Land of Make Believe                                                 21 Mar 2019

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Work is ahead of schedule on phase 1 of the US$ 820 million Mirdif Hills project, according to ECC Group who indicated that 70% of construction has been completed on Janayen Avenue and Nasayem Avenue, and 40% on Al Multaqa Avenue. The project, the only freehold development currently in Mirdif, comprises mixed-use, residential, commercial, and retail, and will include a four-star Millennium hotel – with 116 rooms and 128 serviced apartments – and a 230-bed hospital.

sbe is to develop the first SLS property in the Middle East – the SLS Dubai Hotel & Residences in Downtown which is already 60% complete. The 75-floor tower will house 254 hotel rooms, 371 residential units and 321 hotel apartments and will open in Q3 next year. The New York-based hospitality group is developing the property in partnership with World of Wonders Real Estate Development.

VPS Healthcare will open three speciality hospitals in the UAE this year, including one in Dubai, and a further one in Bahrain. The group, with specialties including oncology and maternity, has twenty operational hospitals and 125 medical centres located in the Middle East, Europe and India.

DP World Constanta has renewed its contract with the Romanian port for a further thirty years to 2049. The subsidiary of DP World has operated there since 2004 and the capacity of its terminal stands at one million TEUs; it serves not only the Romanian domestic market but also much of Central Europe with feeder connections to the Ukraine, Russia, Bulgaria, Georgia and Moldova.

This year, the Ministry of Human Resources and Emiratisation is aiming to create 30k private sector jobs for Emiratis, as it launches its National Policy for Employment. A similar initiative launched last year helped accelerate the ministry provide 20.2k (195%) more job opportunities.

The Telecommunications Regulatory Authority has announced new regulations covering early termination charges of service contracts. In future, telecoms will only be able to levy one-month rent multiplied by the number of the contract’s remaining months. Initially, the new rule will only apply to new contracts, with other services’ contracts being applied later. This is a major improvement on the former regime that saw customers having to use the service until the end of the contract – and pay for a service that was not being used.

Four listed companies declared dividends this week. Etisalat proposed a US$ 0.218 dividend – the same as the previous year – having posted a healthy US$ 2.3 billion profit in 2018. Emaar Properties will pay a 15% cash dividend, equating to US$ 292 million – lower than last year and lower than market expectations. However, the move is logical when one considers that the developer has a US$ 6.6 billion capex budget to finance in the coming years. Other related companies – Emaar Malls and Emaar Development – came in with dividend payments of US$ 354 million and US$ 283 million.

The bourse opened for trading on Sunday 17 Mar, at 2574, and having shed 62 points (2.4%) the previous fortnight ended 55 points (2.1%) higher by Thursday, 21 March, on 2629. Emaar Properties, regained most of the previous week’s loss, closing US$ 0.03 higher at US$ 1.28 with Arabtec flat for a second straight week at US$ 0.58. Thursday 21 March saw decreased trades of 95 million shares, valued at US$ 41 million, compared to a week earlier of 342 million shares at US$ 133 million. Monday was a very active day on the bourse because of the government’s decision to consolidate debts that its citizens owed it; US$ 98 million worth of shares were traded, compared to just US$ 22 million the day before.

By Thursday, 21 March, Brent traded US$ 0.63 (0.9%) higher to close on US$ 67.86; gold also moved higher by US$ 12 (0.9%) up at US$ 1,307.

It seems that Garuda will be the first airline to scrap orders with Boeing following the two crashes of its 737 Max 8 jets. The Indonesian carrier, with a 48-plane order, has said that passengers had “lost trust” in the plane. It now seems highly likely that the two crashes were related and that a new automated system in Boeing’s aircraft – intended to stop stalling by dipping the nose – could be involved with pilots unable to override it.

Talks between EasyJet and a consortiumof Ferrovie dello Stato Italiane and Delta Air Lines to bid for troubled Alitalia have fallen through. However, Delta remains in discussions with Ferrovie but any bid for the airline, placed under administration in May 2017 and subsequently propped up by the Italian government, will have to be concluded by the end of the month.

