A Spaceman Came Travelling (Hazza Al Mansouri ) 26 September 2019
More than one hundred developers, consultants and architects showcased at this year’s three-day Cityscape Global exhibition, which will close tomorrow – 27 September. Developers are hoping to incentivise potential buyers at this year’s meet by offering discounts, fee waivers and other deals as the market for property purchases remains soft. Developers participating in the event include Aldar Properties, Arada, Nakheel, Azizi Developments and Sobha Group, among others. Business may be boosted by the fact that a 500-strong delegation of North American agents and brokers, with combined 2018 sales of US$ 2.2 billion, are in attendance, as part of the show’s strategic partnership with the Dubai Land Department and Dubai-based Century 21.
It is reported that since the 02 September inception of a higher committee to oversee the realty sector, there has been 134% hike in Dubai’s real estate transactions. A new law, applicable to all major projects and jointly owned properties in Dubai, has been enacted to oversee the upkeep of “jointly owned properties” in Dubai, including the way facilities management companies bill clients. Such firms will have to submit six-monthly reports to Rera on the management of the property and common areas and will also have to obtain insurance coverage for each project. The agency can also appoint another FM company, in case there has not been proper maintenance of the common areas.
A US$ 1.4 billion JV between Meraas and Brookfield Asset Management will see both parties managing and expanding a portfolio of local retail assets, including La Mer, City Walk and The Beach in Dubai. One of the main aims of the exercise is to “leverage Meraas’s regional brand recognition and experience in curating lifestyle-focused mixed-use developments” with the Canadian company’s worldwide reach utilising US$ 385 billion of global assets, including US$ 194 billion of real estate.
Construction has begun on phase one of the UAE’s new 370-hectare Riviera project in Ghantoot, with Abu Dhabi-based developer Imkan joining forces with Nael & Bin Harmal Hydroexport Co. Al Jurf, a second-home destination, with 3.4km of azure beachfront, will comprise three distinct districts – Al Jurf Gardens, Jiwar Al Qasr and Marsa Al Jurf. Al Jurf Gardens, with 293 residential villas and land plots, along with a wellness clinic resort, a private beach, a marina and a community centre, is scheduled for a 2021 completion.
Dubai was the ME launch location for Delta Hotels by Marriott, with the opening of Delta Hotels by Marriott Jumeirah Beach. The property, with 360 keys, has a range of rooms, suites and serviced apartments, along with three multi-function rooms and a business centre spread over 145 sq mt of event space.
It is forecast that the US$ 680 million Dubai’s Deep Tunnel Project will be ready one month before the October Expo 2020 opening. Currently 65% complete, and 10 km long covering 490 km, it will drain rainwater in the Airport City and Expo 2020 areas. The three final foundation stages will use about 55k cement pieces in the tunnel, each weighing 2 tons, along with the installation of 4.4k huge metal rings. To date, four million man-hours have been utilised in what is one of the biggest such projects in the world.
Farnek has won a five-year contract from Dubai Airports to carry out the cleaning of Terminals 1 and 2, Concourse D, and Cargo & Logistics at DXB, as well as Dubai World Central. The contract covers the cleaning services management of landside and airside facilities, and also managing the passenger baggage trolley services. The facilities management company expects to utilise 800 of its 5k employees on this contract.
DAE has finalised a US$ 1.4 billion multi-year deal, with an unnamed hedge fund, to source and manage aircraft. Dubai Aerospace Enterprise’s Investor Services platform will be responsible for acquiring narrow-body and wide-body aircraft, 25% of which have already been sourced. This deal brings the value of its managed assets to US$ 2.7 billion, with a target of US$ 5 billion over coming years.
As the country’s working population reached 5.1 million by the end of June 2019, 51.6% of that total were employed in Dubai and 26.9% in the capital. The 0.5% hike in Q2 was driven by the real estate sector, which has seen a 5.0% growth in numbers over the past year.
Although overseas remittances topped US$ 11.6 billion in Q2, they were still 4.2% lower than the same quarter last year; this was attributable to a slowdown in employment. In 2018, US$ 46.1 billion (up 3.0% over 2017), was sent overseas, with India accounting for 37.2% of the total, despite only accounting for 27.5% of the country’s 9.6 million population. Pakistan, Philippines, Egypt and the UK took the other four top spots, with totals of 10.5%, 7.2%, 6.3% and 3.8% respectively.
The UAE’s waste management sector witnessed further consolidation this week with the Averda acquisition of rival Zenath Recycling & Waste Management; no financial details were readily available. The sale involved Zenath’s 1k customer base, 150-srong labour force and assets including eleven compactors, eleven chain loaders and nine hook loaders. It will allow Averda to enhance its long-term value and market position in a fast-growing waste management industry. In August, there were reports that the Dubai-based company was in preliminary discussions about a possible London Stock Exchange IPO that could value it at US$ 870 million.
