Sign Of The Times

The latest Cavendish Maxwell report has pointed to a decline in both Dubai property sales and rentals in Q3 but an upturn in Q4 or early 2018 is anticipated. With regard to sales, villa and apartment prices dipped 1.4% and 1.2% respectively whilst rentals declined 3.5% and 2.8%. The usual drivers are still in play – new project handovers (especially at the budget end) and job losses in certain sectors. Over the past nine months, the consultancy estimates that 11.8k residential units have been handed over.

Nshama Property Developer announced that it had delivered 320 units of Zahra Townhouses in Dubai Town Square. The total project covers an area of 31 million sq ft and is located near to the Expo 2020 site and the Al Maktoum International Airport.

Wilton Terrace 1 becomes Ellington Properties’ fifth Dubai launch. Located in MBR City, work has already started on the first of two towers which will house 150 residential units and include a recreational area with a pool.

Dubai Municipality plans a new 763 hectares residential area in Umm Nahd-3.

After several false starts, Berwaz Dubai (Dubai Frame) will open next month featuring uninterrupted views of Old Dubai to its north and New Dubai to the south. Its two 150 mt towers are connected by a 93 mt bridge at the top. The attraction will be managed by Emaar.

France’s EDF has started their studies into the planned US$ 518 million Hatta Dam project – the first of its kind in the region. On completion, it will have a 250MW capacity, with the dam itself capable of holding 1,716 million gallons and a further 880 million gallons in an upper reservoir. The move to hydro power is just one piece of the energy jigsaw that will see 75% of the country’s needs emanating from clean energy.

MAF Cinemas, which expects its customer base to jump 50%, to 18 million this year, is set to invest US$ 327 million to grow its cinema portfolio by a mix of acquisitions and internal expansion. It has already sourced 23 new locations that will open over the next three years; in 2017, 16 VOX cinemas will open, with a total of 145 screens, in seven countries.

DP World is in discussions with the Malian government to develop a transportation and logistics strategy, with electronic customs processes, to improve the landlocked African country’s economy by tapping into its huge resource potential. The Dubai operator would bring its expertise to maximise the benefits of the 1.8k km of inland waterways, carrying agricultural products and gold to international markets.

Emirates and flydubai have announced an extensive code-sharing arrangement that involves a greater integration of services and initially covers 29 routes, most notably in Eastern Europe, the Gulf and India. Both carriers will continue to be managed independently and more code sharing is expected in the future. (This week it was also announced that Emirates will be the first to receive Boeing’s all-new 777X aircraft, when it gets rolled out in 2020).

Mashreq Bank on Sunday launched Mashreq Neo, a new full-service digital bank – a financial institution without any branches and where every transaction is via mobile devices. Although not the first of its kind in the region, it is the only one to provide access to international markets for investment opportunities.

With a 10-year maturity and a 4.85% coupon rate, Emirates NBD has obtained a US$ 156 million senior unsecured kangaroo bond; ANZ was the sole lead manager.

Channel VAS has seen Abu Dhabi investment firm Waha Capital invest US$ 55 million for a minority stake. The Dubai-based financial technology company operates in over 25 emerging markets and provides micro finance lending solutions to over 500 million mobile network subscribers.

Dubai’s has raised US$ 10 million, including from UK site GoCompare, UAE Exchange Group and Saudi’s RTF, to finance future expansion plans. This is the third foray by major international investors into the local online sector following Amazon’s US$ 580 million acquisition of and China’s DiDi Chuxing’s investment in Careem.

Despite a monthly fall from 57.3 to 55.1 in the headline seasonally adjusted Emirates NBD UAE PMI, growth in the country’s non-oil sector remains strong, as recorded by the best quarterly return (at 56.1) in two years. The main drivers behind this remain above-average expansions in both output and new orders but on the downside new overseas business, output charges and input price inflation all softened.

