Don’t Stop Believin’

diera-islands
With work having already started on the 550 million sq ft Dubai Wholesale City, the largest such hub in the world, a memorandum of understanding has been signed with The China Commodity City (CCC) Group. Dubai’s US$ 8.1 billion project will tap into the expertise of the leading global exporter and focus on developing wholesale trade and e-commerce, with the aim of expanding Dubai’s share in the sector that is expected to grow to US$ 4.9 trillion over the next five years.

The Omniyat Group is adding a further raft of projects, totalling US$ 1.36 billion, to its current US$ 4.3 billion portfolio. With financing already in place, the additions will include a luxury hospitality development on Dubai Water Canal and mid-market projects in locations such as Dubailand.

Over the past four months, Damac has awarded 15 major construction / consultancy projects, totalling US$ 243 million, bringing its total for 2016 so far to US$ 1.8 billion. In Q4, the developer will hand over 1.35k residential units in Akoya by Damac.

The Turkish operator, Rixos, is planning to add 13 new properties to its current portfolio of 27 over the next four years. One of the new hotels – Rixos Jumeirah Beach – will be their second in Dubai, following the success of its resort hotel at Palm Jumeirah.

Nakheel confirmed that infrastructure work on its massive Deira Islands project  was ahead of schedule with phase 1, including two of its four islands, 12 km of roads, 44 km of sewage lines and a connecting bridge completed.

Following a decade-long, double-digit growth in the retail sector, it is expected that this year will only see modest single digit expansion. Next year, Euromonitor International is looking at only 5.6% growth with the UAE retail topping US$ 59.8 billion, as e-commerce takes an increasing share of the market.

2016 has not been a good year for UAE car dealers, with annual sales down some 30%, and little indication of any improvement in the short term. With a current excess in inventory, supply is outstripping demand, resulting in a weakening of margins and profit levels, not helped by falling consumer confidence. However, vehicle numbers in the country are expected to expand from their current level of 2 million to 2.5 million by 2020, with new car sales up 4.5% pa to 267k by then.

DP World has announced the expansion of Rashid Port, as it aims to grow the cruise tourism sector in the emirate. A new 365 mt bridge will connect terminals 2 and 3, as a new terminal and additional quays will be constructed. With a 17.2% increase in cruise ship traffic this year to 157, and the number of passengers jumping 30% to 650k, the target is to reach a million cruise tourists by the time of Expo 2020.

There has been an improvement in the country’s non-oil economy with the Emirates NBD Dubai Economy Tracker jumping from 53.2 to 55.2 in November. New visas for Chinese visitors boosted growth with the travel and tourism sector posting a 57.5 reading.

The UAE Central Bank took little time in raising interest rates following the Fed’s decision to hike rates on Wednesday. The inevitable consequence of this action is the imminent increase in borrowing costs across the board.

The Meydan Group will finalise a US$ 163 million financing facility, with the proceeds being used for one of its hotel projects. This will be the developer’s third finance arrangement in 2016, following a US$ 476 million loan from Qatar National Bank and a June US$ 272 million debt facility comprising a US$ 191 million sukuk and the balance made up of a term loan.

HSBC will assist Dubai in finding US$ 7 billion funding for Expo 2020 due to open in October of that year. It is expected that most of the financing will be via bank loans and various export agencies.

Dubai Investments expects to finalise a US$ 300 million loan over the next two weeks, the proceeds of which will be used for a residential project in Mirdif. The company, partly owned by Investment Corporation of Dubai, is expected to retry selling 30% of Emirates District Cooling (Emicool) – a JV with Union Properties – which could raise a further US$ 200 million. It will also develop business parks in Angola, Morocco and Saudi Arabia, on the same lines as its 23 sq km business park in Dubai.

