Set Fire To The Rain                                                                   14 November 2019

The latest launch from Azizi Developments, designed towards the younger generation, is Miraj in Dubai Studio City. The 444-unit development will house 253 studios, 155 1 B/R and 36 2 B/R apartments.  As with recent releases, the developer will be offering “affordable and flexible payment plan options.” Currently, Azizi has fifty-four on-going projects, scheduled for completion by 2023, and a further 130 projects in planning, that are projected to be delivered by 2025.

Fam Properties has closed out a US$ 173 million deal at Dubai Creek Harbour – one of the largest real estate deals recorded in Dubai in recent years. The forty-floor property, Creek Edge, located in Dubai Creek Harbour, will house 388 units and be completed in 2023.

BackLite Media has been awarded a ten-year, US$ 272 million advertising contract to transform signage in Dubai, with a mix of digital and traditional outdoor platforms across twenty-six locations along SZR. The out-of home advertising company advised that it would be utilising technology and visual solutions that are “far ahead of the systems used in global hubs across the world”. The company was responsible for introducing its distinctive unipole signs to Dubai, as far back as 1996.

Amway’s APAC Leadership Seminar 2019 will see 6.5k of its top management flying into Dubai, with Emirates, as the world’s largest direct selling business holds a meeting at DWC next month. The sixty-year US-based multi-level marketing company, with sales of US$ 8.8 billion in 2018, represents a major boost for the local MICE sector (meetings, incentives, conferencing and exhibitions) and is but one of 118 successful bids engineered by Dubai Business Events (DBE) —the emirate’s official convention bureau – that will bring in 75k overseas delegates over the course of the year. Furthermore, such events provide much needed revenue for the economy – especially in the travel, retail and hospitality sectors.

US$ 47.1 billion has been added to the assets of UAE-based conventional banks, bringing its total to US$ 670 billion, of which 19.7% is owned by the eight Shariah-compliant banks in the country, with the balance by the 59 conventional banks. The total assets of all fifty-nine banks totalled over US$ 817 billion, as deposits over the nine months grew by 3.9% to US$ 398.0 billion, although Islamic banks’ assets contracted 2.9% to US$ 154.1 billion. Retail loans totalled US$ 481.2 billion, of which 80.3% was provided by conventional banks.

Following the May launch of the government’s Golden Card scheme, 2.5k scientists and researchers, from varied academic backgrounds, have been granted permanent residency this week. HH Sheikh Mohammed bin Rashid Al Maktoum tweeted “we welcome them among us – the UAE will always be open to scientists, investors and entrepreneurs.” The Ruler’s son, Sheikh Hamdan bin Mohammed, attended the ceremony at which visas were handed out.

Dubai’s October Purchasing Managers’ Index (PMI) points to business growth in the emirate’s non-oil private sector, rising 2.0 to 54.6, driven by improving new order growth, (most notably travel and tourism firms), and higher demand. On the flip side, there was weaker growth reported in the construction and wholesale and retail sectors. Continuing price competitiveness resulted in an increase in sales activity, as selling charges reduced for the eighteenth straight month – declining at their quickest rate since February 2016. Furthermore, the rate of job growth was at its highest level in twenty-one months, with the amount of new work moving upwards.

The seventh annual State of the Global Islamic Economy survey estimates that there will be a 45% hike in Islam-inspired ethical consumption to US$ 3.2 trillion over the next four years. The UAE, along with Malaysia, Bahrain Saudi Arabia and Indonesia, continue to dominate the sector which comprises 73 countries. The survey reports on seven sectors including Islamic finance (the largest at US$ 2.5 trillion), halal food (US$ 1.4 trillion), modest fashion, pharmaceuticals, cosmetics, media/recreation and Muslim-friendly travel. Although Malaysia topped the Islamic finance and Muslim-friendly travel categories, UAE leads the field in the other five. There is no doubt that the creation of the 2014 Dubai Islamic Economy Development Centre has helped move the UAE inexorably closer to the top of the ladder.

