Only a Pawn In Their Game

The Radisson Hotel Group has signed an agreement to manage the luxury hotel currently under construction in the DAMAC Hills Development. The 481-key luxury property, which includes 1-2 B/R suites, will be completed by the end of 2019. The international hotel group currently has 81 properties, encompassing 20k rooms, in operation and under development, across the MENA region. The hotel will be the first ever Radisson hotel to be located on a golf course.

There is a chance that The Taj hotel in Jumeirah Lake Towers will have its soft opening by the end of the year. The 5-star property, with 17 floors, will have 200 guest rooms and suites, as well as recreational facilities and dining venues. Its second Dubai venture – Taj Exotica Resort & Spa on Palm Jumeirah – is due for a Q4 2019 opening.

Grim news continues for Dubai’s hospitality sector, with STR’s preliminary July figures indicating a 14-year low for average daily rates, down nearly 10% to US$ 115, and revenue per available room 8.8% lower at US$ 76. Meanwhile, there were increases in both supply – 6.3% – and demand of 7.2% with a 0.9% rise in occupancy level to 66.0%.

Despite the doom and gloom surrounding the F&B sector, Bulldozer Group is set to open nine new dining concepts in the region. The six-year old Russian-owned company already has an enviable track record in Dubai with the likes of Venice’s legendary Cipriani, London’s celebrity hangout Novikov, Monte Carlo’s famous Sass Café (which closed in May 2018) and Sydney’s Toku. The Dubai-based hospitality firm is planning a September opening for Greek-Mediterranean restaurant GAIA in DIFC and China Tang later in the year, in the same area. It has a current portfolio of some ninety properties in eight locations.

However, good news for the local airlines in that there was an 11.0% growth in July revenue per passenger kilometre, compared to a year ago, which at that time was beset by problems with the four-month US ban on large portable electronic devices and travel restrictions for certain nationalities. Other increases noted were a 1.9% hike in load factor to 71.0%, with capacity 8.0% higher over the period. It is expected that this improvement will be carried forward into H2 but the best-laid plans could become unhitched by factors such as increases in both the value of the greenback and energy prices, not to mention trade tariffs.

With the cruise season almost upon us, a new report by the Dubai Chamber points to increased business for the 2018-2019 six-month period. Over the past four years, the number of passengers has almost doubled from 320k to 625k and this figure is expected to grow 16.0% to 725k by March 2019, particularly because more cruise ships are making Dubai an important global destination.

Despite the local rumour mill clunking into action, it seems that the premium international schools market continues to expand across the Middle East, showing no signs of slowing down, despite challenging economic conditions, according to new research. Over the past five years, the number of such schools has risen by 37.4% to 1.6k, with the UAE having the largest number, at 624, with 28 new schools added last year. The student number is around 1.5 million, with an average annual fee of US$ 7.7k. Thirteen new establishments are expected to open this school year in Dubai.

Local company, Danube Home is to open its first overseas store in Hyderabad next month, with an US$ 82 million investment. The company already operates 25 outlets in the MENA region and expects to open 25 in India over the next five years.

An Indian-based pharmaceutical and biotech firm is to open a factory in JAFZA. Wockhardt is planning a US$ 40 million investment in a 10k sq mt drug-making facility, specialising in antimicrobial drugs to fight the emerging threat of superbugs, for global distribution.

Dnata continues to add to its revenue  base by launching passenger handling operations at New York-JFK Airport, with Panama’s Copa Airlines as its first customer; the Dubai-based air service provider already has a major presence in the US, handling over fifty airlines in that country, where it has captured forty new contracts over the past twelve months.

According to the July Emirates NBD seasonally adjusted Dubai Economy Tracker Index, business conditions continue to head north, albeit at a slower pace. Softer growth was seen in the construction, travel/tourism and wholesale/retail sectors, as business activity increased. The uptick in higher output and new orders came at the expense of continued extensive price discounting, resulting in average selling prices falling at their sharpest rate in twenty months. Unsurprisingly, YTD employment growth is the softest on record.

The Emirates Nuclear Energy Corporation announced that it had completed hot functional testing on Unit 2 of the Barakah Nuclear Energy Plant and that construction was 93% complete. Last month, it was reported that the first of its four nuclear reactors had been delayed and would come on line in late 2019 or early 2020. When all four reactors, at the US$ 20 billion Barakah plant, come on line, there will be an annual saving of 21 million tons of carbon emissions, equivalent to removing 3.2 million cars from the roads.