It seems that Emirates will have to delay the introduction of a fourth class – premium economy – because of a possible delay in the delivery of the new Boeing 777x jetliner, due to problems with its General Electric-made turbines. Because the first delivery, of the 150 planes that the airline has ordered, could be pushed back from its original June 2020 date, the new class could start with the Airbus SE’s A380 in December 2020.
Emirates also expects that H1 profits to September will be better than those reported over the same period in 2018 – and this despite the 45-day closure of the southern runway at Dubai International earlier in the year. In 2018, the H1 figures had shown a massive 86% fall in profits, driven then by higher oil prices and a stronger greenback. Since then, the end of the Airbus A380 programme, and a sluggish global economy, have seen the airline introduce a major strategic review, including staff cuts.
As part of the UAE-India food corridor project, it is estimated that UAE companies will pump in over US$ 7 billon, US$ 5 billion of which will be in various mega food parks, (in locations such as Pawarkheda) and a logistics and warehouse hub in Itarsi, with the balance for contract farming. The project, coordinated by the Emaar group and employing up to 200k, will involve food security for the UAE. This investment will help reduce the estimated 30% wastage that is caused by the lack of appropriate infrastructure for storage, processing and transportation in India – a country that grows enough to feed its 1.3 billion burgeoning population. It looks as if this is a win/win for both parties – the UAE can buy this food at a cheaper price, while Indian farmers get a comparatively better price for their crops because of the reduction in wastage levels.
Following August’s UAE launch of its RuPay card, National Payments Corporation of India is planning to introduce its Unified Payments Interface digital payment system to the UAE. UPI, introduced in India three year ago, is a mobile platform that instantly transfers funds between bank accounts, makes purchases and remits money. The developer is confident of its success in the region more so because of the large number of expat Indians in the country with it being the number one trade partner for the UAE and the UAE the third-largest trade partner for India.
Still not fully recovered from the 2010 property crash, Dubai banks are facing a double whammy of falling home prices, (down 27% by some estimates over the past five years) and a growing non-performing loans book which stood at 4.99% of gross loans at the end of last year, compared to 4.01% in 2017. This compares to 1.5% in Saudi Arabia and 1.9% in Qatar at the end of 2018. The price downturn is attributable to a raft of factors, some of which are outside the government’s control, including lower oil prices, geopolitical tensions and a strong greenback (dirham); other issues in play are an oversupply (which is now being addressed) and weaker consumer confidence. It is estimated by Fitch that 20% of Q1 loans were incurred by real estate and construction – and this figure may be higher if retail mortgage lending, and some lending to investment companies that finance developers, are added.
Fitch also consider that a “significant portion” of government loans of US$ 23 billion, set to mature in 2021, may have to be restructured. Hopefully, we are some way off the 2009 GFC position, when state-owned Dubai World restructured US$ 23.5 billion of debt and property developer Nakheel PJSC had $10.5 billion of unpaid bills on its books.
A recent Dubai Chamber report studied the banking challenges faced by new and emerging businesses and found that nearly 65% of the country’s entrepreneurs surveyed believed that banking was the first challenge they faced, with opening a bank account taking up to three months in some cases. Interestingly, this week two major Dubai banks have introduced some sort of digital banking for SMEs.
Emirates NBD launched the E20, the country’s first digital business bank for entrepreneurs and SME businesses, as well as for sole proprietors, freelancers, gig economy workers, fintechs and insurtechs. It will help customers access banking services seamlessly and conveniently, and reduce time spent on banking to a minimum.
Mashreq’s offering of NeoBiz, with the motto ‘Built for Business’, will see the implementation of key services, including digital onboarding, transparent and simplified products, digital assistant and full transaction capability online, targeted at start-ups and young businesses.
There was good news from the UAE central bank which revised up its 2019 growth forecast from the last one in May of 2.0% to 2.4%, of which the non-oil growth would be 1.4% and the oil sector at 5.0%; the Q2 growth was 2.2%, with the non-oil sector posting a 1.5% hike (a major improvement on Q1’s 0.3%). This improvement should manifest itself in rising public and private spending, along with higher investment prior to Expo 2020. In Q2, the PMI pointed to an improvement in economic sentiment – at 58.2, its highest level since 2014, with Q2 employment also on the rise, up to an annualised 1.0% (compared to just 0.1% in the previous quarter). The doom and gloom expat merchants should compare this growth with the likes of say UK, South Africa, Germany and Italy with lot lower levels at 1.2%, 0.6%, 0.4% and minus 0.1%; there is no barbed wire around Dubai International to stop such people leaving!
