Turning Japanese                                                                               31 October 2019

Danube Properties is to launch a US$ 409 million residential community— its biggest ever project— comprising over 2k homes, with unit prices starting US$ 79k to US$ 327k for a 3 B/R property. Its launch will take place before year-end and will be completed by 2023. This would be the biggest development this year by any private company, at a time when there are some in the industry, such Hussain Sajwani, who advocate a freeze on new developments for up two years; there are others who hold back sales until the project has gone past the 70% stage of build.  Danube is selling at launch date and they seem to be announcing that for them at least, it is business as usual, with their sales plan backed with its innovative 1% monthly payments.

Following comments from Damac’s founder Hussain Sajwani that all new home constructions should be halted for eighteen months, and that the main culprit for the current property over-supply was Emaar, its chairman, Mohammed Alabbar, retorted “Maybe if your Q2 profits were down by nearly 90 percent, it’s difficult to focus. I know what I am focused on, which is delivering the results Emaar customers and shareholders expect.” Damac’s Q2 results showed that the developer had seen slumps in both its revenue and profit streams – by 46% to US$ 264 million and 87% to US$ 14 million; over the same quarter, Emaar posted sales of US$ 965 million.

Damac’s founder was also in the news as he finally acquired troubled Italian fashion house Roberto Cavalli, via his Dubai-based Vision Investment Company; this follows a Milan court approval of a debt restructuring agreement. Earlier in the year, when the company filed for bankruptcy in Italy and the US and closed all of its American stores, reports put its value at US$ 179 million. There were several high-profile companies in the bidding, including US-based Marquee Brands, Bluestar Alliance and Only the Brave. Two years ago, the two companies had signed a deal to build a number of “Just Cavalli” villas in Dubai and another one to provide the interior design for at least five luxury hotels.

The opening of the new Address Sky View Hotel in Downtown Dubai should open tomorrow, 01 November, but this has been delayed so as to complete the finishing touches to the twin tower structure, with 169 hotel rooms and 551 apartments. The property is distinguishable by its a floating sky bridge, connecting the two structures, and a 70 mt long infinity pool located 220 mt above ground level. For the adventurous, it also boasts a glass slide which takes guests down, outside, from the 53rd floor to the Sky Views observation deck, as well as an adventure walk (with a harness) on the outside of the structure.

MAF is to open seven Carrefour stores in Uzbekistan over the next two years, becoming the first international grocery retailer to enter that country’s market. The Dubai-based conglomerate, which holds the exclusive rights to operate Carrefour in 31 countries in Mena and Central Asia, currently operates 285 stores in fifteen countries; it hopes to double that number by 2023.  H1 figures for MAF’s retail arm posted a 1% rise in profit to US$ 4.0 billion.

Majid Al Futtaim has refuted reports that it owes any money to Will.i.am’s tech company i.am+  and that it has yet to fill its financial obligations to the US firm with regards to a partnership to build a firm the size of Amazon in the UAE. In February, a deal between the two parties was signed to bring its Omega technology to MENA customers and to build a firm the size of Amazon in the UAE, and that the lack of funds has been the cause for the nine-month delay since then. The Dubai-based retail giant indicated that it had fulfilled all its financial commitments to date. US reports show that US federal government had filed a lien showing i.am+ owes US$ 1.8 million in delinquent taxes and interest.

Sheikh Ahmed bin Saeed Al Maktoum, chairman of both Emirates and flydubai, has commended the two-year partnership between the two airlines saying “the strategic partnership has been a success, generating benefits for travellers, for both airlines, and for Dubai.” During the two year, the partnership has carried 5.3 million passengers and having initially started with codeshare arrangements, now share more routes, schedules and airport operations. It is a win-win situation for both parties using Dubai as a hub, Emirates’ passengers can connect to 94 destinations on the flydubai network whilst flydubai passengers can access 143 Emirates locations.

There was good news for Emirates this week with a Mexican court ruling that the airline could commence flying to the country (via a ‘fifth freedom’ flight from Barcelona) starting in December. The case – brought by Aeromexico – is still on-going, with the judge agreeing that the local carrier can appeal the verdict. The bilateral air services agreement was signed by both countries in July.

Dubai ports operator DP World has put its UK expansion plans on hold due to uncertainties over Brexit, having already invested upwards of US$ 1.9 billion in the country; most of the investment has been made in the London Gateway port and logistics park.

