million last year.

Having started off the year so well, Amlak Finance posted a massive fall in Q3 profits to US$ 2 million from US$ 15 million in the same 2015 period, as revenue from land sales dried up.

Last Thursday, Amanat was the dominant trade on the local bourse with 182 million shares, jumping 6.9% to US$ 0.25. On Sunday, it announced a 236% hike in Q3 profits to US$ 4 million (YTD – US$ 10 million). The Dubai-based healthcare and education company has seen YTD asset balances rise by 77.7% to US$ 100 million, including investments in Saudi Arabian healthcare operator Sukoon International and a 16.34% stake in Madaares, a UAE K-12 primary and secondary education provider.

Following on from the Bank of China in March, the Industrial and Commercial Bank of China has become the second Chinese financial institution to become a settlement bank for the Dubai Gold & Commodities Exchange. The world’s largest bank by assets also joins Bank of Baroda, Emirates NBD, HSBC and Standard Chartered as a settlement bank for the Dubai Gold & Commodities Exchange.

The DFM opened Sunday at 3274 and regained all the 24 points (and more) it lost the previous week, to close on 3310 by Thursday (17 November 2016). Volumes, on the last day of trading, were on par with last week’s impressive return of 1 billion shares, valued at US$ 354 million, (cf 1 billion shares for US$ 327 million, the previous Thursday). More than 33% of trade involved Drake & Scull which finished on US$ 0.14. Over the week, bellwether stocks, Emaar Properties lost US$ 0.01 to US$ 1.82, whilst Arabtec was down US$ 0.02 at US$ 0.34.

Having shed 9.2% of its value over the past fortnight, Brent crude continued its downward trend falling 0.7% (US$ 0.42) to close on US$ 45.42; meanwhile gold headed in the same direction, down 3.9%, or US$ 49, to close on US$ 1,217 at Thursday’s (17 November 2016) close.

Economy Minister Alexei Ulyukayev has become the first Russian minister to be accused of taking a bribe. He has been charged with taking a US$ 2 million bung for giving favourable treatment to Rosneft, as it planned to take a 50% share in another state oil company, Bashneft.

There are reports that an IPO is in the offing for the 4-year old messaging app Snapchat that could net the Californian firm, with more than 100 million daily users, up to US$ 25 billion. This would not be a bad return, considering that founder Evan Spiegel rejected a US$ 3 billion offer from Mark Zuckerberg in 2013.

With a 2.2% year on year sales increase for the 12 weeks ending 06 November, Tesco, with 28.2% of the UK grocery market, was the only one of the Big 4 to record a jump in revenue – as Asda, Morrisons and Sainsbury’s posted declines of 5.0%. 2.4% and 0.7% respectively. The two German “upstarts” – Aldi and Lidl – saw their sales growth up 10.2% and 6.1%, their slowest rate since 2011.

Although revenue fell by 2.2% to US$ 4.32 billion, Europe’s biggest budget airline, Ryanair posted a 7.0% jump in H1 profits to US$ 1.25 billion, as passenger numbers surged 12.0% to 65 million and load factor increased by 2% to 95%. Its rival, easyJet, fared worse with a 28.0% slump in annual profit to US$ 619 million – its first profit decline since 2009.

Rakuten has signed a 4-year shirt deal with Barcelona which will net the Catalan club US$ 58 million a year; the Japanese on-line firm will take over from Qatar Foundation / Qatar Airways, who have been involved for the past four years. This is icing on the cake for Messi & Co, as Nike have signed a 10-year sponsorship deal that will bring in US$ 165 million a year from 2018.

On the other hand, Manchester United will be set to lose US$ 28 million a year in the likely event of not qualifying for next year’s Championship League. Its 10-year US$ 930 million Adidas sponsorship deal has a clause that payments would be cut by 30% for non-qualification. Furthermore, the club’s Q1 profit fell 76.0% to US$ 1.5 million on US$ 149 million revenue. More worryingly, its net debt has jumped 15.3% to US$ 418 million.

McLaren Technology Group is 50% owned by Mumtalakat, the Bahraini SWF, with the balance equally shared by Mansour Ojjeh and its long serving boss, Ron Dennis. At a time when the two shareholders wanted the Englishman to stand down, he has seemingly arranged a US$ 2 billion Chinese takeover bid for the group that owns the F1 team. Mr Dennis’s 36-year association with McLaren has come to a sticky end as he was voted out this week.

Alibaba Group Holding Ltd held its annual Singles Day on 11 November and saw a massive 32% surge in sales for that one day to US$ 17.7 billion, having reached the US$ 1 billion level within the first five trading minutes!

British American Tobacco has had its US$ 47 billion offer to acquire Reynolds American (with brands such as Camel, Philip Morris and Newport) rejected; BAT already owns 42% of the US tobacco company. Last year, Reynolds paid US$ 25 billion when it took over Lorillard but had to divest US$ 7.1 billion of assets – including the Kool, Salem and Winston brands – to Imperial as part of the deal.