The 166-year old Levi Strauss returned to Wall Street with a bang, as shares opened 31.8% higher at the bell on their first day of trading, valuing the company at US$ 8.7 billion. It has a 5% of the global market in jeans and will use some of the money raised by the flotation to broaden their clothing range and expand into more countries.

This week saw the biggest ever deal in the booming international payments sector when Fidelity National Information Services bought Worldpay for about $34 billion in cash and stock. When the latter’s debt is brought into play, the value moves up to US$ 43 billion. Fidelity will own 53% of the new entity, with the balance take up by the acquired company’s shareholders. Interestingly, the payment processing firm used to be owned by Royal Bank of Scotland which had to sell it as a condition of the bank’s financial crisis bailout. Someone must have egg on their cheek this week when the value of RBS only stands at US$ 42 billion!

As expected Google has been hit with a US$ 1.7 billion fine by the EU for antitrust activities – the third time that the European body has levied such high penalties on the Silicon Valley tech giant. It was alleged that Google “abused its dominance to stop websites using brokers other than the AdSense platform”; this resulted in Google rivals being unable to place their ads on these sites.

A jury in San Francisco has found that pharmaceutical group Bayer’s weed killer Roundup was carcinogenic and contributed to causing non-Hodgkin’s lymphoma in California resident Edwin Hardeman. The German pharmaceutical group, which acquired the product as part of its US$ 66 billion buy-out of US rival Monsanto, has rejected all claims. This is only the second of 11.2k cases against the company; the first one resulted in another Californian being awarded US$ 289 million, later reduced to US$ 78 million and is on appeal.

The future of India’s Jet Airways is in jeopardy despite the Modi administration and lenders making every effort to keep the airline flying. The carrier, which is 25% owned by Abu Dhabi’s Etihad and its largest shareholder, has racked up more than US$ 1 billion in debts; now the government is urging state banks to rescue Jet without pushing it into bankruptcy. To the outsider, this seems to be a political – rather than an economic – move, just weeks ahead of a general election and the possibility of job losses running into many thousands.

There was further bad news for the UK’s high street this week. Next announced that its stores’ sales fell nearly 8% to US$ 2.6 billion (and profit by 20.0%), as its on-line sales headed the other way – up 14.7% to US$ 2.5 billion, with profit 14.0% to the good. Interestingly, Next was also one of the UK entities that has not blamed Brexit for any of its demise.

Meanwhile, Kingfisher, owner of B&Q and Screwfix, posted a 13% slump in 2018 profits to US$ 915 million, with Castorama, its French chain, dragging down sales; like for like sales were 1.6% lower. It is set to close all nineteen Screwfix outlets in Germany and fifteen of its other stores across the group. The market has not been happy with the reign of Veronique Laury, as its shares have fallen over 27% in the past year; her departure this week leaves only five female chief executives in the FTSE 100.

Former Staples stationery chain, Office Outlet, has been placed into administration, putting 1.2k jobs at risk. The retailer, with ninety UK outlets, used to be part of the Staples group until it was hived off to Hilco Capital in 2016 before being sold again through a management buyout last September. Like other UK retailers, the company has been operating in a hostile environment of weak consumer spending, new minimum wage rules, higher business rates and on-line shopping.

There has been a major strategy move made by M&S which is planning a shift towards selling more food at its stores. The retailer sells 6.5k different food items but only twelve of its stores currently carry the whole range. Consequently, it is planning to convert more space in existing outlets for food sales, with new stores better designed to cater for the “food shopper”; it aims to increase the average US$ 17 spend on each shop. 

