White Flag

There seems to be no stopping Azizi Developments, as it announces that it will deliver five additional projects in the Al Furjan community by the end of this year – having already handed over twelve projects. The extra five – Shaista Azizi, Samia Azizi, Azizi Star, Farishta Azizi, and Azizi Plaza – will add a further 1.7k residential units and bring the developer’s total to over 3.6k, valued at US$ 1.1 billion.

It is reported that the Jumeirah Group is planning to add the Burj Al Arab brand to its portfolio; based in global gateway cities, the first will probably be located in Europe, where some room prices could be in the US$ 2.2k bracket. The Burj itself is to undergo renovation in the summer of 2019. The Group is scheduled to open six new Asian hotels, including in Bali, China and KL, over the next three years, and will see two new properties – next to Jumeirah Beach Hotel and in Abu Dhabi – later this year.

Emaar Hospitality has signed an agreement to expand into the Sub-Saharan Africa’s hospitality market, with its first deal being to operate the 256-key Address Hotel 2 Février Lomé Togo. The Emaar Properties’ subsidiary has also signed five other international agreements – in Bahrain, Egypt, Saudi Arabia, The Maldives and Turkey.

Over the next two years, Novo cinemas expect to open 19 new cinemas across the region, that will see a 26.6% increase in the number of screens to 200 by 2020.

Apart from a place next to Sepp Blatter, the Fairmont Dubai has probably the most expensive seats to view the World Cup Final on 15 July. At a cost of US$ 27.2k, guests can stay in the 548 sq mt Imperial Suite which will be transformed into a grass football field. The six guests will be picked up in a stretch limo, watch the game on a103” LED TV and have their dedicated butler, barman and chef, along with a photographer, available 24/7. After the match, they will have their own VIP table at the hotel’s circus-themed club Cirque Le Soir. Celebrations begin next day, with a live-breakfast station in their own jacuzzi area, and continue into the morning before their afternoon departures in a range of super cars, including McLarens and Lamborghinis.

In 2015, jeweler, Ramachandran, with debts of US$ 150 million, was forced to close thirty of his 48 Atlas shops and served two years in jail. The former film actor has seen the value of his company jump 26% this month alone and has indicated that he has received investment proposals from several private equity parties, who would also pay off his debts. He now plans to open up to ten stores, over the next two years, with the first one in Dubai.

It is likely that some Etihad pilots will be joining Emirates on a two-year secondment which would entail them receiving their salary and benefits, per an Emirates package, but retaining their Etihad job ranking on their return. This move allows both airlines more flexibility in managing their pilot resources at a time when Etihad is restructuring its business model that have resulted in closing some routes and reducing its freighter fleet. It is inevitable that more cooperation between the carriers will continue to take place.

As from 31 March next, year, Virgin Atlantic will no longer operate its London-Dubai route because it has become economically unviable due to a combination of factors.

July fuel prices are set to drop on Sunday, with Special 95 down US$ 0.016 (2.4%) to US$ 0.668, whilst diesel will retail US$ 0.136 lower at US$ 0.725.

In a move that will boost its current level of supplying 2.8 million US gallons of jet fuel daily, Emirates National Oil Company has signed a strategic partnership with Australian-based Raven Energy. The deal will see ENOC expanding its Nigerian operations, as well as enhancing infrastructure in the UAE and improving productivity.

The Dubai World Trade Centre Authority has announced up to 70% reductions on licensing and incorporation fees in a bid to boost business growth; the state-owned convention centre also hopes that it will benefit inward FDI (foreign direct investment).

Figures from the Knowledge and Human Development Authority (KHDA) indicate that Dubai private schools’ 2017 revenue, from tuition fees, was 10.3% higher at US$ 2.0 billion, and 59.6% up from returns five years ago. Although the average school fee is US$ 7.3k, there are some – including GEMS World Academy, King’s School Nad Al Sheba and Repton – charging over US$ 27.2k, with the most expensive being the recently opened North London Collegiate School at fees up to US$ 35.4k. The 194 private schools have an “occupancy rate” of 85.3%, with 281.4k enrolled students. Five countries – India (33.9%), UAE (10.9%), Pakistan (8.0%), Egypt (5.5%) and UK (4.7%) – account for 177.4k (63.0%) of the private student population. When it comes to higher education, enrolments last year were 4.8% higher, with 30.4k students attending the emirate’s thirty-two free zone universities.

