True Colours                                           29 August 2019

Finally, some good news for the Dubai realty sector, with a Knight Frank report that luxury property prices showed a 0.3% increase in Q2 (but still down 6.0% over the previous twelve months). However, the emirate is only ranked 42nd out of out of 46 cities, covered in the latest Knight Frank Prime Global Cities Index, which listed Berlin at the top of the ladder (showing a 12.7% annual growth, with Vancouver at the other end, declining 13.0%). Hong Kong still remains the most expensive global prime residential city market, with an average price of US$ 4,251 per sq ft; Dubai is a lot more affordable, with average per sq ft prices of US$ 625. It is inevitable that Dubai real estate will benefit from the on-going trouble in the once-held British colony.

Oyo Rooms and Gallery Suites Vacation Rentals have signed a US$ 5 billion deal to furnish and manage 10k Dubai holiday homes, to meet the growing demand for short-term and holiday lets. Located in areas such as Dubai Marina and Palm Jumeirah, the venture is confident of becoming the service provider of choice for the exclusive end of this burgeoning market. Gallery Suites Vacation Rentals is a subsidiary of the UAE-based IBC Group, whilst Oyo is the third largest hospitality company in the world. It may well benefit from its choice of Berkshire Hathaway Home Services Gulf Properties to play an advisory brokerage role in identifying, acquiring and financing the right properties.

Five Jumeriah Village is set to open its doors in JVC next month. The new hotel, located in Jumeirah Village Circle, comprises 247 rooms and suites, along with 254 1-4 B/R hotel apartments; the chic hotel also boasts 269 pools and jacuzzis. Nearby, Nakheel has released one hundred 4-5 B/R villas, with prices starting at US$ 871k –  part of its new gated community, containing1.6k Mediterranean and Moroccan style villas.

Just when you thought that Dubai was teeming with too many schools, the Knowledge and Human Development Authority announce that five new ones will open this school year and at least three more next; it also added that 13k new seats would be made available to give parents an even wider choice for their children’s education. Over the last three years, 41 new schools have opened in Dubai which has seen the number more than triple over the past decade to the current 119.

Since its 2016 start-up, India’s Cure.fit has managed to raise over US$ 400 million in four rounds of funding. Now it is to spend US$ 10 million to test the UAE market, with the aim of opening fifty gyms (35 in Dubai) and get up to 20% of the local US$ 545 million market, set to rise by 50% to US$ 817 million over the next three years. Although there are some major players in Dubai, such as Fitness First and Gold’s Gym, the market is fragmented with over 91% of fitness outlets being independently owned.

Dubai Economy reported a 23% hike in the number of H1 trademark infringement cases, with its Intellectual Property Protection section resolving 186 cases (cf 151 in H1 last year).  The top three countries lodging cases were US, France and Switzerland with numbers of 37, 33 and 21 respectively. Furthermore, there were 38 and 22 cases involving cosmetics and personal care products. Over the period, there was a 63% increase in trademark files registered on the DED’s ‘IP Gateway’ portal, as global trademark owners registered over 4.7k brands; more than 50% were lodged by three countries – US, UAE and Germany, with 1,482, 742 and 325 files.

A major scam, involving 6k tonnes of missing rice, is being investigated by Dubai Police. The fraud was reportedly carried out by six men and two companies, as well as staff at a money exchange house. The suspects, purporting to represent a Dubai trading company, duped millions of dollars when as many as 23 TTs were cancelled after their cheques bounced. When the real traders travelled to Dubai to check on the situation they found that the Al Qouz warehouse, which should have had 250 containers full of rice, was empty; furthermore, the Dubai trading company’s office in JLT was also left vacant.

Dubai Police has also warned residents to be aware of other scam artists, using counterfeit foreign money, being offered at above normal rates. Last year, the authorities seized over US$ 272 million (one billion dirhams) and arrested 471 suspects, with 500 cases of counterfeit bills being detected. (This scam is somewhat bigger than the Italian suit man who has been around for at least twenty years).

Although the country’s population has only grown 5.2% to 9.543 million over the past four years, the number of road traffic deaths in the UAE has fallen by 34.2% to 468 in 2018. With the number of vehicles on the road increasing significantly over that period, the number of serious accidents dropped 24.1% to 3.7k. The government is on track to meet its 2021 target of reducing its road mortality rate to three per 100k.