According to the UAE Central Bank, total remittances in Q2 came to US$ 11.1 billion, following the Q1 figure of US$ 10.1 billion. In Q2, the top three nationalities were Indian (US$ 4.0 billion), Pakistani (US$ 1.1 billion) and Filipino (US$ 0.8 billion) which accounted for 52.6% of all remittances.

GEMS Education is reportedly streamlining its corporate structure as it plans a US$ 1 billion loan facility to refinance existing debt prior to an expected London IPO. The company, which operates 250 schools in 14 countries, could reach a market valuation of up to US$ 4.0 billion.

It is reported that Emaar Properties is preparing to float parts of its business with an IPO before the end of the year. Accordingly, it has transferred a number of key assets to a new investment vehicle, Emaar Development; these include 49 units in the Burj Khalifa and two Address hotels still under construction. It is expected that existing shareholders will receive dividends from the funds raised from the new IPO. More information will be made available but it is known that the new entity will be divided into five sections – completed units, empty plots, JVs, mixed use projects under construction and villa communities under construction. The parent company will retain 70% ownership, with the balance going to the public.

Gulf General Investment Company has finalised a US$ 572 million debt restructuring deal that will buy the company time to dispose its non-core assets in an organised way. Among GGICO’s portfolio is the development of a 50 million sq ft community in Dubai Sports City. In its latest Q2 return, the company saw losses almost double, from a year earlier, to US$ 11 million whilst revenue halved to US$ 30 million. Last month, its shares were trading at US$ 0.10 compared to US$ 0.14 in September 2016.

Drake & Scull has completed its restructuring program and will focus on the local market and its core sector strength in mechanical, electrical and plumbing (MEP). The company will benefit by Tabarak Investment’s input of US$ 136 million, with the DFM approving the capital increase activation. Its capital had been reduced to US$ 156 million from US$ 623 million prior to the Tabarak issue.

The DFM opened Sunday (01 October), at 3564 and recovered 27 points (0.8%) to close the week on Thursday, 05 October at 3591. Volumes improved this week, with trading of 245 million shares, valued at US$ 108 million, (cf 137 million shares for US$ 51 million, on Thursday, 28 September). Emaar Properties was up US$ 0.03 at US$ 2.34, with Arabtec also higher by US$ 0.02 to US$ 0.80.

By Thursday, Brent Crude was US$ 0.57 (1.0%) higher on the week, closing at US$ 57.00, with gold continuing its recent downward trend, dropping a further US$ 16 to US$ 1,273 by 05 October 2017.

It is reported that Russia and Saudi Arabia have agreed to establish a US$ 1 billion fund to invest in energy projects, technology and equipment. It will encompass not only the oil and gas sector but also electric power and renewable energy.

Ford is set to slash its costs by over US$ 14 billion over the next five years, as it moves its focus away from traditional vehicles to electric and hybrid cars. As it aims to achieve an 8% profit margin, it is considering partnerships with ride services company Lyft (for its future self-driving cars), Indian automaker Mahindra and Chinese electric vehicle maker Zotye.

VW took an unexpected US$ 3 billion Q3 provision relating to the on-going diesel emission scandal that could bring its total damages bill to over US$ 30 billion. The latest provision indicates that the tainted VW engines are proving “far more technically complex and time consuming” to fix and, that even after two years, there may be more financial worries for the biggest car-maker in the world.

Google has agreed a US$ 1.1 billion deal with HTC Corp to acquire a division that develops the US firm’s Pixel smartphones. As part of the agreement, Google will inherit 20% of the Taiwanese workforce (2k) and acquire a non-exclusive license for HTC’s intellectual property. Google will use this as a quick way to try and catch up with Apple’s i-Phones. (Over the past seven years, HTC has seen its global smartphone market share sink from 8.8% to 0.9%, as its share value has plummeted 94%, giving it a current value of US$ 1.9 billion).

