Whatever It Takes!

Revolution Precrafted has signed an agreement with Bahrain’s Property One Investment Company to supply five hundred modular “eco-villas” for its development on The World Islands. It is estimated that the 4-B/R villas, measuring up to 200 sq mt, will have prices starting at US$ 320k and all should be completed by 2023. The Filipino company already has a massive US$ 3.2 billion contract with Seven Tides to supply and install 2-3 B/R condominium apartments and villas in the same Dubai-offshore location.

Despite the dismal news surrounding the realty sector, Danube reported that almost 85% of its recently launched Jewelz project has been sold. Work on the US$ 81 million development of 393 studio, 1-2 B/R units will start in Q3 and is expected to be completed within two years. Jewelz takes the developer’s total portfolio to 3.7k units (valued at US$ 855 million), of which 22.5% have been handed over, with a further 23.6% to be delivered by year-end.

The latest Rove hotel is to be built in Dubai’s newest beachfront – La Mer. Located in Jumeirah, the 366-key property, a JV between Emaar Properties and Meraas, will be ready in time for Expo 2020.

Jumeirah Group has unveiled a new strategy for its F&B sector that will see the appointment of Michael Ellis in the new position of chief culinary officer. The former Michelin Restaurant and Hotel Guides executive’s brief is to launch new restaurant concepts, introduce culinary talent and enhance/freshen existing outlets.

EY’s latest report points to continuing high occupancy levels in Q1 for Dubai hotels, up 0.8% to 86.9%, with healthy average room rates and RevPAR figures of US$ 293 and US$ 255. Beach-side properties performed even better, with ARR levels topping US$ 559.

With 15.8 million visitors last year, Dubai has secured fourth place in the world when it comes to tourist numbers. It expects to top 20 million by the time Expo starts in 2020 which would indicate an annual 8.2% growth level in numbers over the next three years.

Dubai’s commitment to alternative energy sources is apparent by the fact that the emirate has already committed nearly US$ 5.5 billion to solar power development, with a further US$ 8.2 billion forecast to be spent over the next decade. DEWA has estimated that the emirate will require a production capacity exceeding 42k MW of clean and renewable energy by 2050, of which 5k MW will be provided by the Mohammed bin Rashid Al Maktoum Solar Park within a decade. Meanwhile, FEWA (the Federal Electricity and Water Authority) is to build a 45 million Imperial Gallons per Day (MIGD) Sea Water Reverse Osmosis (SWRO) project to help secure future water supply.

DP World seems intent to go down the legal route – and is not considering an out of court settlement – in its spat with the government of Djibouti over control of the port at Doraleh. There is an ongoing case being heard by the International Court of Arbitration in London, relating to the 2006 concession agreed by both parties.

The ports operator is again active on the world stage – this time, announcing terms of the next Canadian expansion in its Prince Rupert Fairview Container Terminal. Last year, phase 2A saw the terminal’s capacity increase by 58.8% to 1.35 million twenty-foot equivalent units and over the next four years this will rise to 1.8 million TEUs, as well as result in a 37.1% hike in on-dock rail capacity to 24.7k sq ft. This new infrastructure will see Dubai investment boost Canada’s trade and economy – a pity that the country does not make use of similar Dubai-based investment opportunities such as additional Emirates’ links.

Temasek Holdings, one of Singapore’s giant sovereign wealth funds, is reportedly looking at a joint bid with EQT, the Swedish private equity firm, to acquire Cognoita. The UK-based schools’ operator, valued at US$ 2.7 billion and with forty UK schools along with others overseas, is also attracting reported interest from other rivals, including GEMS and Nord Anglia Education.

HSBC is to open its new US$ 250 million Dubai HQ next month, located in Downtown. HSBC Middle East had earlier transferred its place of incorporation and head office from Jersey to Dubai.

The Central Bank has stepped in to cap fees on 43 different types of bank charges, including set maximum limits on home loans and late fees for credit cards, in the latest government move to attract foreign investment and diversify the economy from a reliance on oil revenues. Some would say not before time.

In 2017, the UAE grabbed 67.0% (US$ 10.35 billion) of the GCC’s “pie” when it came to total foreign investments, followed by Oman (12.1%) and Saudi Arabia (9.2%). The country came second among investment attractors, equating to 23.3% of foreign investments, which is set to rise, following recent incentive measures introduced by the government.

Not renowned for their accurate forecasts, the IMF expects the country’s growth to be 2.0% this year and then an annual 3.0% for the ensuing four years. Over the next five years, it is forecast that UAE’s GDP, at constant prices, will grow 16.1% from US$ 389.6 billion to US$ 452.3 billion. The world body estimates that inflation will stabilise to a manageable 2.2%.

Depa Interiors has been awarded a US$ 22 million Saudi Arabian contract to implement a large transport project. This is the second such deal in that country for the Dubai-based company but no further details were made available.