Hassyan Energy, a JV between DEWA, Acwa Power and Harbin Holding Company, has finalised a US$ 2.5 billion finance package to build phase 1 of Dubai’s Hassyan clean coal plant. The 2.4 gigawatt (2.4 billion watts) coal fired power station will be located on the border with Abu Dhabi.

Dubai Islamic’s US$ 409 million rights issue opened on Wednesday with existing shareholders eligible to buy 1 new share for every 2.63 shares currently owned. If successful, the bank’s capital base will be strengthened, with its new share capital of US$ 1.48 billion.

On Saturday, Eshraq Properties announced that the board had approved a contractor for its upcoming JVC project. Despite the company indicating that the deal would have no impact on its market value, its shares rose 8.8% to US$ 0.30 in Monday’s trading.

Al Ramz Investment & Development PJSC notified the bourse that it had acquired 25 million shares (equivalent to almost 5% of the company) in Marka Holding. The DFM also confirmed that a US$ 16 million direct deal was executed by the brokerage firm, formerly known a Dubai Development Company, for 48.3 million shares.

After a 5.9% surge the previous week, the DFM opened Sunday at 3559 and lost 5 points to close on Thursday (15 December 2016) at 3554. There was a marked fall in volumes, with the last day of trading 691 million shares, valued at US$ 232 million, (cf 1.104 billion shares for US$ 401 million, the previous Wednesday). 50% of the day’s trading was down to two companies – Gulf Navigation and Drake & Scull. Over the week, bellwether stocks, Emaar Properties and Arabtec, were flat remaining at their Sunday opening levels of US$ 2.02 and US$ 0.37.

This week saw Brent Crude holding on to recent gains nudging US$ 0.13 higher to US$ 54.02. Having shed nearly 8% over the previous two weeks, the Fed rate hike, from 0.5% to 0.75%, ensured that gold continued its downward trajectory, losing a further US$ 43 over the seven days, to close on US$ 1,129 by Thursday (15 December 2016). Expect the yellow metal to be under further selling pressure in the coming weeks.

Although the 550k  bpd cut by non-Opec oil producers was widely expected, the market reacted with an immediate 4.4% hike on Monday, with Brent trading at US$ 56.74 – its highest level in almost two years. Last month, the 13-country Opec bloc decided to cut production by 1.2 million bpd beginning in January and earlier in the week, Saudi announced that it was cutting back even further than was previously agreed at the November Vienna meeting.

The world’s oldest bank, Italy’s Monte dei Paschi, is in a desperate race against time as it seeks to raise US$ 5.3 billion from investors, rather than face the possibility of a state takeover. The bank, saddled with massive non-performing loans, hopes to convince investors to swap bonds for fresh share capital – some hope! This will be one major headache for the newly appointed Prime Minister, Paolo Gentiloni.

Meanwhile Italy’s premier bank, UniCredit, is to slash 14k jobs and raise US$ 13.7 billion over the next 2 years to return to some form of normality; it also plans to reduce its number of branches by 25% to 28.5k.

Having refused to accept the first four of its order for Airbus A320neos, Qatar Airways is in discussions with the plane maker to amend the order to A321neos. The airline cites engine performance issues for this and may change the engine supplier from Pratt & Whitney to CFM, a JV between General Electric Co and Safran SA of France. In October, Qatar Airways placed a US$ 18.6 billion order with Boeing which included 60 737 MAX 8s – a direct competitor to the A320. Coincidentally, Boeing has announced that because of falling demand for its 777 aircraft, it will cut monthly production from 7 to 5.

Iran has confirmed a US$ 16.6 billion deal with Boeing for 30 777s and 50 737s for its national airline. This is the first such deal since the 1979 Islamic revolution and delivery will take place over a 10-year period. It is expected that a 100-plane order will be signed shortly with Airbus.

Two companies are vying for Punch Taverns, one of the UK’s biggest pub owners, with 3.3k outlets; on the news, shares in the 19-year old company jumped 38% to US$ 2.24, giving it a market value of US$ 480 million. Investment vehicle, Emerald has offered US$ 498 million, whilst Heineken, which already owns 1.1k UK pubs, has placed an initial bid of US$ 470 million.