So far this year, there has been a 2.3% decline in Q3 passenger numbers to 22.6 million, with a YTD 4.5% fall to 64.5 million, not helped by the 45-day runway closure earlier in the year and the continuing grounding of flydubai’s thirteen 737 Max jets.  The top destination remains India, with 8.8 million passengers, followed by Saudi Arabia and the UK, with numbers of 4.8 million and 4.6 million. The world’s busiest hub for long-haul flights also posted a 5.9% Q3 fall in cargo to 637k tonnes and 4.1% to 1.9 million tonnes YTD.

The UAE aviation regulator will decide when the Boeing 737 Max can return to fly once the US Federal Aviation Administration decides it is fit to return to commercial service; this is expected to be in January, ten months after two fatal crashes grounded the aircraft. The GCAA will conduct its own safety checks, in conjunction with the FAA assessment but it is expected that Max deliveries will restart next month. Boeing’s second largest customer for the 737 Max is flydubai, with a 250 aircraft order.

Last year, UAE foreign direct investment rose 8.0% to US$ 140.3 billion, boosted by government efforts to implement reforms and attract foreign capital, despite a dismal worldwide economic environment which saw a 19.0% decline in global inflows; the biggest declines were seen in the EU, developed countries and ‘transition economies’ declining 73%, 40% and 8% respectively, whilst developing countries witnessed a 3% increase. Asian countries came first in new funds introduced into the country. By H1 this year, Dubai had attracted US$ 12.7 billion – an impressive 135% increase on the same period a year earlier.

DP World continues its global expansion plans, as it announces an agreement with Namibia’s Nara Namib Free Economic Industrial Zone to establish a free zone in the country. The Dubai port operator already has an African presence in several countries, including Algeria, Egypt, Mozambique, Rwanda, Senegal and Somaliland, and sees this Walvis industry and logistics free zone as an important regional hub. The first phase, covering just 50 hectares (expandable to up to 1.5k hectares), will create 3k jobs, with an initial investment of US$ 237 million.

Trukker, a three-year old digital freight platform, has secured US$ 23 million in a Series A funding which will be utilised to expand regionally and enhance its infrastructure; currently, it operates in the UAE and Saudi Arabia, with plans to open in Egypt, Jordan and other regional countries. The online service matches hauliers (with up to 15k trucks) and its 200+ client base, allowing them to bid for jobs, as real time supply matches current demand.

Following its recent merger with Abu Dhabi Financial Group, Shuaa Capital posted a Q3 profit of US$ 6 million, with ADFG contributing profits of US$ 8 million. The merger was the result of an all-share reverse takeover deal, with the larger entity being rebranded as ‘ADFG’. In H1, Abraaj posted losses of US$ 15 million, driven by its exposure to the disgraced, and now bankrupt, Abraaj along with certain merger-related one-off costs.

 DXB Entertainments is still struggling as indicated by a Q3 loss of US$ 73 million – a marginal 2.5% improvement, compared to a year earlier; over the first nine months of the year, the loss reduced by 3.6% to US$ 195 million. Both Q3 and nine-month revenue declined by 24% to US$ 21 million and US$ 90 million, attributable to lower visitation from the resident market with visitor numbers declining by 8.2% to 1.8 million. The company behind Dubai Parks and Resorts has so far lost US$ 1.4 billion and has put strategies in place to increase the number of international visitors and reduce costs – a move that is easier said than done.

Once flying Damac Properties has had its wings trimmed and has been hit by a double whammy of declining revenue – down 42.0% to US$ 244 million – and rising costs, including a 126% hike in selling costs to US$ 73 million; the end result was that Q3 profit slumped some 78% to US$ 14 million. For the first nine months of 2019, net income was 87.8% lower at US$ 36 million, along with falls in cash/bank balances, down 20.6% to US$ 1.1 billion, and total assets sliding 2.8% to US$ 64.9 billion. Hussain Sajwani, chairman of the developer, is confident of reaching his 4k delivery target for this year.

Some analysts predict that with 21k residential units completed in H1, a further 38.4k could be finished in H2. In the unlikely event of this happening, the 2019 total would be about the same number as handed over in the past four years from 2015-2018. If there were a problem at the beginning year, that being the case, we are in for a turbulent 2020.