For the third consecutive month, fuel prices will go down in November, as set by the Fuel Price Committee. Special 95 will be US$ 0.008 lower (1.4%) at US$ 0.569 per litre.

Work has started on phase 1 of Emirates Central Cooling Systems Corporation’s construction for its new US$ 52 million plant in Dubai Production City. Empower expect this phase to be completed within twelve months and when the final and when finished, it will add 47k Refrigeration Tonnes to its capacity. The company currently provides district cooling services to more than 1.1k buildings, comprising more than 100k customers.

A meeting of the Council of Ministers approved the country’s 2020 US$ 16.5 billion deficit-free budget. The budget covers three main sectors – social development, government affairs and infrastructure/economic resources/living benefits – all allocated roughly a third of the total.

Du saw its Q3 profit level (after royalty payments) decline by 13.5% to US$ 104 million, as revenue dipped 7.9% to US$ 817 million. Over the period, mobile subscriptions dropped 10.6% to 7.7 million, although fixed-line customers grew 1.5% to 771k. Over the nine-month period to 30 September, the telecom posted a 7.9% fall in like-for like profit after royalty to US$ 351 million, with revenue 6.2% shy at US$ 2.6 billion. Capex, at US$ 218 million, was 82.0% up on the corresponding period in 2018.

The bourse opened on Sunday 27 October and, having nudged 4 points higher the previous week, shed 39 points (1.4%) to 2745 by 31 October 2019. Emaar Properties, having gained US$ 0.01 the previous week lost US$ 0.06 to close at US$ 1.16, whilst Arabtec was US$ 0.04 lower to US$ 0.50. Thursday 31 October saw lower trading of 157 million shares, worth US$ 43 million, (compared to 219 million shares, at a value of US$ 50 million on 24 October). For the month of October, Emaar, having opened the month on US$ 1.26, closed US$ 0.10. lower on US$ 1.16, with Arabtec US$ 0.02 higher from its opening of US$ 0.48.

By Thursday, 31 October, Brent, having gained US$ 3.52 (6.1%) the previous three weeks, kept in positive territory, up US$ 0.20 (0.3%) to US$ 61.59. Gold, having gained US$ 7 (0.5%) over the previous week, was up US$ 13 (0.9%), closing on Thursday 31 October at US$ 1,511.  For the month of October, both commodities were up – Brent from month openings of US$ 60.68 and the yellow metal from US$ 1473.

Thanks to an almost 25% lift in sales to China Jaguar Land Rover posted a quarterly profit of US$ 200 million, with revenues climbing 8.0% to US$ 7.6 billion. Sales of JLR’s new Range Rover Evoque were almost 50% higher and the improved returns helped to reduce its parent company’s losses with Tata Motors posting a Q3 79.3% reduction to US$ 31 million.

Australian regulators have taken to the courts, alleging that Google has been misleading consumers about the personal data it collects, uses and keeps. The ACCC, in a world first action against the tech giant, is seeking fines and compliance orders against Google, which has a US$ 880 billion market value, in a crackdown on digital platform disclosures.

To the surprise of some, Microsoft has been awarded a ten-year, US$ 10 billion Pentagon contract to replace its ageing computer networks with a single cloud system; Jedi (Joint Enterprise Defence Infrastructure) will bring the US defence department right up to date with its technology and give the military better and quicker access to data. Oracle and IBM were also involved in the process, along with Amazon who for some time were favourites to win the bid. However, in July, President Trump, who has had his run-ins with Amazon founder Jeff Bezos, questioned the integrity of the contract process indicating that other companies had told him that the contract “wasn’t competitively bid” and that his administration would “take a very long look” at the deal. Other parties seemed to side with the President claiming that the bidding process had been rigged to favour Amazon, the world’s biggest provider of cloud-computing services.

Although Alphabet’s Q3 revenue was 20% up on last year at US$ 40.5 billion, its profit slumped over 23% to US$ 7.1 billion, as the internet search leader continued to pump money into R&D for artificial intelligence (25% higher at US$ 6.6 billion), cloud infrastructure  and new Pixels smartphones;  sales and marketing expenses were also higher – up 20% at US$ 4.6 billion. The tech firm has seen its tax provision almost double its effective tax rate to US$ 1.6 billion, equating to 18%.