Tesco posted a much improved H1 profits figure to US$ 750 million (compared to US$ 95 million in the same period in 2016), attributable to it not raising prices as high as its competitors; however, sales in Q2 dipped 2.1% and 2.3% a quarter earlier. The company has already retrenched 1.2k HO staff and 1k from its Cardiff call centre in a bid to slash costs by US$ 2.0 billion. Meanwhile a London court case sees three ex-Tesco executives on trial, accused of fraud and false accounting, whilst overstating the supermarket’s profit forecast by US$ 330 million in September 2014.

The former head of HSBC’s foreign exchange, Mark Johnson is on trial for fraud and conspiracy, in New York accused of a scheme  the made the Bank US$ 8 million profit; furthermore it is alleged that he, the bank’s former head of European  currency trader and none other traders made commission of US$ 3 million. The bank had been hired by Cairn Energy Plc to convert the proceeds of a US$ 3.5 billion to GBP. The deal was done when sterling was at its highest for the day with accusations that the price was ramped up with 75% of the trading occurring five minutes before the trade’s execution.

Last week, Ryanair was in the news – this week it is the turn of Monarch Airlines, which stopped trading on Monday, with 110k of its clients still overseas. The fifth biggest airline in the country employed 2.1k and had reported a US$ 395 million loss last year. Even though it has carried 14% more passengers than last year, its revenue was down US$ 135 million. It is easy to blame Brexit and the fall in the value of sterling for the airline’s demise but “depressed prices” in the short haul travel market, along with “problems” in places like Egypt and Tunisia, are the root causes of the failure.

Another UK company seemingly in trouble is the building and services firm Carillion which announced a profit warning, advising that year end results would be below expectations. This comes after a H1 loss of US$ 1.6 billion, including a US$ 182 million impairment charge on its UK and Canadian construction businesses. Further write-offs were US$ 270 million for support services contracts’ losses and a July charge of US$ 1.0 billion. Following the announcement of the forecast revenue lowering to around US$ 6.2 billion, its share value plummeted by 20%.

For the first time in nine years annual house prices in London have fallen – and, according to Nationwide, not since 2005 has the capital been the country’s “worst-performing” region, (being the only location to post a Q3 annual fall of 0.6%). The average growth, at 2.0%, was up 0.2% – month on month – with the average cost of a UK property coming in at US$ 285k. Although the north/south divide is seen to be slowing, the gap in cash terms remains “exceptionally high” at US$ 231k – a figure which has doubled over the past decade. Despite all this, compared to pre-GFC London’s prices were still 55% higher compared to the national 14% average.

With the Kingdom posting its second quarterly contraction, down 1.0% from a year earlier, Saudi Arabia is in recession. The main driver behind the demise is its oil GDP shrinking 1.8% in Q2. Not only do authorities have to manage falling prices but Saudi Arabia is at the forefront of OPEC’s initiative to cut output. Furthermore it is going through a time of great structural change and non-oil industries seem to be stagnating – only 0.4% growth this quarter compared to 0.9% in Q1. BMI expects the Saudi economy to remain in recession for the rest of the year but to recover next year with a “modest” growth of 1.3%.

Business confidence in Japan is at a decade-high on the back of improving global demand. The Abe government is hoping that the economic recovery will help push inflation towards its 2.0% target and to boost wages and consumer spending. Recent high H1 corporate profit returns and a weaker yen are signs that there is traction in the country’s economic recovery, with 2.5% annualised growth recorded in Q2.

The Indian drinks tycoon, Vijay Mallya, has been rearrested in London on new charges of money-laundering, involving the collapse of his airline Kingfisher. In March 2016, he reportedly defaulted on bank loan payments and left debts totalling US$ 1 billion. His monetary affairs are also being investigated by his country’s Central Bureau of Investigation.

India’s answer to Uber, Ola, has just received additional funding from a group of investors including SoftBank Group and Tencent, This cash influx will help the company with latest technology requirements and finance the need for extra vehicles and manpower. With Uber hoping to get the upper hand by driver incentives and increased promotions, it remains to be seen which of the two gets the lion’s share of the estimated US$ 10 billion market.