All of Emaar Properties’ financial indicators headed north during Q3, with a 14.0% hike in revenue to US$ 1.6 billion and profit 20.0% to the good at US$ 354 million. Over the nine-month period to 30 September, sales were 25.0% higher at US$ 3.4 billion, revenue by 1% to US$ 4.8 billion and net profit 2.0% at US$ 1.2 billion. The main drivers behind the stronger revenue stream were from foreign investors plus new, first-time home buyers entering the local property market.

Emaar Malls also recorded positive nine-month results, with 6.0% increases posted for both revenue at US$ 926 million and net profit to US$ 463 million. With a credible 92% occupancy level, it welcomed 99 million visitors to its assets – including The Dubai Mall, Dubai Marina Mall, Gold & Diamond Park, Souq Al Bahar and the Community Retail Centres. Along with Emaar Malls, its hospitality & leisure, entertainment and commercial leasing business posted a 30.0% increase in revenue to US$ 1.4 billion with its hotels’ occupancy rate at 78%. The international property development operations recorded a 22% increase in revenue to US$ 708 million, contributing 15% of the total group revenue.

Emaar Development posted an 11.0% hike in Q3 revenue to US$ 924 million, with profit 1.0% up at US$ 187 million, with selling, marketing, general and administrative expenses 63.0% higher at US$ 110 million. UAE’s largest listed property company has an impressive sales backlog of US$ 9.8 billion, which will boost revenue streams in the years ahead, driven by the launch of nineteen new residential developments, valued at US$ 2.7 billion, this year.

The bourse opened on Sunday 10 November and, having lost 85 points (3.1%) the previous two weeks, nudged 2 points higher to 2701 by 14 November 2019. Both Emaar Properties and Arabtec shed US$ 0.01. The former, having lost US$ 0.08 the previous fortnight, closed at US$ 1.13, whilst Arabtec, down US$ 0.05 the previous two weeks, traded at the end of the week on US$ 0.48. Thursday 14 November saw dismal trading of 101 million shares, worth US$ 73 million, (compared to 157 million shares, at a value of US$ 43 million, on 07 November).

By Thursday, 14 November, Brent, having gained US$ 4.42 (7.6%) the previous five weeks, shed some of those gains, down US$ 1.01 (1.6%) to US$ 61.28. Gold, having shed US$ 45 (3.7%) over the previous week, was up US$ 7 (0.4%), closing on Thursday 14 November at US$ 1,473.

On Sunday 17 November, Saudi Aramco will open its IPO to investors and, as yet, two days before the event, the size of the stake (probably 5%) and the pricing range (around US$ 1.7 billion) are yet to be revealed; it will offer as much as 0.5% of its shares to individual investors, along with a plan  to incentivise its 73k staff via a share scheme.  The 650-page prospectus confirms that the energy conglomerate will not be allowed to list further shares within six months and for the company’s owner, the Saudi government, that period is for one year after the start of trading. The final pricing will be revealed on 05 December. In a bid to boost interest ahead of the issue, Aramco has seen its taxes cut for the third time and has introduced measures to encourage investors not to sell their newly acquired shares.

Toyota Motor Corp plans a US$ 1.8 billion share buy-back, following news of a more-than-expected Q3 profit at US$ 6.1 billion (up 14.4%), driven by better global sales and a 5.6% improvement in its North American business; the profit figure beat market expectations. It saw quarterly vehicle sales 26.1% higher at 2.75 million. By the end of March, the carmaker is planning a 34 million share buy-back, costing US$ 1.8 billion, with rival Honda also in buy-back mode paying US$ 915 million. However, the company has had a tough time and has cut its annual profit forecast by 10.4% to US$ 6.3 billion, (and revenue by 3.8% to US$ 71.7 billion), as global vehicle demand remains moribund and specific supply issues continue. Quarterly profit came in on US$ 2.0 billion.

Nissan posted disappointing Q2 (ending 30 September) results, with declines in both revenue – down 7.0% to US$ 24 billion – and profit by 54.6% to US$ 541 million. The main drivers include falling global vehicle sales and the loss of confidence in the brand power, following the arrest of its former chairman Carlos Ghosn; he faces various allegations, including under-reporting promised compensation in documents and breaching trust in making dubious payments. The car maker has started to improve much-needed governance, corporate culture and ethical standards which, in turn, will result in additional costs at least in the short-term.

