It Takes Two

The Crown Prince, HH Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum, made many parents happier this week by announcing that there will be no price hikes in any of the emirate’s private schools this 2018-2019 academic year. He tweeted that the aim was to “relieve the financial burdens on parents”, with immediate effect. (Latest figures from Colliers indicate that revenues in the emirate’s K12 education market nearly touched a staggering US$ 1.9 billion last year, with enrolments growing at an annual 8.4% over the past five years).

Nshama has reappointed Engineering Contracting Company (ECC) to lead on a US$ 84 million contract for the design and construction of 192 studios and 764 1 B/R apartments in Town Square. Covering 90k sq mt, UNA will feature a digitised all-purpose 2k sq mt lobby lounge, a focal point for the community as well as acting as a licenced co-working space.

The MAG Group is set to launch two projects – MAG 612 and MAG 614 – in Jumeirah Village Circle; both will have 20 storeys, with the former, covering 280k sq ft, comprising 223 studio – 2 B/R apartments and the latter, over an area of 251k sq ft, with 144 1-2 B/R units, of which 100 are 1 B/R. Both will include a health club and pool.

The second hotel of Jumeirah’s new brand, Zabeel House by Jumeirah, has opened in Al Seef. Located on the south banks of the Creek, and adjacent to Zabeel House MINI by Jumeirah, it has 200 keys, with room rates starting at relatively Dubai-low of US$ 81.

Following the New Year’s fire on 31 December 2015, the refurbished Address Hotel has reopened for business. Emaar Hospitality Group has reopened its doors has added extra rooms and suites, as well as two new dining venues – Turkish restaurant The Galliard and American steakhouse STK. The electric fire resulted in an insurance claim payment of US$ 332 million.

Union Cooperative has issued a tender to build two new centres – in Warqa’a and Jumeirah First – and two additional branches in Nad Al Sheba and Palm Jumeirah.

The London listed real estate broker, Savills has taken over Cluttons Middle East for an undisclosed fee. Although the business will be rebranded later in the year, no retrenchments for the 190-staff involved are expected. Although the sector has seen recent lean times, the UAE property market is expected to recover, boosted by the increase in energy prices, the Expo 2020 factor and an improving global economy.

Emirates confirmed that because of the seasonal reduction in demand, up to twenty of its fleet have been temporarily grounded at Maktoum International.

In what could be seen as a major blow to Airbus, two unwanted A380s from Singapore Airline will be stripped for their parts, as no buyer could be found for the decade-old aircraft. The number of airlines using the superjumbo has never reached expectations and with many of them preferring the smaller twin-engine variety, the market for both used and second-hand super-jumbos seems to be evaporating. Emirates is responsible for 48.9% of the planes’ 331 firm orders to date and has already received 102 of the 162 ordered.

Local interest rates nudged higher this week with the Central Bank raising both the one-year EIBOR (by 17 notches to 3.22%) and the one-night EIBOR 23 bp higher.  A similar increase in US$ EIBOR is expected which will have a knock-on upward effect on local rates.

The country’s 2017 public spending deficit came in at US$ 899 million, with public spending at US$ 111.2 billion being marginally higher than the revenue figure of US$ 110.3 billion. Revenue was helped by a 53.4% hike in tax receipts (and this even before the introduction of VAT in January 2018) to US$ 45 million.

Last year, Dubai saw a 7.1% increase in inward foreign direct investment to US$ 7.4 billion and by around 50% in project numbers to 367, as it becomes an increasingly attractive global hub for technology and technology transfers which accounted for 60% of total investment. The government is targeting the non-oil sector to contribute 80% of the emirate’s GDP by 2021 – up from its current 70% mark. Accordingly, it has taken action to boost FDI by the introduction of measures such as lower registration costs, simplifying regulations and relaxing corporate ownership laws.

Neighbouring Abu Dhabi announced a massive US$ 13.6 billion stimulus package which will surely have a welcome knock-on effect for Dubai, with the Crown Prince, HH Sheikh Mohammed bin Zayed al Nayahan, giving officials just three months to come up with a plan of execution. The package includes ten initiatives, including allowing people to work from home, updating building regulations and improving payment times for contractors, with the aim of speeding up economic growth.

Troubled equity firm Abraaj Group continues is divestment of assets by selling its 35% share in Egypt’s Investment & Real Estate Development Co for Social Impact company for over US$ 20 million, caused also by a conflict between both parties on the percentages and valuation of converting a loan into equity. The Dubai firm has over US$ 500 million invested in hospitals and clinics in North Africa and any talk of an early IPO has been put on hold until at least Q4.

On Monday, Abraaj Group held a meeting for stakeholders, including shareholders and lenders to discuss their restructuring plans going forward, as it continues to face a barrage of negative press over allegations of misused funds. Concerns on the viability of the ME’s biggest buyout firm are growing as on Sunday it was reported that the firm could not repay a US$ 100 million loan, plus US$ 7 million interest, to Kuwait’s Public Institution for Social Security, an unsecured creditor. Although it seems that the secured creditors agreed to a 90–120-day debt freeze, the Kuwaiti creditor decided to go for the liquidation process. The move to add this to the equation will impact on the fair asset value of its assets and interested parties may lose out if a fire-sale takes place.