Samsung Electronics will go ahead with an US$ 8 billion all cash offer for the US auto parts maker Harman, so that it can gain entry into the fast-growing driverless vehicle technology sector; this market is expected to reach US$ 100 billion by 2025.

It appears that Toyota will settle a US$ 3.4 billion US claim from owners of 1.5 million cars for inadequate rust protection involving Tacoma compact pickups, Tundra full-size pickups and Sequoia SUVs. Last week, the world’s largest carmaker saw its H1 profits nosedive 24.3% to US$ 9.1 billion, as revenue dipped 7.2% to US$ 125.7 billion.

Finally – some good news for Japanese prime minister Shinzo Abe as Q3 GDP rose, for the third consecutive quarter, to an annual rate of 2.2%. The main driver was higher exports, helped by a falling yen thus making goods, from the world’s third largest economy, cheaper on the global stage. However subdued domestic demand still remains a major problem that is holding back further economic growth, along with keeping inflation at historically low levels (with latest indications being that the 2% target will not be reached until Q1 2019).

It will come as a surprise to some local observers that the spectre of non-payment is not unique to Dubai companies. Australian research by its Ombudsman (a good idea here?) estimates that up to US$ 20 billion is owed in unpaid invoices by large companies and government agencies to SMEs; this has a direct impact on the livelihoods of over 5 million Australians. Further study shows that 90% of all small companies fail because of poor cash flow (often because of non-payments). The average SME is owed US$ 10k and spends 12 days a year chasing outstanding invoices.

Latest figures from China indicate a 6.1% year on year hike in October industrial production – no change from a month earlier. Other indices showed fixed asset investment at 8.3% and retail sales touching 10%.

Since taking power in 2014, it is estimated that Indian Prime Minister, Narendra Modi, has “found” US$ 18.5 billion of “black” money, including US$ 9.9 billion in his recent amnesty. There is a good chance that he has hit the jackpot with his latest attempt to curb further corruption by withdrawing the 500 and 1,000 rupee notes (representing 85% of the total currency in circulation). Within three days, over US$ 30 billion of old notes have been returned to banks.

There is going to be some hardship considering that it is estimated that 86.6% of all business transactions are in cash. However, this drive against corruption should boost the country’s economy particularly when the size of India’s black economy could represent over 20% of its GDP. (Perhaps coincidentally, ex-state minister G Janardhana Reddy has managed to splurge US$74 million on his daughter’s recent wedding – a novel way to get rid of redundant cash).

October financial data points to the US economy continuing to grow as retail sales, aided by strong vehicle transactions (up 1.1%) and increased demand for building materials, were up 0.4% month on month and 4.3% for the year. There is every likelihood that the mid-December Federal Reserve policy meeting will announce the first and last interest rate hike for 2016.

A good indicator that all is not well in the eurozone was the release of Q3 data from its powerhouse, Germany, which reported slower growth at 0.2%, compared to 0.4% and 0.7% in the previous two quarters. Weaker exports and marginally higher imports, along with the now ubiquitous Brexit “excuse”, were the main drag factors. Similar disappointing results are bound to follow from many other members of the bloc but it is expected that Germany will have slower growth than the eurozone average of 0.3%. Political uncertainty – along with elections in Netherlands (March), France (May), Germany (September) and maybe Italy – will have an adverse impact on 2017 growth which will do well to reach 1.3%.

The EU has also warned eight members, that they are at risk of breaking its rules because of excessive budget deficits that should not be more than 3% of GDP. None of the eight has been fined for this, even though Spain and Portugal have posted deficits of 5.1% and 4.4% of their GDPs.

Although October UK inflation slipped 0.1% to 0.9%, the recent upward trend will continue and could treble to 2.7% by this time next year. One of the consequences of rising inflation could result in a hike in interest rates, although there is the chance of a slowdown in consumer spending as spending power dips with rising inflation levels. UK’s Q3 unemployment rate of 4.8% is at its lowest since Q3 2005

Google is yet another multinational that still has faith in post Brexit UK, as it plans to open a new London HQ that could see 3k new jobs for the City.

For the past eight years, interest rates have been close to zero and the Bank of England has been getting much flak for the situation. Now The Canadian-born Mark Carney, the Bank of England governor, has accused politicians and commentators of “massive blame deflection”. He reiterated that the cause of the low rates is beyond any decisions taken by the central bank and was “a symptom of the situation”. However, their current policies are evidently ineffective and patently not working.

Mr Carney was also one of many that predicted dire economic times if the UK were to vote for Brexit. Much of the data points to the fact that these pundits were wrong – the latest sees October retail sales growth, up 7.4% year on year and 1.9% month on month, at a 14-year high. There is Something Going Wrong.

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