The fuel price committee has set September pump prices in a monthly process, that started in August 2014, of adjusting prices according to market conditions. Special 95 and diesel have both fallen by 4.4% to US$ 0.589 and 1.7% to US$ 0.648.

Mars has become one of the first global companies to take advantage of the country’s new foreign direct investment (FDI) laws that allow them 100% ownership for the first time ever; in the past, 51% local ownership was mandatory. The privately-owned food company has invested US$ 150 million since setting up in Jebel Ali Free Zone in 1993. Its range of brands include Dolmio and Uncle Ben’s, as well as pet food brands Whiskas, Royal Canin and Pedigree. Following its US$ 23 billion 2017 acquisition of chewing gum maker Wrigley, it boasts five of the top ten confectionery brands in the country – Galaxy, Snickers, Bounty, M&M’s and Extra.

A Dubai-based start-up could save delivery drivers almost US$ 7k a year, with the September launch of UAE-designed electric scooters, costing from US$ 4.0k to US$ 4.5k. The savings would come from reduced maintenance, no fuel charges and no registration charges – and taking polluting motorcycles off the road will lead to cleaner air. One Moto hopes that it could sell up to 50k units over the next three years as it looks to regional expansion.

The recently launched Dubai-based Galaxy Racer Esports is to host the world finals of the third annual Girlgamer e-sports festival in December. The event, at Meydan Grandstand, will see nine five-player teams battling it out to see who will win in the games of League of Legends and CounterStrike Go. The company hopes to encourage and develop local talent in the ever-growing e-sports sector and although it attracts a global audience of 454 million, and revenue in excess of US$ 1.1 billion, there is a lack of infrastructure, funding and opportunities in the region. Galaxy Racer eSports hopes to change all that.

The UAE is the first Gulf country to introduce Indian Rupay, that country’s answer to Mastercard and Visa, which was launched by Prime Minister Narendra Modi in Abu Dhabi last Saturday. Within weeks, the Rupay card will be accepted by 175k merchant locations of 21 businesses and 5k ATMs in the UAE.

Following initial reports in May, GEMS Education confirmed that it had completed the acquisition of Saudi Arabia’s Ma’arif Education, through a joint venture with Hassana Investment; no financial details were made available. Working with the Kingdom’s largest private school group, having 22k students, the Dubai-based schools operator plans to invest up to US$ 800 million, over the next decade, to acquire and develop more than fifty schools; these would educate more than 100k students across the country.

Emaar Misr has rejected an “utterly false” claim by Egyptian businessman, Wahid Raafat, involving more than 400 acres of land where it is building the up-market Marissa residential and leisure development. The Egyptian subsidiary of Emaar Properties has a portfolio, valued at US$ 3.2 billion, in the country and has claimed that it bought this parcel of land by way of a public government auction.

A unit of Arabtec Holding has been awarded a US$ 112 million by Emaar Misr to build two urban projects, comprising 449 residential units, in Cairo. The same company was awarded a US$ 26 million contract in February for 42 units. Emaar Misr has already completed 6.5k units in the huge project and expect to deliver a further 800 prior to year end.

Emirates Reit posted a 96% year on year slump in H1 profit to just US$ 1 million, largely attributable to a US$ 5 million revaluation impairment on a portfolio of around US$ 1 billion; revenue was 7% higher at US$ 36 million. It is to invest US$ 52 million over the next six months on buying properties in what continues to be a buyers’ market, as prices still remain stubbornly low. It is focusing its acquisition efforts on education and office buildings in Dubai and is reportedly near to completing deals.

MAF Group has posted 1.0% increases in both H1 revenue, at US$ 4.8 billion, and profit of US$ 571 million in what the company said was because of “challenging market conditions and more cost-conscious consumer behaviour across the region”.

Although there were more than 100 million visitors and occupancy was at a credible 93%, MAF – Properties recorded revenue of US$ 572 million, 3% down on the same period in 2018. Meanwhile, its hotel operations saw occupancy 2% higher at 78% but RevPAR (revenue per available room) fell in line with the market. However, MAF – Ventures fared better posting 16% increases in both revenue and profit to US$ 354 million and US$ 37 million respectively. With weak consumer confidence abounding, it was no surprise that, despite the opening of new stores in Egypt, revenue was flat at US$ 3.9 billion, with profit dipping 1% to US$ 164 million.