At the meeting, it was also reported that Cerberus Capital Management offered US$ 125 million to acquire the firm, (but not existing liabilities of both the fund-management business or holding company), which has a possible total debt of around US$ 1 billion.

An internal investigation by Drake & Scull has concluded and all detected violations by its previous management have been forwarded to the competent authorities to commence the required legal procedures. YTD, it has lost nearly 31% in its market value, closing Thursday on US$ 0.316.

The DFM opened on Sunday (03 June), at 2944, and, having gained gaining 82 points the previous three weeks, jumped 98 points (3.3%), closing on 3042 by Thursday, 07 June 2018. Emaar Properties was up US$ 0.09 at US$ 1.51, whilst Arabtec edged US$ 0.02 lower to US$ 0.51. Volumes were markedly disappointing, trading only 132 million shares on Thursday, valued at US$ 51 million, (compared to 555 million shares worth US$ 246 million the previous Thursday – 31 May).

By Thursday 07 June, Brent Crude, having declined US$ 1.74 (2.2%) the previous fortnight shed US$ 0.24 (0.3%) to close on US$ 77.32, with gold US$ 2 lower at US$ 1,303.

GitHub Inc, valued at US$ 2 billion three years ago, is to be acquired by Microsoft for a reported US$ 5.0 billion. The code repository company has never made a profit from its service that allows coders to share and collaborate on their work and currently hosts 27 million software developers, working on eighty million repositories of code. The US tech giant is trying to wean itself away from its Windows operating system dependence to relying more on in-house development on Linux.

Amazon is to increase the size of its UK workforce by a further 10% this year to 27.5k by adding software developers, engineers and technicians “with all levels of experience”. Although not known for paying too much in UK taxes in the past, the tech giant estimates that it has invested US$ 12.5 billion in the country.

DS Smith, which is Amazon’s exclusive provider of cardboard in the UK, is to spend around US$ 2.7 billion (including debt) to acquire its Spanish rival, Europac, operating in its home country, Portugal and France. The new entity will employ 30.8k across 223 locations in nearly forty countries. The packaging industry is in the throes of rapid global consolidation, as the demand for packaging continues its upward curve.

Just a week after losing to Fulham in a Wembley play-off final, dubbed the most lucrative football match in the world, Aston Villa face a possible HRMC winding up order for non-payment of taxes, due for settlement last week. If this were to happen, one of the founding members of the Football League in 1888 could go out of existence. The club, owned by Chinese businessman, Tony Xia, since 2016, has reportedly been up for sale with discussions taking place with potential buyers over the last few days. It does seem incongruous that the club cannot pay a US$ 5.0 million tax bill but could give 37-year-old John Terry almost the same amount

Deloitte’s latest football report has the five major European leagues generating a record US$ 17.0 billion in 2016-17 revenue – up 9.0% from a year earlier – and that their combined market value is almost US$ 30 billion. The EPL is the market leader contributing 35.7% of total revenue, at US$ 6.1 billion, (with the other three English leagues’ revenue at US$ 1.3 billion), which is 86% larger than the next in line – Spain’s La Liga – followed by Serie A, the Bundesliga and France’s Ligue 1. Because of the increase in broadcasting rights, all twenty EPL clubs posted annual profits – compared to 60% of them incurring losses just ten years ago.

Alteri Investors, who looked likely to take control of struggling Poundworld, has pulled out of a potential rescue deal that would have saved 5.3k jobs and averted the closure of 100 shops. Although there. are discussions with other interested parties, it seems likely that the company could go under or sold through a pre-pack administration.

It has been a torrid time for the UK retail sector this year with the likes of Maplin, Toys R Us UK and others hitting the buffers. Some have gone the way of attempting restructurings, via a legally binding agreement with creditors known as a Company Voluntary Arrangement. The latest high street chain that could go down the CVA route is the House of Fraser.

As it implements a global overhaul of its properties, Marriott, the owner of the Sheraton brand, expects to lose about 4% of its hotels over the next two years, as some of their owners will fail to invest. Part of the new brand strategy is to introduce “clear standards and to hold everyone accountable to those standards”. Since 2016, seventeen hotels (6k rooms) have left, with a further 2k rooms expected to leave this year; over the same period 5k new rooms have been added.

Following the government’s decision, there would be no objection to Rupert Murdoch’s Fox buying Sky provided that he divests Sky News to a third party so now he can focus on battling Comcast for the European pay-TV company; the media mogul, who already owns 39% of Sky, first launched his bid in December 2016 and has spent the past eighteen months to get to this stage. Previously, the Sky’s independent board members backed Fox’s offer but withdrew this recommendation in April, following an offer from Comcast. Whatever happens, Murdoch has already agreed to sell many of his TV and film assets, including Sky, to Walt Disney Co in a separate US$ 52 billion deal.