It seems that LVMH may bid up to US$ 14.5 billion for jeweller Tiffany & Co on a possible takeover; the offer price is 22% higher than its 25 October closing price. The French company, that owns the Bulgari jewel and watch brand, Sephora cosmetics stores, Hublot watches and Dom Perignon Champagne, is looking for extra penetration in the jewellery sector. If the sale were to go through, it would help LVMH compete against companies such as Swiss rival Richemont SA, the owner of Cartier and Van Cleef & Arpels.  On the news, both companies’ shares were up – LVMH by 1% with Tiffany jumping by 22%.

HSBC’s Q3 pretax profit fell 12% to US$ 5.3 billion., missing market estimates; 90% of that total emanated from Asian operations. Global banking and markets reported a 30% decline to over US$ 1.2 billion, while retail banking and wealth management saw an 18% drop to US$ 1.7 billion. The bank estimates that it will spend US$ 17 billion updating its technology platforms and expanding its business in mainland China. The new management realised that some of its business units needed to change and that there was an urgent need to accelerate plans to remodel them and move capital into higher growth. The bank will try to sell its French retail bank and exit stock trading in some developed Western markets.

In the wake of its banking scandal, Australian regulators are looking at banning the big audit firms doing both auditing and consultancy works for clients. It was noted that auditors avoided scrutiny at the royal banking commission, despite being a significant part of the problem. There is no doubt that public confidence in the profession is at a low ebb and it is time for a wakeup call to confront concerns about independence and conflicts of interest. The country’s second auditing profession, Chartered Accountants Australia and New Zealand (CAANZ), wants to “clarify and strengthen” prohibitions on audit firms providing often-lucrative consulting services to companies they audit. Better late than never.

After two tumultuous weeks of unprecedented nationwide protests, that have crippled Lebanon, Saad Hariri announced he was submitting the resignation of his government. The prime minister’s decision “in response to the will of many Lebanese who took to the streets to demand change” was inevitable after tension mounted between protesters and security forces. There is no doubt that the populace has grown tired of incompetent and corrupt politicians who have brought the country to economic chaos, with networks of cronyism, patronage and nepotism depleting the treasury and gutting public services.

It is hoped that a change in government may placate protestors at a time when the economy was “days” from collapse. Such a move may restore business confidence and ensure that banks reopen (after being closed for the past two weeks) so as to ensure that expat remittances do not dry up. It is expected that the currency will struggle to continue to be pegged to the greenback and there are also fears that if the political situation does not improve there could be a run on the banks with dire consequences. The economy was in a mess, well before these protests started, with rising unemployment and one of the highest debt ratios in the world at US$ 86 billion, equating to a worryingly high 150% of GDP.

Due to a statistical error, it seems that the UK budget deficit was up to US$ 2.0 billion less than initially reported. The Office for National Statistics has indicated that there was “an error in the measurement of local government social benefits” and that last month’s shortfall was almost US$ 12.0 billion and that the YTD budget deficit, excluding public-sector banks, was US$ 53.0 billion.

Although weakening in Q3, the 1.9% growth was better than market expectations, with consumer spending, although slowing from the previous month’s 4.6%, the highlight at 2.9%. Some of this weakening is attributable to the waning impact of last year’s US$ 1.5 trillion tax cut and the ongoing spat with China. Although there were disappointing results, with a fall in business investment and lower public spending, the stronger than expected returns for housebuilding and consumer spending, that accounts for 67% of the country’s economic activity, points to the fact that any short-term recession is unlikely.

According to speakers at this week’s Success 2020 Arabian Business forum, the UAE is fast becoming a cashless society, driven by several government initiatives and on-going support. The country is helped by the fact that it has a young and dynamic population that embraces new technology – this is supported by traders and merchants keen to make the appropriate infrastructure available. The benefits of going cashless are manifold and could boost the economy by some US$ 2.2 billion, by saving time needed to handle cash.

Strangely, Japan still appears to rely on cash for many transactions, as witnessed at this year’s successful Rugby World Cup. What they do well is to manage big sports events almost to perfection and Dubai would do well to see how they manage to carry this out, with Expo just around the corner. The only minor hiccoughs (apart from the Final’s score that saw South Africa demolish England) were 20-minute toilet breaks for spectators and patchy Wi-Fi. The country is well prepared for the Olympics next year and once again the sports world will be Turning Japanese.