The Indian drinks tycoon, Vijay Mallya, has been rearrested in London on new charges of money-laundering, involving the collapse of his airline Kingfisher. In March 2016, he reportedly defaulted on bank loan payments and left debts totalling US$ 1 billion. His monetary affairs are also being investigated by his country’s Central Bureau of Investigation.

In Q2, the Indian economy grew at its slowest pace (at 5.3% compared to 9.1% a year earlier) in three years, as growth itself declined for the sixth straight quarter; indeed, without government spending, expansion would have been a lot lower at 4.3%, a particular worry since this represents 90% of the country’s economy. Ever since Prime Minister Narendra Modi took over the reins from Manomohan Singh, he has promised more jobs and a stronger economy. This is not reflected in the latest numbers that show industry as a whole up by only 1.6%.

There is also some concern about the state of India’s mainly government-owned public sector banks, with a reported 17 of 21 of them having a bad loans ratio of more than 10%, including the Indian Overseas Bank at 25%.

One of the main reasons that the world has seen politics turned on its head in recent times is political cronyism and links between governments and big business. The most recent example is the former German Chancellor Gerhard Schroeder, seemingly cashing in on his position,  being elected chairman of the Russian state-controlled oil giant Rosneft. As Chancellor for seven years to 2005, he was a strong supporter of Nord Stream’s building of a pipeline between Russia and Germany; once out of office, he became chairman of the Nord Stream shareholders’ committee.

A meagre 0.1% hike in August consumer spending and inflation falling to its lowest pace in two years did not spook Wall Street. By 30 September, both the Nasdaq (at 6,496) and the S&P 500 closing on 2,519 had reached record highs. The Dow Jones finished the month on 22,405. The fact that President Trump is considering the hawkish former Federal Reserve Governor Kevin Warsh as a replacement for Janet Yellen was the main driver for the late boost in market activity. By 05 October, all three bourses had headed north again to 6,567, 2,547 and 22,762 respectively, whilst the world waits for the inevitable bubble to burst.

There is no doubt that Donald Trump is annoying a lot of people, none moreso than the big multinationals who for years have been making “tax arrangements” whereby instead of paying US tax at a higher rate they have shifted their tax bases to countries with a lower tax regime. The three examples listed – Facebook, Apple and Amazon – seem to back up the US President who seems determined to do something about it when previous incumbents have apparently turned a blind eye.

A perusal of Facebook’s recent UK results is bound to raise concerns. Last year, it paid tax of US$ 1.4 million (equivalent to 8.8%) with a profit of US$ 77 million on revenue of US$ 1.1 billion; the previous year its tax bill of US$ 1.1 million (8.1%) was based on a profit of US$ 14 million on the back of US$ 279 million. In 2014, its tax bill was just US$ 6k. Since April 2016, the company, with a 1k payroll, has booked revenue from larger advertisers, such as supermarkets and multinationals, through the UK books whilst smaller companies are invoiced through its Ireland office.

The European Commission is planning to take Ireland to court because it has failed to collect an estimated US$ 15.2 billion of back taxes from Apple. It estimated that Apple paid less than 1% in tax – when the Irish rate is at 15% (the lowest in the EU) and the US rate is at 35%.

The EU has also ordered Amazon to repay US$ 293 million in back taxes indicating that it had been given an unfair tax deal in Luxembourg. The European Competition Commissioner Margrethe Vestager argued that the US tech giant had paid “substantially less tax than other businesses”, which it said was “illegal under EU state aid rules”, with 75% of its profits escaping any tax (equivalent to four times less than other companies).

The current EC President, Jean-Claude Juncker, was the prime minister of Luxembourg when this tax deal was made in 2003 – a case of the poacher turning gamekeeper – and an example of why many people remain suspicious of the inner workings of the EU. Brexit will not be the only problem facing the technocrats of Brussels  – Italian banks and the Greek economy have now been joined by Catalonia, Ireland and big business to reflect a crucial Sign Of The Times.

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