The World’s A Mess                                                                                     21 November 2019

The latest Knight Frank report shows that for the second straight quarter, Dubai prime property prices registered an 0.2% rise, following an 0.3% jump in Q2 – an indicator the downturn may be coming off its four-year bottom. Despite this glimmer of hope, annual prices had fallen by 3.7% and Dubai was ranked 40^th out of 45 global real estate markets surveyed. The average annual price rise was just 1.1%, with Moscow topping the table and Seoul at the other end.

With limited details available, Emaar has announced it will majority-own a build-to-sell property development, The Valley, in a US$ 6.8 billion JV, located on the Dubai – Al Ain Road. Earlier in the month, the developer reported a 17.1% decline in nine-month profit to US$ 564 million, but a 25% hike in property sales to US$ 3.4 billion. YTD, its nineteen new residential developments totalledUS$ 2.8 billion and it also has a US$ 9.8 billion sales backlog; it has also handed over 4.7k units so far this year.

With no new local launches expected for the foreseeable future, and still 37k units under development, troubled Damac is looking for expansion in new overseas markets, including resorts in the Maldives, Seychelles, Bali and Marrakech, rather than adding to the “large oversupply problem” in the UAE. The developer, having sold over 8k units over the past two years, with a further 4k expected in 2020, is only going to sell what they have launched to date and will not start anything new into the local market which they believe is over-supplied and have called for a freeze on future developments.

There will be a new addition to Dubai’s retail sector – with four-year old b8ta set to open its first international venture in the emirate. The retail-as-a-service company, with sixteen US locations, provides retailers with a space to showcase their products, with its aims to make physical retail accessible for product makers and exciting for consumers.

Nakheel Mall is set to open next Thursday, 28 November, in time for National Day celebrations. Located on Palm Jumeirah, the mega retail destination, costing US$ 327 million, will host over three hundred shops, restaurants, entertainment outlets and services, split over five levels. Along with a 14-screen Vox Cinemas complex, it will have car parking for 4k vehicles and will also serve as an access point for The View at The Palm, a public observatory on top of the 230 mt The Palm Tower.

The RTA and Careem signed a fifteen-year agreement for the Dubai-based ride-hailing firm to initially operate 1.75k bicycles across 175 docking stations and becoming the region’s first bicycle-pool phased program. The project will double that figure over the ensuing five years. Riders will be able to take advantage of the extensive network of cycling tracks that have sprung up over the past decade to 274 km and this will more than double to 632 km by 2023.

With the Sunday start of the Dubai Air Show, Boeing has spent time, with both of Dubai’s airlines. With the delivery delay (again) of the Boeing 777x, there is need for a schedule review of the 150 aircraft on order, especially as the plane-maker is still having its problems with the embattled 737Max. Furthermore, there is still the possibility of a 787 deal.

Boeing confirmed that it was working with flydubai to ensure that its grounded fleet of fourteen 737 Max aircraft is “preserved well”, ahead of its return to the skies. There will be an inevitable financial settlement for losses incurred by the Dubai airline, but no details have yet to be given; earlier in the year, chairman Sheikh Ahmed bin Saeed Al Maktoum indicated that the airline had a “right” to ask for compensation over the Max groundings. Boeing also confirmed that live pilot evaluation will soon take place which is a precursor for full certification so that the plane may be back in the skies by early Q1.

By the second day, Airbus had scored two major deals – an Emirates order for fifty A350-900s, with a list price of US$ 16 billion, and Air Arabia’s US$ 14 billion order for a mix of A320 Neos, the larger A321 Neos and the longer-range A32XLRs, to be delivered starting in 2024. The Emirates agreement replaces an earlier US$ 12 billion February outline deal that was for thirty A350s, which also included A330 Neos; negotiations are on-going between both parties relating to forty A330 Neos.  Boeing did not fare as well but did reach an agreement from Turkey’s SunExpress for 10 additional 737 Max jets, exercising options on top of its existing order of 32 Max aircraft, as well as  787-9 Dreamliners to Biman Bangladesh Airlines in a deal worth a reported $585 million.

The third day started with orders worth US$ 6 billion for fifty 737 Max from two airlines. Air Astana, Kazakhstan’s national carrier, weighed in with a thirty-plane order, valued at US$ 3.6 billion list price, along with an unknown airline placing a US$ 2.3 billion order for ten Max 7 variant and 10 of the larger Max 10. Ghana’s newly launched airline, 10% owned by the government, made an order for three Boeing 787-9 wide-bodies, worth US$ 878 million. Senegal, signed a preliminary order with Airbus for eight A220s worth US$ 732 million. Other orders reported included EasyJet’s US$ 1.3 billion spend on twelve Airbus A320 neos, Turkish carrier SunExpress’s US$ 1.2 billion investment in ten Boeing 737 MAX. It wrapped up on Thursday with orders totalling US$ 54.5 billion, 71% of which emanated from sales orchestrated by Emirates and Air Arabia, and a record attendance of 84k, with 1.3k exhibitors; total sales from the last event in 2017 was more than double at US$ 113.8 billion

