When The Going Gets Tough, The Tough Get Going      18 April 2019

According to Asteco, and despite the current oversupply in the market, there has been a marked increase in Q1 hand-overs, estimated to be 6.7k; reports indicate that 23k residential units were handed over in 2018. The figure is more than double the figure handed over in the corresponding period last year because of previously delayed projects being delivered. The company also estimated that there were 3% falls in Q1 rents for both villas and apartments, with prices declining between 2% – 4%. It did warn that “the real estate market is expected to come under further pressure until economic conditions improve.”

Meraas has announced that its fourth and final La Rive residential building was sold out, even before the official launch. The project, based at Port De La Mer, comprises 250 high-end 1-4 B/R apartments, with prices starting at US$ 354k.

Azizi is set to invest US$ 272 million by expanding into the Abu Dhabi market where it is currently acquiring blocks of land, with a view to either building villas or apartments. This comes the week that the national capital’s government introduced legislation to allow foreigners to own freehold land in designated areas. The Dubai-based developer, with US$ 12.3 billion of projects under development, mainly in Dubai and Afghanistan, recently cut its sales force by a reported 60% to generate efficiencies and control costs.

Property Finder has acquired the five-year old Bahrain Property World for an undisclosed amount. Last November, the Dubai-based real estate portal raised US$ 120 million from General Atlantic for the purpose of expanding its operations throughout the region. Recently, the company announced it will acquire rival platform JRD Group and that it had also increased its stake in Zingat – Turkey’s second largest property portal – to almost 40%.

Tuesday saw the 45-day closure of Dubai International’s southern runway for upgrade work, including resurfacing and replacement of ground lighting and other infrastructure; this will result in a 29% reduction in the number of available seats. Emirates estimate that 48 of its aircraft will be grounded, with the number of flights 25% lower. However, with some flights moving to DWC, the total number of flights across the Dubai Airports system will only drop 19% and the number of seats by 20%.

A MENA EY report estimates that the upcoming Expo will boost the UAE economy by US$ 33.4 billion and support 905k job-years through to 2031. Over the six months (October 2020 to April 2021) of the event, it is thought that it could add as much as 1.5% to the country’s GDP. Having won the bid to host the event in 2013, the construction sector has been the main economic beneficiary, with major spends on roads, bridges and the Metro extension, along with buildings on site. Nearer the opening, travel and tourism will feel the benefit as visitors coming from outside the UAE will account for 70% of the total 25 million visits expected. From April 2021, the site will be transformed into District 2020, an integrated urban development that will house the Dubai Exhibition Centre. It is the post-Expo “legacy” decade that will see the biggest gains garnering US$ 16.9 billion for the local economy, with the main beneficiaries being events organisation, business services, retail, restaurants and hotels.

A mix of higher oil production (and prices) and increased government spending will ensure that the UAE economy should grow at a faster pace than its regional neighbours this year. According to Oxford Economics and the ICAEW, the economy is on course to rise 2.2% this year (2018 – 1.8%), with the oil sector growing by 2.5%, and the non-oil GDP up 2.1%. Real GDP growth in the Middle East (including the GCC) is projected to reach 1.3% this year, (2018 -1.0%).

There are plans afoot for a second Dubai Investment Park, as the first 2.3k hectares site is nearing capacity. The probable location will be in the Jebel Ali area. Despite posting a 34.9% fall in 2018 profits to US$ 177 million, the company declared a 10% dividend, totalling US$ 116 million. Over the year, its total assets were 14.6% higher at US$ 5.3 billion. Its financial services subsidiary, Al Mal, expects to establish a mixed-use real estate investment trust (REIT) to be listed on the local market this quarter.

Etisalat is expected to invest US$ 1.1 billion this year on digital transformation, mobile and fibre networks. The telecom wants to enhance and build one of the most advanced networks in the region and expects its “pioneering efforts” in 5G to pave the way for the “future of connectivity”. Although ready, it is expected that the first 5G devices will arrive in the country this June.

Shuaa Capital Saudi Arabia is to acquire six income-generating real estate assets valued at US$ 80 million, in Riyadh, as it announced plans to launch a US$ 158 million real estate investment trust (REIT). All properties are freehold and the firm expects a return in the region of 7%.

Arif Naqvi, the founder and ex-chief executive officer of disgraced Abraaj, along with his former managing partner, Mustafa Abdel-Wadood, have been charged by US courts for defrauding investors. A third executive, Sev Vettivetpillai, has been held by UK police on similar charges. Abdel-Wadood is already in police custody in New York, whilst Naqvi was arrested last week in the UK and is now awaiting possible extradition. The once powerful asset management group, with over US$ 14 billion under its control, was forced into liquidation last June after a group of investors, including the Bill & Melinda Gates Foundation, alleged mismanagement of money in its healthcare fund. It is thought that both defendants were involved with inflating the value of the firm’s holdings, by more than US$ 500 million, and stealing hundreds of millions of dollars. They are also accused of conspiracy, wire fraud and securities fraud.