Figures from the Central Bank show that month on month cash deposits were 11.4% higher in July at US$ 6.2 billion, with YTD figures of US$ 38.0 billion. Cash withdrawal figures for the month were at US$ 5.5 billion and YTD totlalled US$ 37.6 billion. Over the past seven months, money transfers by banks and clients totalled US$ 1.1 trillion and US$ 498.6 billion respectively – and for the month up 4.1% to US$ 168.9 billion and US$ 71.6 billion.

With the rupee sinking to a record low level of 70 to the US$, many Indian expatriates are cashing in although there is every chance that the fall in the currency will continue. The latest decline has been driven by the events in Turkey where the lire has fallen down the toilet – so far this year it has lost 35.6% in value, which includes a 15% slump since the beginning of the month.

Emirates NBD may be thankful for the Turkish currency crisis. In May, it agreed to buy the Turkey’s DenizBank from Russia’s Sberbank for 14.6 billion liras, worth US$ 3.2 billion. Now it could be in a position to renegotiate the deal, as the value of the lire has dropped from the time of the May acquisition, and could lead to at least a US$ 1 billion “saving” – even if this involves a 10% penalty for cancelling the original deal.

It was no surprise to read a Moody’s report which intimated that the country’s four largest banks – ADCB, Dubai Islamic, Emirates NBD and First Abu Dhabi – posted a combined 21% jump in Q2 profits to US$ 2.2 billion. The financial services firm also forecast much of the same for the next twelve months. The improvement was largely attributable to two factors – higher net interest income (up 10%) and lower provisions (down 27%). Banks continue to be the stand-out sector in the local economy – at the same time that many other entities continue to struggle often because of the lack of liquidity.

Arabtec has won a US$ 42 million Dubai Municipality sewerage and drainage contract in the Al Khawaneej area, due to be completed Q4 2019.

The verdict in the US$ 217 million bounced cheque criminal case against Abraaj founder, Arif Naqvi, is expected later in the month. Once the biggest regional private equity firm, with assets of US$ 14 billion under management, the company is undergoing a court-supervised restructuring in the Cayman Islands. The fall-out promises to be messy as there is a chance that the ex-chairman, who is currently out of the UAE, could face an international arrest warrant – whilst investors wait to see whether they will have their full investments returned.

Dubai Aerospace Enterprise posted H1 profit figures over five times greater than in the same period in 2017. Profit before tax came in at US$ 224 million (2017 – US$ 43 million), as revenue more than tripled from US$ 229 million to US$ 711 million. The main driver was the acquisition of AWAS which saw the fleet increase to 375 owned, managed and committed aircraft and total asset value jumping to US$ 15.5 billion.

This week saw the reporting season in full swing, with a mixed bag of results for companies listed on the Dubai bourse

Marka’s Q2 net loss was US$ 3 million, a major improvement on the US$ 34 million deficit in Q2 2017, as cost of sales was 40% lower at US$ 2.9 million, with expenses 75% down at US$ 3.0 million; interest on loans of US$ 37 million was US$ 2.2 million. Revenue declined by 22% to US$ 5.4 million. The company auditors noted that the group’s current liabilities exceeded its current assets by US$ 8.7 million and that certain loans were outstanding.

Although its shares have been suspended from trading until next month, when its restructuring plan will be discussed at a general meeting, the five-year old Marka reported its second consecutive quarterly gross profit of US$ 762k, compared to a US$ 13 million loss over the same period in 2017. The country’s first publicly traded retail operator may well have turned the corner under its CEO Benoit Lamonerie, appointed last year, who has finally pushed Marka into a profitable business.

Drake & Scull has attributed both the performance of its subsidiaries in secondary markets in Qatar, Oman and Jordan, as well as project debt defaults, for a Q2 loss of US$ 50 million. The company is continuing work on a restructuring plan  and also announced the appointment of a new CEO, Yousef Al Mulla, who will replace Dr Fadi Feghali, who had been in that position since March.

As its H1 revenue jumped 45.9% to US$ 3.1 billion, Emaar Properties posted an 18.0% increase in profit to US$ 911 million, driven by strong growth in its development and malls businesses; the profit figure did include a one-off US$ 99 million income item arising from the IPO of Emaar Development. The profits were also bolstered by property sales of US$ 1.7 billion by Emaar Developments.