The five-day event has also seen plenty of activity from the defence sector particularly when one sees that seven of the top ten biggest spenders, (as a proportion of GDP), are located in the MENA region (Middle East and North Africa). All the leading global companies – including Lockheed Martin (the largest in the world), BAE and Dassault –are showing their wares. Top of the rankings is Oman, which spends 11.0% of its annual economy on defence, followed by Saudi Arabia’s 10.8%; this is three times more than the 3.1% US figure and five times more than the less than 2% spent by some NATO members.

The UAE’s Ministry of Defence invested US$ 1.9 billion on the first day, signing deals with ten different local and international companies, with the two biggest being for US$ 954 million, with UAE-based Global Aerospace Logistics, and US$ 463 million with French aerospace company Dassault Aviation for enhancements on its Mirage fighter jets. Halcon, a unit of the UAE’s new defence giant EDGE, signed a US$ 1 billion contract to deliver its Desert Sting-16 range of precision guided weapons to the UAE Armed Forces

ON.DXB is a new regional festival that aims to further stimulate Dubai’s growth as a global platform for companies and talent in film, gaming, video and music – sectors that are being driven by digital technology. There is no doubt that content is primarily driven by western media but there is increasing demand for more local original content from gaming to music to TV; this event is but one initiative to drive the strategy forward and put Dubai firmly on the global creative map. Major gaming industry leaders, including – Hiba Muhareb, co-founder of Shanab Games; John Lacey, MD and founder of Power League Gaming; influencer Ahmed Al Nasheet; MC Baraa Andullah; Mohammed Alturkistani, the MENA Director at Tentacle Gaming; and RobocomVR founder Karim Ibrahim – will be attending the event. In October, the emirate hosted Insomnia Dubai, the region’s largest gaming festival, and next month it will be the location for Girlgamer Esports Festival, the world’s leading esports event for women.

HH Sheikh Mohammed bin Rashid Al Maktoum has enacted a new DIFC Intellectual Property Law, encompassing a wide range of subjects including patents, utility certificates, industrial designs/drawings, copyright, trademarks, trade names and trade secrets. The new legislation sees the creation of the new office of the Commissioner of Intellectual Property which will have the responsibility for administering the law, resolving disputes and imposing fines. The law covers all related DIFC affairs and is in line with global standards befitting the world’s eighth ranked international financial centre.

Sheikh Mohammed also issued Law No. (10) of 2019, which partially amends Law No. (24) of 2009 on the establishment of the Dubai Financial Support Fund. Under the new regulations, the Director General of the Dubai Department of Finance is authorised to supervise all administrative, technical and financial affairs of the Fund. He will be also responsible for approving the Fund’s organisational structure and budget and submitting them to the Executive Council of Dubai for final approval.

DP World is nearing the completion of a major Egyptian expansion and, when Basin 2 is completed by the end of next June, it will nearly double the capacity at the port to 1.75 million TEUs per year. This particular US$ 520 million project has seen the Dubai company’s investment in the country top US$ 1.6 billion. The expansion of DP World’s Sokhna, the only port in the country capable of handling the largest container ships, cost US$ 520 million. As an aside, there was a bilateral agreement signed this week between the UAE and Egypt for a US$ 20 billion joint strategic platform to invest in a range of vital sectors and assets.

The latest legislation sees a new insolvency law that lifts the threat of criminal sanctions for clearing bad debts by decriminalising their financial obligations, whilst offering them an opportunity to work to resolve their financial dilemma. The new law will prove the ease of doing business in the country and will be beneficial for all stakeholders – the business community, the banking sector and the local economy. The law, to be introduced in January, will enable debtors resolve their liabilities, through court-appointed advisers, who will liaise with lenders on their behalf to reach a settlement, by rescheduling liabilities with an option to receive “new concessional loans”, probably with more relaxed repayment terms. However, it should be noted that bounced cheques will not be decriminalised under the new insolvency law.

A unit of Arabtec Holding has been awarded a US$ 100 million Emaar Misr contract to build a residential project at Greek Village in Egypt, comprising 42 town houses, 18 residential buildings and seven bungalows. This is the second contract this year for Arabtec Properties following an August US$ 111 award from the same developer to construct two projects in Cairo.