Dubai-listed Air Arabia saw its share value fall over 7% on the first day of trading, following the Eid break, on the back of concerns of the budget airline’s exposure to troubled Abraaj. Confirming that it “has an investment in Abraaj funds”, the Sharjah-based carrier, which has the asset manager’s founder, Arif Naqvi, on its board, confirmed that it had appointed a team of experts, who are actively engaged with all stakeholders and creditors involved with the matter to ensure Air Arabia’s investment and business interest is protected.”

The Grand Court of the Cayman Islands has approved a provisional liquidation of Abraaj Group that should go a long way to ensuring the protection of stakeholders’ rights. Liquidators from PwC and Deloittes have been appointed to manage Abraaj Holdings and its fund management business respectively, in a move that should have a minimum impact on the firm’s day to day running. It should also help in an orderly disposition of assets, rather than a liquidation-triggered fire sale.

Colony Capital has agreed to buy Abraaj’s Latin America, sub-Saharan Africa, North Africa and Turkey Funds management business, as well as to oversee the group’s funds that it is not acquiring. This is just part of the troubled firm’s liquidation and restructuring plan, following court action by stakeholders in the Cayman Islands. The firm, that once managed more than US$ 14 billion of assets, has debts estimated at over US$ 1 billion.

The DFM opened on Monday (18 June), after the Eid holiday break, at 3083, and, having gained gaining 262 points the previous six weeks, lost 155 points (5.0%), closing the week, on 21 June 2018, at 2928. Not surprisingly then, to see both Emaar Properties and Arabtec trading lower on Thursday 21 June by US$ 0.12 to US$ 1.42 and US$ 0.06 to US$ 0.56 respectively. Volumes were higher, trading 306 million shares, valued at US$ 123 million, (compared to 131 million shares, worth US$ 82 million, the previous Thursday – 14 June).

By Thursday 21 June, Brent Crude, having declined US$ 3.4 (2.2%) the previous three weeks lost a further US$ 2.91 (3.8%) to close on US$ 73.05, with gold sinking US$ 32 lower to US$ 1,271.

With oil producers meeting this week to discuss lifting output quotas and the impact of US trade sanctions taking effect, the price of oil has plummeted. The big players, including Saudi Arabia and Russia, were looking for increased oil production, whereas the likes of Iraq and Venezuela want the status quo to remain. On the trade front, US has introduced US$ 50 billion of tariffs, scheduled to start early next month, with China responding in kind.

There was more bad press for Tesla, with news that one of its electric vehicles burst into flames on Santa Monica Blvd in Los Angeles and that it was investigating “an extraordinary unusual occurrence”. Unfortunately, the car was being driven by high profile UK TV director, Michael Morris, and there was instant and dramatic video available. Meanwhile, Elon Musk has accused one of his employees of “extensive and damaging sabotage” who forwarded sensitive data to unnamed third parties and also made unspecified coding changes to its manufacturing operating system. The company is also to lay off a further 3k employees – equivalent to about 9% of the payroll; the retrenchment will not affect factory workers but will focus on salaried staff.

In a shock move, Rupert Stadler, Audi’s chief executive, has been arrested in relation to an on-going investigation into the diesel emissions scandal. Munich prosecutors took this step, as they considered that the executive may suppress evidence. Last year, 850k Audi vehicles were recalled and, only last month a further 60k A6 and A7 models were found to have emission software issues.

Lufthansa is the latest airline to show interest in acquiring Norwegian Air Shuttle ASA, only weeks after BA’s owner, IAG SA, bought a 4.6% stake in the fast-growing Scandinavian discount carrier. With a market value of US$ 1.5 billion, and having already rejected two bid approaches from IAG, the airline, which has extended its low-cost operations to the Americas and Asia, will not be short of interested suiters.

As expected, Rolls Royce is to retrench 4.6k, with its Derby base and middle management level being the main targets. The engineering firm has intimated that the process, that will cost US$ 675 million, will take up to two years to carry out and that it will be concentrating more in the future on civil aerospace, defence and power systems. Once implemented, there will be expected annual cost savings of US$ 540 million.

CYBG, the owner of Clydesdale Bank and Yorkshire Bank, is to pay US$ 2.3 billion to acquire Virgin Money, which will result in it becoming the UK’s sixth largest bank. As a result of the deal, Virgin Money shareholders will own 38% of the new entity, which will shed 13.6% of the current workforce to reduce numbers to 9.5k.

The company Iceland, with 905 UK stores, is not performing as well as Iceland, the football team. Owing to a slowing grocery market, rising staff costs and increased competition, it expects H1 earnings to be lower than in 2017. The supermarket chain noted that although overall revenue levels in the year to 30 March grew 8.0% to US$ 4.1 billion, like for like sales actually contracted. However, it does expect that Q3 will see a “strong scope for profit recovery”. Meanwhile, Tesco, with a 27.7% market share, posted a 1.8% underlying growth figure – its strongest performance since 2011 – on the back of lower prices.