With its revenue climbing 144.7% to US$ 1.01 billion, Emaar Developments posted a 73.4% hike in Q1 net profit to US$ 272 million; over the first six months of 2018, its revenue came in at US$ 1.9 billion, with a profit 68.0% higher at US$ 496 million. The developer reported that it had launched the sale of 3.6k units in H1 and that it has a US$ 10.5 billion development pipeline of sixty residential projects, comprising more than 28k units.

Damac posted its third consecutive quarterly fall in profit with Q2 results showing a  46.0% profit plunge to US$ 101 million on revenue of US$ 488 million; cost of sales jumped 62.0% to US$ 316 million. At the end of June, the developer carried over US$ 1.4 billion in debt and is planning to cut this down by US$ 500 million over the next three years. It confirmed that it was on track to deliver a record 4k units by the end of the year.

Nakheel posted a 3.8% decline in H1 net profit to US$ 684 million on revenue of US$ 1.9 billion. Strong growth was seen in its non-development businesses – asset management, hospitality, leasing and retail – which now accounts for 38.0% (US$ 708 million) of the company’s revenue. These revenue streams will continue to grow, moreso with The Night Market, Warsan Souk, The Palm Tower and Nakheel Mall being added over the next twelve months to the developer’s portfolio. Nakheel has also handed over 451 residential units in the first six months of 2018, during which time it has signed construction contracts totalling US$ 1.6 billion, the biggest of which was US$ 1.1 billion for Deira Mall.

DP World posted a 14.0% rise in H1 revenue (on a reported basis) – and 3% on a like for like basis – to US$ 2.62 billion, as profits grew 18.0% to US$ 643 million; during the period, gross volume was 4.8% higher to 35.6 million TEUs (20’ equivalent units), driven by its European and Australian  terminals. The Dubai-based ports operator has made investments of US$ 1.4 billion which will inevitably lead to future profit growth. DP World plans to extend its core business into port-related, maritime, transportation and logistics sectors. The only clouds on the horizon would appear to be the current trade tariffs and regional geo-political problems.

The world’s fourth largest port operator also announced that it had bought Danish logistics company Unifeeder for US$ 760 million as it continues to expand its footprint in Europe and expand its business segments to shipping.

Mainly because of an US$ 8 million final settlement of a long-standing legal case, Gulf Navigation posted a US$ 4 million H1 loss, compared to a US$ 5 million profit over the same period last year. The bottom line was also not helped by the fact that it had two petrochemical tankers in dry dock for major upgrades.

The DFM opened on Sunday, 12 August on 2920 and, having lost 1.8% (54 points) the previous week, continued its downward trend shedding 117 points (4.0%) to close on Thursday at 2803. Over the week, Emaar Properties declined by US$ 0.07 – to US$ 1.37 – with Arabtec flat at US$ 0.53.

By Thursday, 16 August, Brent was trading US$ 0.64 (0.9%) lower at US$ 71.43, as gold sank by US$ 40 (3.3%) to US$ 1,184.

A US$ 8 billion JV between two Saudi companies – Aramco and Acwa Power – with Air Products has been agreed that aims to attract foreign investment into the Kingdom. The US entity, with a minimum 55% stake, will purchase Aramco’s gasification assets, power block and associated facilities, with the oil giant supplying feedstock to the JV from its Jazan Economic City facility. After processing, the end result will be asphalt, benzene, LPG, paraxylene and sulphur. The JV, covering the next 25 years, will own and operate the assets for a fixed monthly fee.

Not everybody’s favourite company, Monsanto has been ordered to pay school groundkeeper, Dewayne Johnson, US$ 289 million, as a Californian court agree with his claim that the company’s glyphosate-based weed-killers, including Roundup, caused his cancer. This is expected to be the first of a possible 5k claims against the unit of Bayer AG.

Despite costs climbing 6.0% to US$ 17.5 billion, HSBC posted a 4.6% rise in H1 pre-tax profit to US$ 10.7 billion. There was a further US$ 765 million settlement for alleged mis-selling of US mortgage securities. The bank has introduced a strategy that will see a spend of up to US$ 17 billion, over the next three years, in areas such as technology and in China, with the aim of boosting market share and future profit streams.

IAG, owner of BA, Aer Lingus, Iberia, Level and Vueling, saw its share value 3.9% lower, even though it posted a 6.0% increase in Q2 profit to US$ 967 million. The result would have been better if it were not for a US$ 23 million hit at Vueling from disruption caused by French Air Traffic control strikes, as well as a strengthening greenback.