It was a disappointing Q3 for Arabtec reporting losses of US$ 109 million (compared to an US$ 18 million profit a year earlier), with revenue declining 31.0% to US$ 441 million; its Dubai-based fitout contractor Depa increased its YTD deficit to US$ 68 million following a quarterly loss of US$ 13 million. Over the nine months of the year, both revenue and profit declined – by 18.0% to US$ 1.6 billion and from a US$ 49 million profit to a US$ 103 million loss. The troubled developer attributed three factors for its problems – tight liquidity, a continued decline in the real estate sector and delays in handing over legacy projects. Employing 45k, it still remains the biggest publicly listed contractor in the country, with total assets of US$ 2.9 billion, net equity of US$ 324 million and a US$ 3.7 billion backlog.

Union Properties posted a Q3 29% slump in revenue to US$ 29 million, as its loss worsened 31.9% to US$ 22 million, driven by revaluations on financial assets declining from US$ 2 million to US$ 10 million. It now plans to focus on developing its land bank to create assets with recurring cash flows; finance costs rose 41.1% to US$ 13 million. Over the nine-month period to 30 September, revenue was 19.0% lower, at US$ 85 million, with a US$ 45 million loss, compared to a US$ 40 million profit a year earlier. The Motor City developer has incurred cumulative losses of US$ 567 million, following a 2017 write down in the value of its land by US$ 327 million and taking a further US$ 188 million hit, by reporting that about two million sq ft of its 14 million sq ft site to be undevelopable. Its September net assets came in 5.8% lower at US$ 798 million.

The bourse opened on Sunday 17 November and, having nudged up 2 points the previous week, dropped 17 points lower to 2684 by 21 November 2019. Emaar Properties, having lost US$ 0.09 the previous three weeks, closed US$ 0.01 lower at US$ 1.12, whilst Arabtec, dived US$ 0.13 and now has lost US$ 0.19, over the past four weeks, to end the week at US$ 0.35. Thursday 14 November saw continuing dismal trading of 64 million shares, worth US$ 54 million, (compared to 101 million shares, at a value of US$ 73 million, on 14 November).

By Thursday, 21 November, Brent, having shed US$ 1.01 (1.6%) the previous week, regained all those losses, and more, US$ 2.69 (4.4%) higher at US$ 63.97. Gold, having gained US$ 7 (0.4%) the previous week, was down US$ 10 (0.7%), closing on Thursday 21 November at US$ 1,463.

The preliminary valuation on Aramco has been set at between US$ 1.6 – US$ 1.7 trillion as the state oil company tries to sell 1.5% of its shares on the local bourse for US$ 25 billion – this is short of the initial US$ 2 trillion target and also lower than the 5% that was thought going on offer. At that time, it was expected that 2% would be issued on the kingdom’s Tadawul bourse, and a further 3% on an overseas exchange. Nevertheless, it will still potentially be the world’s biggest IPO and would value the world’s most profitable company north of US$ 25 trillion – slightly higher than the amount raised in 2014 by Chinese e-commerce giant Alibaba.

With future plans of focussing on mega projects, Exxon Mobil is planning to divest itself of some US$ 25 billion worth of assets, including oil and gas fields in Europe, Asia and Africa, as it attempts to free up cash to pay for these future projects. The oil giant has come late to the game as its main rivals, Shell and BP, have sold off major assets, totalling US$ 30 billion and US$ 65 billion respectively, since the 2014 energy market crash. The end result is that Exxon now has a negative US$ 9 billion cash flow, whilst Shell has already generated cash of over US$ 21 billion so far this year. The plan seems to be the Texas-based company to quit its upstream oil and gas business in eleven countries, so they would have cash to invest in new developments in Brazil, Guyana, Mozambique, Papua New Guinea and the US.

Two of Australia’s richest people, Mike Cannon-Brookes and Andrew Forrest, are investing in an ambitious project to export solar power from a giant 10-gigawatt plant in Australia to Singapore, via a 4.5k km transmission cable. The project has already raised tens of millions of Australian dollars that will allow developer Sun Cable to undertake development work. If successful, the project would meet almost 20% of the city-state’s energy needs.

Continental confirmed it would slash 5.5k jobs (2.3% of its current workforce of 240k) by 2028, as the demand for combustion engines slows and global vehicle sales continue to head south. According to its CEO, Elmar Degenhart, it urgently needs technological transition to strengthen its competitiveness and future viability. The move is expected to save US$ 600 million a year from 2023 and help finance new technology.

By Thursday, Bitcoin had had seven straight days of declines to fall below the US$ 8k mark for the first time in a month and also slipped below its 200-day moving average line; some analysts consider this to be a pointer to sell. The world’s largest cryptocurrency has witnessed fairly low trading volumes since August, as no new money entered the sector, and has seen stocks/bonds/gold all up in double-digits YTD. So far in November, it has shed 14% of its 31 October value.