Goldman Sachs is take part in a second round of bidding for the Lloyds Banking Group’s US$ 147 billion investment management contract. The Wall Street bank will join three other firms – Blackrock, JPMorgan Asset Management and Schroders – in an attempt to take over the management contract, following Aberdeen Asset Management’s termination after its 2017 merger with Standard Life.

The owner of the Clydesdale and Yorkshire bank brands has increased its bid to US$ 2.3 billion, as it continues in attempts to merge with Virgin Money. If successful, the new national bank would be valued at US$ 5.4 billion, with Virgin shareholders having a 38% stake. With significant cost savings, in areas such as IT infrastructure and infrastructure investment, redundancies could be expected.

Last week ANZ was courting trouble – this week it is Australia’s Commonwealth Bank being hit with a US$ 530 million fine for breaching anti-money laundering and counter-terror financing laws. Most of the “offences” involved deposits of money into ATM machines accepting up to more than double the accepted US$ 7.5k limit. The case involved some 53k suspect transactions that were not immediately reported to authorities and comes at a time when the country’s financial sector is at the centre of a national inquiry into misconduct. Some of the alleged violations included the bank collecting fees from customers who were known to have died and losing bank records of several million.

There are reports that two of Europe’s larger financial institutions – Italy’s UniCredit SpA and Société Generale SA – could merge. The current political turmoil in Italy could slow down negotiations, which are at a very early stage, but any merger would not be seen before 2020. The combination of France’s second largest bank with Italy’s largest would be an interesting development and could be a portent for other European mergers.

Despite the strong dollar, higher energy prices and regional problems, IATA expects ME airlines to post a 30% hike in net profits to US$ 1.3 billion this year, with the net margin per passenger up 22.5% to US$ 5.89. Although higher oil prices add to airlines’ running costs, it also helps the top line with more people flying because economies are growing and most people have a higher level of disposable income. On a global scale, profit will fall 12% to US$ 33.8 billion.

Fitch issued a warning this week that China’s attempt to cut corporate debt could not only pose a major risk to its economic growth, but also to that of the global economy. It estimated that growth could fall to 4.5% and commented that its corporate debt to GDP is at an alarmingly high 168%.  In attempting to reduce this to a more manageable figure, the impact could result in an annual 1% decline in growth. Any slowdown will have a negative effect on countries with significant commodity dependence (as prices could fall at least 10%) or close trade ties with China.

May growth in the eurozone private sector grew at its slowest pace in eighteen months, with the composite output index 1.0 lower month on month to 54.1. The services Purchasing Managers’ Index was 0.9 off at 53.8, with Germany and France posting their lowest returns in twenty months at 53.4 (54.6 April) and sixteen months at 52.1 (53.0 – April) respectively. At the same time, retail sales nudged a disappointing 0.1% higher (with forecasts of 0.5%), with annualised growth of 1.7%.

This week, the UK government is to sell 7.7% (925 million shares) of its current 70.1% stake in Royal Bank of Scotland which will raise US$ 3.5 billion for the taxpayer. At this week’s market price, RBS is valued at almost US$ 46 million and it can be seen why some taxpayers are unhappy taking a loss when the government spent US$ 61 billion in November 2008 to bail out the then failing bank.

May’s UK construction PMI came in at a stable 52.5 with the pace of expansion slowing from last month’s yearly high. Although residential work continued its upward momentum there was a slowdown in the rate of expansion, following April’s eleven-month high return with a decline in the inflows of new business. There was also an increase in input cost inflation.

In May, service sector activity in the US expanded at a faster than expected rate with a month on month rise of 1.8 to 58.6 – well up on analysts’ expectations of 57.5. Although there are market uncertainties about tariffs and trade agreements, the ISM report points to optimism about the overall economy and business conditions. A week earlier, the manufacturing PMI also emphasised how well the economy was progressing with a 1.4 monthly hike to 58.7.

There is no doubt that tomorrow’s G7 meeting in Canada will take back seat to the main event of the week – the historic ‘one-time shot’ meeting between the US President and North Korean leader. Even his swathe of critics will have to agree that Donald Trump is the first president to address this issue head on. His unique ways of ‘diplomacy’ are an enigma to many but is hoped that his positive attitude is mirrored by Kim Jong-un and that a solution to the 68-year old problem could be reached. It Takes Two!

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One Response to It Takes Two

  1. Peter Cooper says:

    Hi Tim, Do you realize that this is being published about 10 days late? News has a very short sell-by-date!

    Sometimes nobody tells you these things. I remember when Mishal Kanoo once tapped me on the shoulder and said ‘You do realize your Arabic news is two weeks behind?’ – of course I had not a clue!

    Hope all is well in Dubai. The Abu Dhabi authorities have contacted me about how to revise the tenancy laws after my article in The National last weekend… and the Dubai Media City has halved costs for freelancers following my complaint and veiled threat to leave; way to go if you ever give up with Ghaith.

    Perhaps they do listen to the old ones after all…

    Keep on writing, best regards Peter

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