The Q2 Dubai Economy survey indicates that the Composite Business Confidence Index (BCI) was 2.2 points higher at 114.9, boosted by Expo 2020, with new export markets and projects being launched. The survey also indicated that 83% of Dubai businesses rated their situation as ‘good’ or ‘stable’, as there was a marginal improvement, at 46%, in the number of companies expecting an uptick in their business situation. One worrying factor was to see hiring intentions continuing to soften.
The bourse opened on Sunday 22 September and, having shed 71 points (2.5%) the previous fortnight, lost a further 22 points (0.8%) to 2798 by 26 September 2019. Emaar Properties, having dipped US$ 0.04 the previous week, took a US$ 0.08 dive to US$ 1.24, with Arabtec, regaining the US$.0.03 lost the previous week, up at US$ 0.47. Thursday 26 September witnessed trading returning to dire levels of only 78 million shares, worth US$ 45 million, (compared to 310 million shares, at a value of US$ 142 million on 19 September).
By Thursday, 26 September, Brent, having gained US$ 4.02 (6.7%) the previous week, due to the attacks on two Saudi oilfields, shed US$ 1.76 (2.6%) to US$ 62.74. Gold, having lost US$ 30 (2.0%) the previous fortnight, moved US$ 8 (0.8%) higher, ending on Thursday 26 September at US$ 1,515.
Brazilian police are expected to bring charges against mining giant Vale and German safety firm Tüv relating to January’s dam collapse that left 248 dead. Both companies have been accused of falsifying documents, claiming that the dam had been safe and stable that resulted in the country’s worst ever industrial accident. The mining company has already been ordered to pay compensation for all damages.
Yet another case of unauthorised trades by an employee has left the financial world pondering on what went wrong. This time, Japanese trading house Mitsubishi Corp has lost US$ 320 million from its Singapore-based subsidiary. It seems that the person involved was hired “to handle its crude oil trade with China”, but “was discovered to have been repeatedly engaging in unauthorised derivatives transactions and disguising them to look like hedge transactions since January of this year”. Fortunately for the Japanese trading house, and following investigations of other group companies and in-house departments, it seems that this was a lone wolf operation. This was not the first such fraud, (only last year two top officials at Chinese firm Unipec lost $656 million), and will not be the last.
Under strong boardroom pressure, WeWork co-founder Adam Neumann, has been ousted as chief executive but will stay on as chairman. The nine-year old company’s investors were set for an apparent golden nest egg, with an expected US$ 50 billion September IPO, only to see its value fall to US$ 10 billion for a myriad of reasons; these included Neumann’s loose and unconventional approach to corporate governance, various examples of conflicts of interest and rumours detailing drug/alcohol use within the organisation. The fact that the company had not made a profit may have also influenced decision-makers.
Ericsson is to make a US$ 1.2 billion provision to cover the costs of resolving a US corruption investigation. The Swedish telecoms equipment maker has been in discussions with US authorities over the past six years to resolve several breaches of its code of business ethics covering operations in six countries – China, Djibouti, Indonesia, Kuwait, Saudi Arabia and Vietnam. The company will take the “hit” in its Q3 results, set to be announced next month, and concurred that there had been “a failure to react to red flags and inadequate internal controls which enabled a limited number of employees to actively circumvent internal controls for illegitimate purposes.”
Early Monday morning, the inevitable happened as the 178-year old Thomas Cook went into liquidation, leaving 22k jobs at risk worldwide, of which 9k are in the UK. The Civil Aviation Authority (CAA) is coordinating what will be the country’s largest peacetime repatriation, codenamed Operation Matterhorn, as the UK government is left to fly around 155k customers from 18 countries back home. The company was left burdened with a debt of US$ 2.1 billion. Meanwhile, Condor, the German arm of Thomas Cook, was rescued with a last minute US$ 300 million government bailout, with their staff cheering the news and applauding Condor’s chief executive, Ralf Teckentrup.
No such celebrations for the former UK bosses of the stricken travel firm, as news filtered through of them receiving pay-outs, worth more than US$ 44 million over the past 12 years. Who can forget Manny Fontenla-Novoa, who received US$ 22 million over his four-year tenure, ending in 2011, that saw the company rake up debts of over US$ 1.2 billion (and almost collapse) and 2.8k losing their jobs following the merger with MyTravel? Then Harriet Green was paid nearly US$ 6 million (plus a share bonus of US$ 7 million) for less than three years at the helm.