JD Sports, which currently owns 18.7% of Footasylum, has made a US$ 118 million cash offer to purchase the clothing and shoe retailer; this figure is 77% higher than its current market value. Following a profit warning last September, its share value had tumbled by more than 50%. There is synergy between the two companies, with JD Sports appealing to a younger market than Footasylum which has a focus on adults aged 16-24. Interestingly, Footasylum, which was founded in 2005 by David Makin, one of the two co-founders of JD Sports, is run by his daughter, Clare Nesbitt; in 2008, John Wardle, the other co-founder of JD Sports, joined Footasylum and was chief executive for seven years, before becoming executive chairman in 2015.

No surprise to see Bonmarche’s shares plunge 30% on the back of its third profits warning in six months, announcing “significantly weaker” trading in recent weeks. Initially anticipating a US$ 5.3 million loss by the end of March, the revised forecast is a lot worse – up to a possible US$ 7.9 million deficit. The cut-price womenswear chain blames trading conditions being “significantly worse even than during the recession of 2008-9”.

One on-online trader that is suffering somewhat is ASOS noting that US sales had been hit by teething problems at a new Atlanta warehouse and that it is facing “challenging” conditions in France and Germany. On the news, its share value dipped 11%. Although quarterly revenue was 11.0% higher at US$ 869 million, with the UK 14.0% higher, figures were dragged lower by the EU countries (8.0% higher) and the US where a 3.0% fall was posted.

To save his brother from incarceration, India’s richest man, Muktesh Ambani, worth an estimated US$ 54 billion, has settled a US$ 80 million debt payment owed to Ericsson by his brother, Anil. The two of them have been in an acrimonious relationship following a dispute, fighting over their father’s businesses after he died in 2002 without a will. After a seven-moth feud, the father’s Reliance empire was divided between the two of them – Reliance Industries to Mukesh and Reliance Communications to Anil, whose net worth is about US$ 50 million. In thanking his brother for his largesse, he said that he had “demonstrated the importance of staying true to our strong family values by extending this timely support”.

With the apparent approval of the German government, the country’s two biggest lenders, Deutsche Bank and Commerzbank, began merger talks; the government still owns a 15.5% stake in the latter acquired following the GFC. If the deal goes through, the new entity would control 20% of Germany’s banking business and manage over US$ 21.0 trillion of assets.

Some US economists estimate that Donald Trump’s recent economic activities has cost the country’s GDP US$ 7.8 billion (0.4%) in 2018, estimating that both exports and imports fell – by 11.0% and 31.5% respectively. The higher costs of imports resulted in annual consumer and producer losses of US$ 68.8 billion but this was offset after accounting for higher tariff revenue and gains to domestic producers from higher prices.

Australia’s February unemployment rate dropped slightly to 4.9%, down from 5.0% a month earlier; this is the first time since 2011 that this rate has dipped below the 5.0% mark. Over the month only 4.6k jobs were added, while the participation rate fell 0.1% to 65.6%. In a related story, Prime Minister Scott Morrison announced that the government would lower the annual permanent migration intake by 15% to 160k. One thing the lucky country needs is a population growth, one factor that has led to Australia not experiencing a recession in the past twenty-five years. Late last year, it did seem that the country could fall into a downturn, but it appears that a combination of higher than average tax receipts and surging iron ore prices prevented such a slowdown.

On the back of Brexit, the British Chambers of Commerce estimate that UK companies will cut investment this year by the most in a decade. Weaker investment normally results in lower productivity that then impacts on slowing wage rises which in turn sees sluggish consumer spending. Last year, business investment fell in each of the four calendar quarters. However, once the Brexit decision has been made, one way or the other, there could be a quicker investment rebound.

With no other option available to them, the EU has pushed back the Brexit date until 22 May if the prime minister can convince the British parliament to accept the existing Brexit deal – if not, the country would face a disorderly exit from the European Union on 12 April. Despite parliament voting twice against the current withdrawal agreement, she is going to try for the third time to change MPs’ minds next week. It is too late for Theresa May to worry about history and the Ides of March.  Surely the good lady, who voted Remain prior to the referendum, should consider her position particularly now she seems to be living In The Land Of Make Believe.