To the surprise of some, Dubai has fallen seven places and is now the 26th most expensive location according to the latest Mercer ‘Cost of Living’ survey. It estimates that a two-bedroom apartment monthly rental in Dubai is US$ 3k, compared to New York (US$ 5.7k) and London (US$ 4.3k). One of the main reasons for the decline is attributable to the softening US$ last year. The survey also concludes that because of the lower cost of living, the emirate will continue to attract top talent from around the world. Hong Kong, Tokyo, Zurich, Singapore and Seoul are the top five countries, based on cost of living.

Dubai family conglomerate Majid Al Futtaim has signed a US$ 13 billion JV with the Oman Tourism Development Company to develop a mixed-use community in the western area of Madinat Al Irfan. The development, which will see 30k jobs created in the country, will encompass 11k residential units, 100k sq mt of retail and 700k commercial space. The massive project, to be built in three phases and covering 4.5 million sq mt, will take twenty years to complete.

After divesting the bulk of its investment business to Colony Capital, Omar Lodhi and Selcuk Yorgancioglu, the co-chief executives of Abraaj Investment Management (AIML), have stepped down from the board of the unit. There are also reports that a Sharjah-based prosecutor has issued a warrant against the founder, Arif Naqvi, currently in the UK, in relation to bounced cheques issued as a security for two loans – one for US$ 54 million to the firm and the other for US$ 27 million to the founder – both from the UAE-based Al Jafar family. The case is expected to be tried in his absentia and a conviction could lead to a jail term. He is charged along with fellow director, Muhammed Rafique Lakhani,

The court liquidator is also seeking funds to arrange payroll payments, that could total up to US$ 20 million, to the firm’s ninety employees. On top of that, there are bound to be other indirect overheads that require settlement.

As it tries to consolidate its market position, Amanat is reportedly buying troubled Abraaj’s share in Middlesex University’s Dubai campus for around US$ 100 million. If the sale goes through, Amanat would have 100% ownership in the 13-year-old asset, with 3k students, that has annual revenue of around US$ 40 million. Later in the week, the GCC’s largest healthcare and education investment firm also completed the purchase of London Collegiate School (NLCS) Dubai for US$ 98 million from the Sobha Group; it also committed a further US$ 12 million to its future expansion plans. The Dubai-based firm also has 35% in Abu Dhabi University Holding Co and 21.7% in Taaleem Holdings and has a reported war chest of US$ 490 million to spend in the regional healthcare and education sectors.

Shuua Capital’s board has agreed to repurchase 10% (US$ 30 million) of its shares in order to reoffer them. The Dubai-listed investment firm has a market value of US$ 313 million and posted a 52.9% decline in Q1 profit to just over US$ 3 million.

Monday was a bad day for both the local bourse and Drake & Scull. The DFM shed 2.1% to close at 2868 – its lowest level since January 2016 – whilst the troubled contractor saw its share value slump 10% on the day, the maximum daily decline permissible. Some analysts are of the opinion that stocks, which in the main are attractively valued, are being dragged down because of issues involving corporate governance and a lack of transparency.

The DFM opened on Sunday (24 June), having shed 155 points (5.0%) the previous week, lost a further 107 points (3.7%), closing the week, on 28 June 2018, at 2821; over the past year, the bourse has lost 12.2% in market value. Both Emaar Properties and Arabtec were trading lower on Thursday 28 June by US$ 0.08 to US$ 1.34 and US$ 0.04 to US$ 0.52 respectively; over the past twelve months, these stocks have lost 31.22% and 32.77% respectively.  Volumes were flattish, trading 357 million shares, valued at US$ 97 million, (compared to 306 million shares, worth US$ 123 million, the previous Thursday – 21 June).

By Thursday 28 June, Brent Crude, having declined US$ 9.22 (6.0%) the previous five weeks, headed in the other direction up US$ 4.80 (6.6%) to close on US$ 78.85, with gold continuing on its slippery slope, down another US$ 20 (US$ 32 the previous week) to US$ 1,251.