This week saw Olivier Harnisch stepping down from his role as Emaar Hospitality CEO “to pursue new interests”. Business operations will be taken over by Chris Newman, the current chief operating officer. The change has come at a busy time for the company which will open five hotels in Dubai and three in KSA, as well as having a further thirty projects in its pipeline.

Although the Emaar chairman has resigned from the Aramex board for “personal reasons”, he still owns a stake in the Dubai-based international logistics company. Three years ago, its founder Fadi Ghandour sold his entire 9.9% shareholding to Gulf investors – including Mohammed Alabbar – in a deal thought to be worth US$ 142 million. He also owns shares through some of his holding companies, including Joana Investments and Boson Ventures Corporation. Aramex had a good 2018, with both revenue and profit moving higher – by 8.0% to US$ 1.4 billion and by 13.0% to US$ 134 million. 

The banking sector continues with impressive returns in a sluggish economy as both Emirates NBD and its sister bank, Dubai Islamic, posted their Q1 returns. The former saw higher revenue with, 15% year on year, and 9% quarter on quarter, increases at US$ 1.3 billion and profit up 15% for both periods to US$ 736 million. There were also hikes in total assets, customer loans and customer deposits by 5% to US$ 143.3 billion, 3% to US$ 92.0 billion and 3% to US$ 97.9 billion.

Meanwhile, Emirates Islamic recorded its highest ever quarterly net profit since its 2004 inception – a massive 97% year on year hike at US$ 112 million (54% up, quarter-on-quarter); its total income came in 12% higher at US$ 181 million.  There were smaller balance sheet increases for total assets (4% – US$ 16.5 billion), and customer accounts (4% – US$ 11.8 billion).

The other major Dubai financial institution, CBD also reported better returns, with Q1 operating income up 17.6% up at US$ 211 million and net profit 21.6% higher to US$ 93 million; operating expenses were down 3.7% to US$ 56 million. Subsequently, there were year on year hikes of 8.5%, 10.3% and 13.3% in total assets, loans/advances and customers’ deposits as at 31 March.

The bourse opened for trading on Sunday 14 April, at 2790, and having gained 216 points (8.4%) the previous three weeks, gained a further 24 points (0.8%) to close by Thursday, 04 April, on 2814. Emaar Properties, having jumped US$ 0.26 the previous fortnight, lost a little impetus to close US$ 0.05 lower at US$ 1.35. Arabtec, having been flat for the previous six weeks, was up US$ 0.04 to US$ 0.62. Thursday 18 April saw trades of 233 million shares, valued at US$ 60 million, compared to a week earlier of 168 million shares at US$ 81 million.

By Thursday, 18 April, Brent, having traded US$ 3.01 (4.4%) higher the previous fortnight, continued its upward trend to close US$ 0.79 (1.1%) higher at US$ 71.62; gold continued its recent downward trend, shedding a further US$ 17 to US$ 1,276.

Troubled Jet Airways, 24% owned by Etihad, having failed to secure emergency funding from its lenders, has finally closed all operations. The 25-year old airline, founded by Naresh Goyal and whose family still own a 52% stake, has debts of over US$ 1.2 billion; it has been unable to pay its 23k employees, including pilots, engineers, and ground staff, since December. What used to be India’s second largest airline has witnessed dozens of its planes being recently seized by creditors.

In a US$ 2.4 billion cash deal, Nippon Paint has bought Australia’s Dulux Group, giving it access to that country’s biggest sales channel for paints and coatings; the sales price was at a 28% premium and was the biggest acquisition yet by the Japanese company. In a global market, estimated to be worth US$ 100 billion, the Australian business ranks only 22^nd in the world; the top ten players account for over 50% of world-wide revenue.

A simple error could have cost James Packer up to US$ 10 billion, as Las Vegas casino operator Wynn cancelled a merger with Crown Resorts because of a “premature disclosure of preliminary discussions”. If the deal had gone through, the Australian magnate, with a 46.1% stake in Crown Resorts, would have walked away with about US$ 2 billion and a 10% stake in Wynn Resorts. The market was a lot happier than Mr Packer – with the Australian casino shares jumping 20% on the news.