For the third time this year, Debenhams, which runs 182 shops, has issued a profits warning – this time that pre-tax profits will be between US$ 47 million – US$ 54 million, well down on earlier US$ 68 million expectations. (Just five years ago, profits were nearly four times higher at US$ 202 million). Despite the introduction of a turnaround plan, that was expected to hike profits by boosting sales and cutting costs, the retailer continues to blame “increased competitor discounting and weakness in key markets” for the trading slowdown.

Shares in Debenhams fell by over 16%, when the news was released but this fall was nothing compared to sportswear retailer Footasylum, whose market value almost halved, after reporting a decline in revenue growth and indicating that profits would be lower, as it doubles the number of stores to 130 and expands online shopping.

The malaise in the retail sector seems set to continue following store closure announcements earlier in the year by House of Fraser, Marks & Spencer, New Look and Mothercare. All the possible negative factors are coming into play at the same time to create the perfect storm. These include competition from online retailers, higher import costs due to the weaker pound, a rise in business rates and squeezed household incomes which have all combined to make times tough for High Street stores.

Political opposition to reforms to the Indian public banking sector is not helping the government’s bid to clean up the activities of the 21 lenders which, one way or another, have a huge US$ 150 billion bad debt burden. The Modi government is planning to privatise Mumbai’s IDBI which last year posted a US$ 1.2 billion loss and has seen its bad debt balance double to US$ 8.1 billion. Earlier in the year, the country’s second largest state-owned lender, Punjab National Bank, was involved in a US$ 2 billion scam involving billionaire diamond jeweler, Nirav Modi. One major problem, that the government may face, would the possible lack of suiters interested in taking over such problem institutions, without any sovereign backing.

In April, there were conflicting data from European trade balances – the Eurozone return was 6.4% higher, at US$ 19.4 billion, than a year earlier but the EU28 (the 28 members of the EU) posted a US$ 1.2 billion deficit, with exports 6.8% higher, at US$ 179.8 billion, and imports also rising 6.6% to US$ 181.0 billion. Eurozone exports jumped 8.0% to US$ 212.3 billion, as imports were up 8.1% to US$ 192.9 billion. Inflation levels in both zones moved higher – eurozone 0.6% higher to 1.9% and the EU28 touching 2.0%. Within the bloc, inflation was the lowest in Ireland (0.7%) and Greece (0.8%) with Estonia’s 3.1% and Romania (4.6%) at the other end of the spectrum.

The latest from the ECB’s President Mario Draghi indicates that there will be no rate hikes until at least Q3 2019 but that it plans to close its bond purchasing programme by year-end. It is noted that the ECB is still trying to reach its 2.0% inflation target, even after five years of drastic monetary policy, but now expects to hit the mark in 2020.

May was a stellar month for US privately-owned housing starts which rose 5.0%, month on month, to 1.35 million – and a massive 20.3% higher than a year earlier. When it comes to completions, the May figure of 1.291 million was 10.4% higher than in May 2017.

It seems that the trade war has started in earnest, with the EU planning to implement US$ 3.2 billion worth of tariffs next week which sees some US imports, (ranging from agricultural goods to motorbikes), being subject to a 25% tariff; this is in retaliation to the earlier 25% and 10% levies on EU aluminium and steel imports. The European bloc is also considering the feasibility of imposing further tariffs totaling US$ 4.2 billion “at a later stage”.

China responded aggressively to Trump’s decision to push ahead with hefty duties on US$ 50 billion of their imports. One of many sectors that will receive more than a slap in the face is oil; this follows recent growth that has seen a tenfold increase, over the past eighteen months, to US$ 1 billion a month. With US petroleum becoming more expensive in China, expect OPEC (and maybe Russia) to jump in to fill the breach – and global energy prices to head north.

Last year, the US trade deficit widened to its biggest annual level since pre-GFC in 2008, ending the year with import values being US$ 566 billion higher than export levels (and 12% higher compared to a year earlier). Actually, the shortfall for goods was US$ 810 billion offset by a US$ 244 billion trade surplus in services.

A perusal of three of the leading trading blocs – China, The EU and Japan – will put the problem in perspective when they respectively account for US$ 375.6 billion, US$ 151.3 billion and US$ 68.9 billion, equating to US$ 595.8 billion (73.6%) of the trade deficit for goods. US exports to these three blocs of US$ 480.8 billion were a long way short of their imports totalling US$ 1,076.6 billion.  Who can blame Donald Trump for wanting to reduce this to a more manageable and equitable level? It seems most of the world!

It is rather ironic that the Xinhua news agency, in a rare attempt at sarcasm, commented that “the wise man builds bridges, the fool builds walls”. It is about time that the nation, responsible for building the Great Wall, takes a more even-handed and pragmatic approach in its trade dealings, especially with the US. There is no doubt that the situation has deteriorated and that nobody really wins from a trade war. To solve this impasse, all stakeholders should do Whatever It Takes!

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