As part of its strategy to cut costs by up to US$ 1 billion by 2022, Mercedes-Benz is to shed 1k jobs. The German company is not the only carmaker facing costly challenges from new, tougher emissions targets.  Not only do the new CO2 targets require high investment but costs fly north when it comes to investing in plug-in hybrids and all-electric cars.

After a two-year agreement, Nike has decided to invest in “distinctive” partnerships with other retailers and platforms, as it stops using Amazon as a vehicle for selling directly to customers. The trial seems to have convinced the sportswear giant that it should seek greater control of its brand and ensure that it deals more directly with its customer base, by investing in strong, distinctive partnerships with other retailers and platforms.

Following the lead of its tech competitors, including Amazon, Apple, Facebook and Uber, Google is set to announce a new financial product for users. The service, launched via Google Pay, will utilise the expertise of banks and credit unions in the US to offer “smart checking” accounts; users will be able to add Google’s analytic tools to traditional banking products. Google has teamed up with Marcus, (Goldman Sachs’ new consumer arm), as part of its Apple Pay and Wallet service. There is no doubt that US regulators will take a close look at Apple’s entrée into this new market segment, with all the tech giants already facing probes related to competition, data protection and privacy.

The co-founder of the Nusr-Et steakhouse, Nusret Gokce, and the other co-owners, Mithat Erdem and billionaire Ferit Sahenk, are considering selling a stake in the business, known as Salt-Bae.  As a stand-alone entity, Nusr-Et could be worth up to US$ 1 billion and undoubtedly, if a part sale occurs, much interest would be generated. The three also operate steakhouses and burger joints in New York, Miami, Dubai and on the Greek island of Mykonos. Sahenk, a 51% shareholder, as well as a real estate developer, has struggled, in line with the fall in the Turkish lire and having a US$ 2.5 billion of debt to be repaid; he has been divesting stakes in hotels and restaurants and could be a likely part-seller.

Although Vodafone shipped US$ 2.7 billion in H1 losses, it was a major improvement on the US$ 10 billion+ deficit posted over the same period last year. The dismal reading was brought about mainly by “a loss at Vodafone Idea, following an adverse legal judgement against the industry by the (Indian) Supreme Court, partially offset by a profit on the disposal of Vodafone New Zealand.” If these items had been taken out of the equation, the UK telecom would have showed a positive operating profit. Last month, Vodafone was one of several beleaguered Indian telecoms companies ordered by the courts to pay a total of US$ 13 billion in unpaid bills.

There has been an offer from private equity group KKR to buy out Boots’ parent company, Walgreens Boots Alliance, which, if successful, would be the biggest ever of its kind. Whether the current time is best suited to such a deal remains to be seen. Only three years ago, the private equity group sold its final shares in Walgreens which, although it has an estimated market value of around US$ 56 billion, is US$ 17 billion in debt. Operating in twenty-five countries, it is currently trying to save US$ 2 billion a year and has indicated that it would close 200 UK outlets. Prior to the latest news, its share value had dipped over 20% YTD.

It is no surprise to see that a disgruntled shareholder has taken WeWork to court over the US$ 1.7 billion leaving package approved for ousted co-founder Adam Neumann. Although the company called the claims “meritless”, there would be many who would agree that this sum is “beyond comprehension” and is “improper”. It was only two months ago that the company, that had previously been valued around US$ 50 billion, saw a stock market floatation collapse in disarray, with latest valuations coming in at a lot less than US$ 10 billion.

A growing problem in Australia (and probably the same in many other countries including the UAE), is that of so-called payday loans. A local study estimates that 1.8 million households there have taken out 4.7 million such loans over the past three years. There is increased concern that those taking out payday loans were “those doing it toughest in society” and were easy pickings for the “predatory” practices of lenders. Evidently, 41% of female borrowers are single mothers, with women accounting for 23% of borrowers, the number having risen 62.1% to 287k over the past three years. In 2016, the federal government announced plans to tighten laws around small consumer loans and leases but, in true Ozzie style, no progress has been made in the ensuing three years, so that the financial vultures are still charging exorbitant rates, whilst making mainly the poorer even poorer.