Meanwhile, Australia has also seen a travel company hit the buffers this week, with Tempo Holidays and Bentours being placed into voluntary administration. Only a few days earlier, its head company, India-based travel giant Cox & Kings, announced that it had shut down its Australian and New Zealand operations. One poor traveller, who had spent over US$ 30k on a worldwide tour, was dismayed to find that although he had taken out insurance, page 60 of the PDF document, explaining his coverage, stated there was no cover for insolvencies! God bless insurance companies!
A study by the Australian National University suggests directors are illegally using insider trading to make personal profits on ASX trading. It is almost inevitable that this practice is not only restricted to Australia, with directors using information that is not available to the general public. The university looked at 50k directors’ trades, covering a decade to 2015, and concluded that insider trading is “rife” and “that there is significant buying pressure by directors following bad news, and a lot of selling pressure following good news.”
The UK offshore wind power is proving to be a major success story, with new upcoming projects capable of powering more than seven million homes. Apart from being environmentally friendlier than electricity (which powers just 15% of household energy, some way behind petrol, diesel and gas), it is more economical. For example, the cheapest operator will provide power for as low as US$ 48 per megawatt hour, less than half of the US$ 115 expected from Hinkley Point C, when it opens in 2025. It is estimated that over the past two years, the cost of offshore wind has plummeted some 30%.
There is no doubt that there is heavy state involvement (and high public sector debt) by GCC governments in boosting their individual country’s economies. Fitch has raised concerns that there is a significant and growing contingent liability facing some GCC government-related entities, with non-bank GRE debt ranging from 12% of GDP in Kuwait to 32% of GDP in Oman. Debt of government-related banks – wholesale or interbank funding, excluding customer deposits – ranged from Bahrain’s 9% of GDP to Qatar’s 39% last year. More worryingly is the potential scope of contingent liabilities from the banking sector with assets ranging from 74% of GDP in Saudi Arabia to 209% in Bahrain.
Indian Finance Minister Nirmala Sitharaman surprised the market by slashing corporate tax rates from 30% to 22% in a move to try and boost investment and growth in the country’s faltering economy, currently standing at a six-year low. The 8% reduction will apply to companies that do not seek exemptions, whereas those that do so will see the tax rate drop from 35% to 25%; new companies will have to pay 15%, down from the existing 25% rate. Already, the Central Bank has introduced four rate cuts, with little success, and has seen domestic spending slow markedly, despite the falling rates which are at a decade low.
Latest figures confirm that South Africa is entering its 70th straight month of a weakening cycle in September. All the indicators continue to head south, including economic growth and business confidence (at a three-decade low). The country’s economy has been in a quagmire, as growth has never been above 2.0% since 2013, with 2019 probably recording levels of less than 0.6%. The many cries for government action, to lift business confidence and boost growth, appear to have fallen on deaf ears. Meanwhile, Africa’s most industrialised country will continue to stutter on the back of rising debt, concern about the impact of Eskom Holdings SOC Ltd on the nation’s finances and a 29% unemployment rate.
Just like the UK, US retailers are facing difficult times as can be seen from latest data showing that, in H1, 7k stores have already closed their doors – a major increase on the 6k posted for the whole of 2018. There are so many reasons, apart from the usual suspects of trade tariffs and increased online competition, including tax reforms, poor weather and the historic government shutdown earlier in the year. The majority of shop shutdowns were seen in apparel specialty stores, footwear and general merchandise stores; clothing stores accounted for 36% of H1 closures (compared to 18% the previous year), followed by footwear – 26% compared to 8% in 2018 – and general merchandise (14% cf 2% in 2018). It is estimated that the higher tariffs will cost the average US household US$ 831 a year, money that would have previously been spent on retail sales.
As the Fed continues to cut rates, the impact is being felt in the US realty sector, with August home sales rising to a seventeen-month high, as mortgage repayments become cheaper. The 30-year fixed mortgage rate has dropped to around 3.5%, from a more than seven-year peak of over 4.9% late last year. Monthly sales increased 1.3%, equivalent to an annual rate of 5.5 million units. Buying activity has also been boosted by an economy with low unemployment, rising wages and slower house price inflation. By August, there were 1.86 million homes on the market, (down 2.6% on the year), with the median price of a house 2.6% higher at US$ 278k.
25 September will go down as a milestone date in the country’s history, with 35-year old Hazza Al Mansouri becoming the first Emirati astronaut – and the first Arab – on the orbiting laboratory. The astronaut joined Russia’s Oleg Skripochka and NASA astronaut Jessica Meir onboard a Soyuz rocket from Baikonur in Kazakhstan for an eight-day working space odyssey. The country rightly revels in this mega achievement as A Spaceman Came Travelling.