At last Friday’s meeting, OPEC agreed to cut the compliance level to the production-cut agreement from May’s 152% to 100%; in effect, it gives the cartel flexibility to boost production levels but no specific figures were made available. A day later, non-OPEC producers endorsed a nominal output increase of one million bpd, equivalent to about 600k.

21st Century Fox won US Department of Justice approval to acquire Disney, subject to Disney selling 22 regional sports networks, now owned by Fox. Its rival Comcast could still gazump Fox’s US$ 71.3 billion bid, with the cable and media conglomerate considering a potential partnership to up the ante.

Even the country’s largest coffee chain, with 2.4k shops, Costa is serving fewer customers, as the falling numbers on UK high streets continue to bring misery to many retailers. The coffee chain, owned by Whitbread, reported a 2.0% decline in Q1 like for like sales, although revenue was 5.2% higher because of new openings. It joins many other big names, with falling revenue – including Byron, House of Fraser, Jamie’s Italian, Maplin, Marks & Spencer, Mothercare, New Look, Poundworld, Prezzo and Toy R Us, all of which have closed outlets or shut down completely.

Three other retailers have joined this long list. As part of its company voluntary arrangement, the House of Fraser has received 75%+ creditors’ approval to close 31 of its 59 stores, resulting in 6k job losses, 2k which will be direct staff and 4k across brands and concessions. There is every possibility that C,banner, owned by Hamleys, will buy 51% of the “new” business and invest US$ 94 million in a move that has annoyed some landlords; they argued that they will take the biggest financial hit amongst stakeholders, with the new arrangement favouring the retailer that will have a new lease of life with this investment.

Since arranging a Company Voluntary Arrangement in April, Carpetright has begun to close 81 of its stores and also raised a further US$ 87 million from shareholders. This week, the UK retailer posted an annual loss (to 28 April) of US$ 95 million, with like for like sales 3.6% lower. The underlying loss came in at US$ 11 million (when one-off restructuring costs are taken off), compared to the previous year profit of US$ 19 million; its net debt was 540% higher at US$ 71 million.

John Lewis Partnership, including John Lewis and Waitrose, is also warning that H1 profits may be “close to zero” after posting a US$ 35 million surplus last year. The Group will close five of its 353 Waitrose operations but retain its 50 John Lewis department stores.

One of India’s biggest property developers, Ireo Management, has been accused by two high profile hedge funds of a US$ 1.5 billion fraud. It is alleged that its MD, Lalit Goyal, created a web of shadow companies to siphon money from funds in what could be one the country’s largest ever private equity scams. Some of the investors involved include the UK’s Axon and Children’s Investment Fund Foundation, Notre Dame University and Stanford University.

The Indian rupee is on some kind of free-fall (driven by the hike in energy prices and the global sell-off in emerging markets) and the signs are not looking good for an early improvement. With the currency falling a further 0.7% on Thursday (28 June) to 69.09 to the greenback, bonds were hit, as the benchmark 10-year yield jumped to 7.93%. As the country, the third highest global oil user, imports nearly 70% of its fuel needs, any price increase will have a negative impact on its current account with a net capital outflow. It is estimated that a US$ 10 hike in fuel prices will see India’s GDP contract 0.4% and inflation rates 0.4% higher.

It has indeed been a volatile and eventful six months and from the table, it can be seen that of the 17 listed economic indicators, only four have headed north, with the most notable being the 19.2% increase in Brent. The other three were coffee, the S&P 500 and the ASX All Ord – up by 9.6%, 1.6% and 1.9% respectively. The biggest losers were Bitcoin, DFMI, CSI300 and copper – with double digit deficits of 55.8%, 16.3%, 12.9% and 10.3%. As can be seen, this blog expects minor improvements almost across the board over the next half year. Time will tell.