There may be life after Emirates for the A380, with news that Norwegian will use the super-jumbo on its LGW-JFK route, whilst some of its Boeing 787s are grounded to undergo maintenance and resolve glitches with Rolls-Royce engines. Even Thomas Cook has been using the A380 on routes from Oslo and Copenhagen to Mediterranean destinations.

Not all fans were happy with the news that Arsenal’s 67% stakeholder, Stan Kroenke, has agreed to buy a further 30% share from Alisher Usmanov for a reported US$ 600 million. (Strangely, the Russian metal magnate, recently linked with Everton, was unsuccessful in his attempts to take over the club in 2015 with a US$ 1 billion bid). The Arsenal Supporters’ Trust called the news “a dreadful day” which would “see the end of supporters owning shares in Arsenal and their role upholding custodianship values,” and that Kroenke would be able to take “detrimental actions” such as paying “management fees and dividends without any check or balance”.

The World Trade Organisation has forecast a slowdown in global trade for the rest of 2018 because of the risk of the numerous trade disputes growing out of control. Their global indicator, which utilises seven forward-looking components, including export orders and automobile production and sales, fell 1.5 to 100.3, month on month in June, and is well down on February’s return of 102.3.

Although lower than analysts’ expectations, positive data still emanates from China. Three major July indicators show that retail sales remained buoyant at an annualised 8.8% growth (compared to 9.1% market forecasts), fixed asset investment was 5.5% higher (6.0%) and industrial production up by 6.0% (6.3%).

With India’s retail inflation rate easing to 4.17% in July, it seems likely that there will be no more rate hikes this year, especially after the two recent ones, the last of which was 01 August, which pushed the rate to 6.5%. Even though the IMF is forecasting inflation to top 5.2% next year, Prime Minister, Narendra Modi is confident that inflationary pressure will be dampened by higher state spending on subsidised housing and infrastructure projects.  However, the sinking rupee, which has already lost over 8% this year, may be a cause for concern moreso because of the contagion effect of the Turkish crisis. Despite all this, the world’s sixth largest economy, at US$ 2.6 trillion, grew at a more than credible 7.7% annual rate in Q2.

In the UK, the headline inflation indicator moved up 0.1% in July to 2.5%. The main factors behind this uptick in the CPI (consumer price index) were, surprisingly, rising prices in computer games and higher transport fares. On the flip side, clothing/footwear recorded a 0.4% decline over the year.

Mainly because of declining exported vehicles and aircraft to non-EU countries, the UK overall trade balance jumped 83.0% to US$ 11.0 billion with the total trade gap, after stripping away inflation, growing at US$ 5.4 billion. On an annual basis, the trade deficit has contracted by US$ 8.0 billion, as the value of exported goods and services nudged higher. Following a 0.2% Q1 growth, the country’s GDP recorded a 0.4% expansion in Q2, with the market still defying attempts by the fear factor to talk down the economy. Over the quarter, both construction was 0.9% higher and the service sector 0.5%, with the wholesale/retail trade up 1.6%. Year on year, GDP was 1.3% higher.

The July US budget deficit was 79.3% higher on the year at US$ 76.9 billion, driven by lower revenues (because of the December tax cuts taking effect) and increased spending. The CPI (consumer price index) rose 0.2% in the month as consumer prices hit record ten-year highs, with the main contributor being the 0.3% hike in the cost of shelter, attributable to 60% of the gain; on an annual basis, the CPI rose 2.9%.

The US economy continues to sail on the crest of a wave with latest data indicating that the manufacturing sector is progressing well. The Empire State manufacturing index, gauging overall general business conditions, posted an August reading of 25.6 (well above analysts’ 20.0 expectations). Firms remain moderately optimistic about the short-term outlook, with the business optimism index for future conditions climbing 4 points to 34.8. On the retail front, annualised July sales expanded by 6.3%, and up 0.5%, month on month, at US$ 507.5 billion.

Donald Trump sent the Turkish lire into a tailspin when he doubled the steel and aluminium tariffs to 50% and 20% respectively last Friday. Both the economy and the currency were faltering for weeks prior to Trump’s announcement. By Thursday, 16 August, it had slumped to 5.85 lire to the US1 – down 35.6% from its 01 January opening of 3.77 and 15.3% since the beginning of August. The tipping point centred around the two-year detention of Pastor Andrew Burson in Turkey whilst the US has refused to extradite US-based Turkish cleric Fethullah Gulen.  Anybody who thinks that these two are the reason behind the current impasse is badly mistaken – they are individually, Only A Pawn In Their Game.

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