So as to obtain regulatory approval for its US$ 100 billion takeover of SABMiller, Anheuser-Busch InBev has agreed to sell to Asahi, five of its European brands, including Pilsner Urquell for US$ 7.7 billion. Earlier in the year, the Japanese brewer also acquired Peroni and Grolsch from SAB Miller.

Japan’s Sumitomo is to buy Fyffes for US$ 798 million – and at US$ 2.82 per share, it will pay a 48% premium over its Friday closing price. The Irish company, which employs 17k worldwide, is synonymous with bananas and has an annual turnover of US$ 1.3 billion.

A much bigger takeover offer sees 21st Century Fox with a US$ 14.2 billion bid for Sky for the remainder of shares it does not own, already having a 39.1% shareholding of the company that runs Sky News. With Sky shares tumbling allied with a weak pound, it seems an opportune time to strike for the British pay-TV firm, which comes five years after a similar bid, was scuppered by a political scandal involving the octogenarian media mogul. His son, James, happens to be Chief Executive of Fox and chairman of Sky.

As it ditches plans to spin off its international assets, Crown Resorts has announced that it has agreed to sell 50% of its stake in Melco Crown Entertainment for US$ 1.6 billion, leaving the James Packer-controlled casino operator with a 14% shareholding. Macau casino revenue has dipped recently because of the government anti-corruption drive and China’s softening economy.

Although Australia’s jobless rate rose 0.1% to 5.7% in November, there was a welcome 39.3k increase in full-time jobs, following 41.1k the previous month. This news, allied with recent hikes in commodity prices, points to an improvement in wage growth prospects.

With a more favourable price outlook on the horizon, China’s oil production bounced back in November from the previous month which recorded its lowest level in 7 years. Although monthly production was up 3.4% to 3.93 million bpd, it still lags by 9.0% YTD. With their more mature fields becoming uneconomical – and closing down at any price below US$ 55 – daily production is expected to fall by 335k bpd this year and by a further 240k in 2017.

Exceeding analysts’ expectations, three early November indicators point to an upward trend in China’s economy. Industrial production, retail sales and fixed asset investment – at 6.2%, 10.8% and 8.3% – all headed north.

According to China’s National Bureau of Statistics, the average property price in the country’s 70 largest cities has surged by 11% in the past year, with Hefei, capital of Anhui Province up by a staggering 47% and Beijing by 28%. Speculators continue to push prices higher and the main worry is that like all bubbles, debt is the main driver – in this case, developers borrow money to build and buyers take loans to pay inflated prices. Something will have to give whether it be China’s outstanding debt level of 250% of GDP or its property bubble but when it does the fallout will be on par with the 2009 GFC.

Despite having to adjust its Q3 trade deficit figures from US$ 13.9 billion to US$ 18.8 billion, the Office for National Statistics reported an improved US$ 2.5 billion October shortfall. This came about because of a US$ 2.5 billion hike in exports and a fall of US$ 2.3 billion in imports. Q4 promises even better results, particularly because of the fall in sterling encouraging domestic consumption (in place of relatively expensive imports) and improving exporters’ price competitiveness on the world stage.

November UK inflation rose from 0.9% to 1.2%, month on month – its highest level since October 2014 – as consumer prices rose 0.2%. The recent inflation hikes seem to bear out the Bank of England’s forecast that the targetted 2.0% will be breached by this time next year, especially since the “fall” of sterling. However, weaker growth and a softer labour environment could act in the opposite direction. It is interesting to note that the British Chambers of Commerce have amended their 2016 growth forecast higher from 1.8% to 2.1% but reduced the next two years to 1.1% and 1.4%; these forecasts will inevitably be amended more than once in the coming months – and most probably upwards. Don’t Stop Believin’!

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