Forecast  
31 Dec 18 Unit 30 Jun 18 31 Dec 17 31 Dec 16 31 Dec 15 31 Dec 14
1,365 Gold US$ oz 1,254 1,305 1,151 1,060 1,186
67.50 Iron Ore US$ lb 64.80 71.28 75 47 73
84.00 Oil – Brent US$ Bar 79.44 66.62 56.82 36.40 57.33
115.50 Coffee US$ lb 114.90 126.2 133 124 161
89.50 Cotton US$ lb 86.03 78.5 69 64 62
17.00 Silver US$ oz 16.16 16.99 16.00 13.82 15.77
3.05 Copper US$ lb 2.96 3.30 2.48 2.14 2.88
0.77 AUD US$   0.74 0.78 0.72 0.73 0.81
1.34 GBP US$   1.32 1.35 1.24 1.48 1.53
1.15 Euro US$   1.17 1.20 1.05 1.09 1.21
0.015 Rouble US$   0.016 0.017 0.016 0.014 0.017
7,600 FTSE 100     7,637 7,688 7,142 6,242 6,548
3,450 CS1300     3,511 4,031 3,310 3,731 3,532
2,680 S&P 500     2,718 2,674 2,238 2,044 2,091
3,050 DFMI     2,821 3,370 3,531 3,151 3,774
6,200 ASX All Ord     6,290 6,171 5,665 5,345 5,415
6,150 Bitcoin US$   5,791 13,081 998 427 302

In its attempts to control leverage and encourage SMEs, China’s central bank has reduced the required reserve ratio for some financial institutions by 0.5%, equivalent to US$ 108 billion extra cash being made available to the market. This move will give a boost to the economy at a time when there are indications that it is slowing, as a result of US trade sanctions and the government’s policy to clean up the shadow banking sector.

Greece has finally convinced its eurozone creditors for more time to repay a US$ 115 billion debt, with little or no interest, as well giving the country a stop-gap US$ 18 billion loan to help in paying its bills. It has been the recipient of three separate bailouts since 2010 because of continuous massive budget deficits and has faced a series of tough economic reforms and unpopular austerity measures. Although the EU seem to be patting themselves on the back, the country still has problems with 20%+ unemployment, debt equivalent to 180% of GDP and the IMF expressing worries about the long-term situation.

Having borrowed US$ 465 billion from the ECB, at a current minus 0.4% rate, eurozone banks are expected to pay back only US$ 12.8 billion (2.75%), two years ahead of schedule. The idea of the four-year loan facility (known as a targeted longer-term refinancing operation) was to pay the banks a small amount of interest as long as they met their quota of loaning to the real economy. The 2016 TLTRO, the ECB’s second encompassing four tenders, was part of a strategy aimed at fighting off the threat of deflation and boosting growth. It has turned out to be a long and expensive exercise with the banks, once again, the only real winners.

Following a 3.7% decline last month, US new home sales bounced back in May to an annual 6.7% rate of 689k, (with market expectations of only 1.5%), driven by a 17.9% surge to 409k in the South. Median sale prices at US$ 313k were down 1.7%, month on month, and 3.3% on an annual basis.

Driven by several key factors – including its economic diversity, policy flexibility, resilience and the fact that it is the issuer of the world’s leading reserve currency, S&P has affirmed the US ‘AA+’ sovereign credit rating. Whilst pointing out certain difficulties, such as slower decision-making, caused by disagreements across and within the two political parties, as well as the high level of public debt, the agency still forecasts growth this year at 3.0%. Despite all the hot air arising from the President working towards fairer global trade agreements, with the resultant uncertainties and tensions, the agency also expects the general pattern of trade in goods and services will remain broadly unchanged.

The latest salvo in the trade war sees the US threatening a 20% duty on EU imported cars, unless the bloc removes import duties and other barriers to US goods that saw US$ 3.3 billion tariffs placed on US imports to the EU. Last year, the US imported up to US$ 50 billion in vehicles and auto parts from the EU, with almost half from Germany and 18% from the UK.

The 117-year old Harley-Davidson company has upset the US President by announcing plans to move more of its manufacturing overseas. It seems a short-term solution (and a possible excuse to move jobs overseas) as the motorcycle producer is using the higher steel costs (as a result of the Trump tariffs) as well as retaliatory action, making their bikes more expensive in overseas markets, as the main factors for the decision. For example, the EU has hit the company with a 31% extra duty (up from the earlier 6%) which pushes the average price in Europe up by an additional US$ 2.2k. However, if one assumes that the situation is a short-term problem, and that moving production lines can take up to eighteen months (and a probable US$ 100 million), then one has to question their reasoning. No wonder that the President tweeted his surprise that “Harley-Davidson, of all companies, would be the first to wave the White Flag.”

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