The latest “unicorn” to test stock market reaction is Pinterest and, like other similar companies that continue to make losses, fancies its chances by pricing its shares at the top end of market expectations. At US$ 19 per share, the online scrapbook company, which admitted in its flotation documents it may never report income, will see whether investor appetite for such companies has diminished. Uber, another loss-making tech company, expects to see its value top US$ 100 billion in a Q4 IPO, whilst its rival Lyft, which went public last month, has seen its share value drop 22% since then.

To “provide confidence” to passengers over the peak summer travel season, American Airlines is extending the cancellation of its Boeing 737 Max 8 flights until mid-August. Last week, Southwest Airlines made a similar move and United Airlines also cancelled 737 Max 8 flights until June. The on-going investigation is focusing on the plane’s anti-stall software, the Manoeuvring Characteristics Augmentation System (MCAS), whilst Boeing is developing new software for the jet’s anti-stall system.

During Q1, there was a 4.6% decline in the shipments number of global personal computers, to 58.5 million, driven by central processing unit (CPU) supply problems, sluggish consumer demand and political instability in some locations. However, the three world leaders – Lenovo, HP and Dell – did increase their volumes and now account for 22.5%, 21.9% and 17.6% of the total market respectively.

Mark Wintekorn, the former chief executive of VW, has finally been charged with fraud, along with four others for their roles in the diesel emissions scandal. The 71-year old is lucky in that he is unlikely to face the music in the US courts because Germany does not normally extradite their citizens. He is accused of not advising consumers sooner about the manipulation of diesel emissions and also approving a “useless” software update, designed to conceal the true reason for the cars’ higher emission levels. Because of his inaction and apparent fraud, the company has already incurred costs of a massive US$ 28 billion – with more to come.

It seems highly likely that the German economy will see its weakest performance since 2013, with the latest forecast of only a 0.5% expansion this year (compared to a 2.1% projection this time last year). The usual suspects are being rolled out why this is happening – slowing global momentum, Brexit concerns and trade disputes. Such forecasts see the country second only to Italy, as the euro area’s worst performer this year. It nearly fell into recession at the end of last year with Q3 showing a 0.2% contraction followed by zero growth in Q4. (Two successive contractions indicate a technical recession). Although business confidence has improved, the March manufacturing PMI continues to plummet. There are signs that the Merkel administration is investing into infrastructure, education and research at record levels to try and spend itself out of this crisis.

China’s Q1 GDP expanded by 1.4% (6.4% at an annualised rate) driven by yearly rises in both fixed asset investment and retail sales, up on the March year at 6.1% and 8.7% and 0.2% and 0.5% for the month. In a move to boost the economy, the Chinese government continues to announce massive tax cuts and other fee reductions to help struggling companies. If it fails, the private sector will continue to labour unless the new credit policies make a positive impact on consumer spending. Growth has dipped but is still within the target levels, although down on the 6.6% 2018 comparative figure.

Meanwhile, the US$ 250 billion US trade tariffs, introduced in the hope of China slashing state subsidies, continue to hurt the economy (as well as having a negative impact on global trade). Since subsidies and tax breaks are an integral part of China’s industrial policy, it will be interesting to see whether President Xi Jinping will do anything dramatic. Negotiators will focus on other aspects where they think that will give them more chance of success; these include improving access to China’s markets, ending forced technology transfers and improving protection of intellectual property.

The US Commerce Department reported a 3.3% decline in February’s goods and services deficit to US$ 49.4 billion largely due to a 28.2% fall in its goods deficit with China to US$ 30.1 billion; exports rose 21.1% to US$ 9.2 billion and imports fell 3.8% to US$ 39.3 billion. Overall, monthly exports were up 1.0% at US$ 209.7 billion, with imports 0.8% higher at US$ 259.1 billion. Such figures indicate that a 2.0% increase in Q1 GDP is all but inevitable.

In a retaliatory move over the Boeing subsidies, the EU has published a list of goods, including video-game consoles and ketchup, that will total US$ 12 billion on US imports; this is in response to the US threatening a similar amount in tariffs over EU subsidies paid to Airbus. The bloc has already implemented tit-for-tat tariffs of US$ 3.2 billion on American goods in response to Donald Trump’s metal duties imposed last year.

It is obvious that Amazon has not had its own way in China and now plans to downsize its presence in the country by closing its online store. It will mean that in future, Chinese customers will have to buy from Amazon’s global store after 18 July. The company bought Joyo.com, a Chinese books, music and video retailer, for US$ 75 million in 2004 and three years later rebranded the company as Amazon. Now with intense competition from local rivals such as JD.com and Alibaba’s Tmall, Amazon just like Uber and Didi and other US companies finally realise that for China, When The Going Gets Tough, The Tough Get Going.