DP World and the Zhejiang China Commodity City Group Company signed a 70:30 agreement to develop a “smart” wholesale and retail traders’ marketplace in Jebel Ali Free Zone. Construction of the first phase, covering 220k sq mt and with an estimated US$ 150 million investment, will start in Q4, to be completed by the end of 2021.  The whole development, which will have an area of over 800 km sq mt, will take a little longer. This is yet another example of the increasing trading relations with China which is expected to double over the next two years to US$ 70.0 billion.

The bourse opened on Sunday 25 August and, having shed 131 points (4.7%) the previous three weeks, lost a further 10 points (0.4%) to 2769 by 29 August 2019. Emaar Properties, having lost US$ 0.07 the previous fortnight, was a further US$ 0.01 lower to close on US$ 1.35, with Arabtec also down US$ 0.01 at US$ 0.44. For the month of August, Both Emaar and Arabtec lost ground – by US$ 0.16 and US$ 0.04 respectively but YTD, Arabtec jumped US$ 0.22 whilst Arabtec lost US$ 0.08 from their 01 January openings of US$ 1.13 and US$ 0.52. Thursday 29 August witnessed low trading conditions of 159 million shares, worth US$ 45 million, (compared to 70 million shares, at a value of US$ 29 million on 22 August).

By Thursday, 29 August, Brent, having gained US$ 2.61 (1.5%) the previous fortnight, was US$ 1.09 (1.8%) higher at US$ 61.08. Gold lost US$ 23 (1.5%) the previous week, but regained all that and more, closing US$ 29 (1.9%) higher on Thursday at US$ 1,537. 

Naspers, South Africa’s largest company by market value, has created Prosus, a new entity, containing assets including a stake in China’s Tencent, as well as international interests in industries such as online food delivery and classified advertising. When it lists on the Amsterdam stock market, with a stock value in the region of US$ 100 billion, it will become the third largest traded behind Royal Dutch Shell and Unilever. The parent company is valued in excess of US$ 34 billion, and owns 31% of the Chinese tech giant, will retain a 73% stake in the new entity.

Not helped by falling sales in the UAE, Ace Hardware International Holdings, Ltd, which manages operations outside the USA, posted a US$ 10 million decrease in Q2 revenue, although the Group reported a 6.3% hike in total revenue to US$ 1.7 billion. The world’s largest retailer-owned hardware cooperative, which has 17 distribution partners worldwide and 5.2k outlets globally, saw profit dip 1.8% to US$ 54 million.

US toymaker, Hasbro, has agreed to pay US$ 4.0 billion for Entertainment One, the studio that makes the Peppa Pig and PJ Masks children’s shows. The world’s largest toy maker, in terms of stock market value, has paid a 26% premium for a company that has respected scripted and unscripted TV production and development capabilities, which include animated and live action shows. Now Hasbro will be in a position to make larger films, previously having had to license its characters to studios. Weak sterling made the deal more favourable for Hasbro, (as did the sale of UK pub operator Greene King to Hong Kong’s Li family for US$ 3.3 billion).

US fashion retailer Forever 21 is considering a possible Chapter 11 bankruptcy filing, as it has failed to negotiate a refinancing package with possible lenders. Founded by Do Won Chang in 1984, the Group has over 800 outlets mainly in the US but also globally; it is one of the biggest mall tenants in the country and if it were to go under, it would join a raft of other household names which have recently dropped out from the US High Street.

Johnson & Johnson have been fined US$ 572 million by an Oklahoma court for its role in fuelling the opioid addiction crisis in that state; the case was the first of many thousands that will be filed against opioid makers and distributors. It is estimated that over 6k have died in Oklahoma (out of a country total of 400k) from opioid overdoses. Earlier in the year, OxyContin maker Purdue Pharma and Teva Pharmaceutical settled out of court for US$ 270 million and US$ 85 million. All monies collected will be used for the care and treatment of opioid addicts. The same week, Purdue Pharma, facing over 2k lawsuits linked to its painkiller OxyContin, is reported to be offering between US$ 10 billion and US$ 12 billion to settle out of court.