The Australian Big 4 banks’ woes continue with both CBA and Westpac hauled before regulators, denying charges that they levy a so-called loyalty tax, forcing existing mortgage customers onto higher interest rates to fund lower rates for new customers. It seems that CBA dispute the concept of a loyalty tax, arguing different loan rates reflect supply and demand for mortgages over time and that the bank did not discriminate between “old” and “new” clients. Westpac indicated that competition would be destroyed if all loans were at the same price. Another area of concern was the fact that none of the banks have passed on the full benefit of recent rate cuts and are being accused of profiteering at the expense of millions of home loan customers.

There are further signs of continuing weakness in Australian workers’ wage growth, as average pay packets have only risen 2.2% on the year – below long-term expansion rates. The latest quarterly 0.5% rise, down from 0.6% the previous period, will probably see interest rates cut again. Public sector growth, at 2.5%, came in at a faster rate than the private sector’s 2.2%. but returns were expected to be higher as during the quarter, new enterprise bargaining agreements (EBAs) were introduced plus the Fair Work Commission’s annual wage review. The situation was not made any better with Australia’s October unemployment rate jumping back to 5.3%, with the number of unemployed at 726k.

China produces about 22% of global cotton supplies and the Xinjiang region (with 84% of that total) is the focus of Chinese cotton production; the region has been in the news with allegations of its Uighur minority being persecuted and recruited for forced labour. Now there is increasing pressure on the many global brands that directly or – more probably – indirectly source cotton products from there to boycott the region. It is reported that the likes of H&M, Esprit and Adidas, along with Japan’s Muji and Uniqlo, are at the end of supply chains from the Chinese region.

Monday 11 November saw Singles Day (11/11), an annual event, that is the world’s busiest online shopping day, adopted by Jack Ma’s Alibaba, and has now become a marketing tool not only in China but also in other Asian countries. In the first eighteen hours of the day, Alibaba had surpassed last year’s total, with a 25.2% increase, to reach US$ 38.3 billion, with rival JD.com posting sales of US$ 25.6 billion by mid-afternoon.  Alibaba’s normal daily sales average US$ 2.3 billion and Ma had expected a bigger number this year, blaming the fact that it fell on a Monday and the weather was too hot. There is no doubt that China is one of the most “switched-on” counties in the world with 85% of the population using the internet for everyday use, including payments, driven by a lack of traditional retailing networks. Many of the country’s richest entrepreneurs owe their wealth to e-commerce including the likes of Jack Ma, Colin Huang (Pinduoduo), Zhang Jindong (Sunng) and Richard Liu (JD Com).

With Q3 growth of 0.3%, the UK economy managed to avoid recession, following an 0.2% contraction in the previous quarter. (The technical definition of a recession is two straight quarters of negative growth). The main driver behind the uptick was the services sector, with help from an improved construction contribution; production was flat and the manufacturing sector continued to fall in most industries except car production. On an annualised basis, the 1.0% reading is the weakest such quarter in nearly a decade and the outlook is more of the same.

As October UK inflation rates nudged lower by 0.2% to 1.5% – its slowest pace in three years – it seems that this could be a third factor to swing the BoE into cutting interest rates again; the other two, Brexit uncertainty and slowdown in the global economy, in themselves are strong indicators for further cuts. The good news is that there could be a boost in household spending, with wages rising at a faster rate (3.6%) than inflation. With lower energy prices -gas and electricity 8.7% and 2.2% lower month on month – there is every possibility that it could go as low as 1.2%, before climbing back to reach the BoE’s 2.0% target, and more, by the end of 2020.

Winter came with a vengeance after a long, hot and never-ending summer saw Dubai hit by heavy rains and storms on Sunday, leading to localised flooding, huge traffic jams, some property damage and minor disruptions at Dubai International. Notwithstanding the usual suspects, motorists heeded warnings to take extra care and avoid unnecessary trips outside. The week has seen Venice and parts of England reeling from floods, whilst the east coast of Australia and the US west coast of US have witnessed catastrophic fires. These events have been happening for ages and were seen as natural and expected occurrences; the problem is that the world has become more aware and that it appears that they are increasing in their severity. In 2019, this should not be happening. Set Fire To The Rain.