China’s Fosun Tourism, a major shareholder, looks likely to step in and save the 179 year-old Thomas Cook, after agreeing a rescue deal also involving banks and a majority of its bondholders. This would see the Chinese group investing US$ 545 million for at least 75% of the tour business and 25% of the group’s airline; banks and bondholders would put in the same amount, in return for at least 75% of the tour business and 25% of the group’s airline. This would be at the at the expense of other shareholders. (Fosun owns Wolverhampton Wanderers FC and the Club Med holiday business).

Eleven years after Altria, the biggest investor (35%) in e-cigarette market leader Juul Labs, spun off the Philip Morris business, the two tobacco giants are discussing a merger that would create a mega company, valued at US$ 208 billion with Marlboro-maker Altria worth US$ 88 billion and the other party US$ 120 billion. The fact that the industry itself is declining, with global tobacco sales falling 4.5% last year, is the main driver behind the potential merger. Both companies have been investing in other areas – PMI its own e-cigarette division and Altria in wine, beer and cannabis companies, as well as Juul.

There are always winners and losers when shares, commodities and currencies rise and fall. For example, Emirates NBD acquired Turkey’s Denizbank earlier in the year and saved US$ 400 million on the deal because of the devaluation of the lire – paying 15.5 billion lire. On the other side of the coin is billionaire Ferit Sahenk, the owner of Dogus Holdings, which has in its portfolio the Nusr-Et steakhouse, popularly known by its founder chef’s meme Salt Bae, as well as interests in other restaurants, entertainment outlets, marinas and car-distribution businesses. Now with the fall in the lire, he is struggling to repay his euro loans and has recently been selling assets, valued at US$ 694 million. The Turk wants to cut his euro debt to US$ 1.7 billion by the end of next year.

Germany’s economy is heading for further contraction and an inevitable recession come 30 September. Final analysis confirmed that GDP shrank 0.1% in Q2 and 0.4%, year on year. Because of various external factors, such as the US-China trade war, slowing global trade and Brexit, there was no surprise to see exports falling 1.3% on the quarter and at a faster rate than imports dipping 0.3%.

In its latest report, Bundesbank hinted that there is every chance that Germany will witness another contraction of its GDP that would put the country into a technical recession following Q2’s negative 0.1% decline. It must be inevitable that the Merkel administration will introduce a significant fiscal package to try and boost an economy that has seen the business climate falling as pessimism among companies fell to its lowest since the 2009 GFC.

On the side-lines of last week’s G7 meeting, the US and Japan agreed in principle to a bilateral trade deal which could be signed next month at the UN’s General Assembly in New York by Donald Trump and Prime Minister Shinzo Abe. The agreement covers agriculture, industrial tariffs and digital trade which would see Japan buy excess US corn, the sale of which has been badly hit by the trade war with China. Currently, the US exports US$ 14 billion worth of agricultural products – this deal would add a further US$ 7 billion.

In the latest tit-for-tat trade war, Donald Trump has levied a further 5% duty on some US$ 550 billion in targeted Chinese goods, bringing the tariff on imports worth US$ 300 billion to 15% and US$ 250 billion to 30%. This follows China unveiling retaliatory tariffs of US$ 75 billion of US goods. Following the news, both the Nasdaq Composite and S&P 500 fell – by 3.0% and 2.6% – as did US Treasury yields and crude oil. On Monday, the ASX, Australia’s stock market, lost US$ 16.5 billion, on opening, whilst the Aussie dollar sank below US$ 0.67.

On the news that Her Majesty, The Queen, had acceded to Boris Johnson’s request to suspend parliament from 09 September to 14 October, sterling plummeted below US$ 1.22. This move would reduce greatly the opposition parties to prevent the country falling out of the EU on 31 October, without a divorce agreement. There are critics of a no-deal Brexit that argue that such a clean break from the bloc would devastate the UK economy and send it falling into recession. Among them, the man with many hats – ex-Chancellor of the Exchequer, Phillip Hammond, who had backed Remain in the Referendum, but then confirmed he would support the withdrawal of the UK from the EU, saying “No ifs, no buts, no second referendums” in 2017. Now he appears to be on the other side of the fence again, showing his True Colours.