Despite closing all but three of his twenty-five UK restaurants, and falling into administration, last May, celebrity chef Jamie Oliver is to open twenty-one new Jamie Oliver-branded overseas restaurants by the end of 2020; currently, there are 70 restaurants, all of which are run as franchises, in 27 global markets. The first two – Jamie Oliver Kitchen restaurants – will open this month in Bali and Bangkok. Although annual profits of the Jamie Oliver Group fell sharply, he paid himself a US$ 4 million dividend in 2018, although he had invested a lot of his own money to support his then failing restaurants.

In a bid to stem its US$ 1 billion H1 loss, WeWork is to slash almost 20% of its current 12.5k workforce, calling the cuts “necessary” in order to “create a more efficient organisation”, following the dramatic collapse of its September failed IPO. Earlier in the year, its major investor, Softbank, valued the company, which rents office space to freelancers and businesses, at US$ 47 billion – it has since pared this estimation to just US$ 8 billion.

Sheikh Mansour’s Manchester City posted a 6.9% hike in revenue last season to US$ 692 million, driven by a 20% jump in broadcast revenue, leading to a net US$ 13 million profit; since the Abu Dhabi 2008 takeover of the club, its revenue has risen more than six-fold. The 2017-18 season saw the club win an unprecedented quadruple of England’s domestic trophies – the Premier League, FA Cup, League Cup and Community Shield – whilst Liverpool lifted the big European trophy. Its revenue steam was still well behind Manchester United’s US$ 785 million but the “noisy neighbours” will probably surpass that, as it has signed a record ten-year kit deal with Puma, worth an annual US$ 85 million. However, it is being investigated by FIFA for allegedly flouting FFP regulations, by inflating the value of sponsorship deals – if found guilty, the club could face bans on transfers and from the lucrative Champions League.

The Australian Securities and Investments Commission is concerned that scandal-prone financial giant AMP appears to still be charging already dead customers, after the financial services royal commission had exposed over 3.1k deceased customers still paying their life insurance premiums. The authority’s chair, James Shipton, commenting on one recent case said “One thing I will say and unfortunately this is a vignette, an example of where their system is … their systems are obviously failing and there isn’t a magic, quick solution.” AMP was also found to be lying to regulators and charging hundreds of millions of dollars in so-called “fees for no service”. Since the royal commission, AMP has lost its chairman, chief executive and half of its board. What happened to the other half?

Another bank in trouble again is Westpac, with theAustralian Transaction Reports and Analysis Centre accusing it of an incredible 23 million breaches of anti-money laundering and counter-terrorism financing laws; not surprisingly, Australia’s second largest bank is “reviewing Austrac’s statement of claim” for what the financial crime watchdog deemed “serious and systemic non-compliance”. It is alleged that the bank failed to properly report more than 19.5 million international funds transfers, amounting to US$ 8 billion over a five-year period to 2018. Probably the most damaging revelation that came to light was that its LitePay service was used by paedophiles, without raising any red flags within the bank’s systems, to pay for child exploitation in the Philippines.

Westpac’s competitor Commonwealth Bank paid a US$ 500 million fine for similar breaches last year. The royal commission report, issued in September 2018, concluded that the abuse and misconduct within Australia’s banks and financial institutions were driven by a culture of greed.

Meanwhile, the NAB also finds itself in hot water and has agreed to pay US$ 35 million in compensation to tens of thousands of customers who were sold junk personal loan insurance and credit cards. The case was brought before the High Court by Slater, alleging the bank and its subsidiary MLC engaged in unconscionable conduct in selling consumer credit insurance (CCI) to customers, and was the first settlement of a class action taken as a result of the royal commission. The lawyers argued, successfully, that the policies were “next to worthless” to many of the customers they were sold to.

What seems to be a continuing monthly occurrence of disappointing jobs and wages data is worrying Australian economists. It is estimated that nearly 1.9 million Australians are either out of work or looking for extra work. There are very few analysts who consider that the current slackness in the labour market will suddenly tighten or that any meaningful wage growth will gain traction over the next two years. To solve the problem, the government has to take action whether it be two more rate cuts early in 2020 and/or the introduction of quantitative easing – bond buying maybe in the region of US$ 40 billion. (QE is indeed making a comeback for many global central banks.  This can be seen that the global total for net central bank assets stood at US$ 77 billion, with the figure set to rise to over US$ 1 trillion by the end of 2020). The RBA will see it as another weapon to keep rates low, liquidity up and core inflation nudging higher.

It is now expected that India’s Q3 growth will be lower than 4.5%, following a 5.0% reading the previous quarter. Any reading less than 4.2% would be the lowest since authorities adopted a new base year for GDP data in 2012. It does appear that the economy is suffering from weak global demand and ongoing tight domestic credit conditions, with most economic indicators pointing down. This situation has arisen despite five rate cuts this year (with another one, perhaps as high as 0.5%, before the end of 2019) as well as US$ 20 billion reductions in company taxes. The problem facing Finance Minister Nirmala Sitharaman is whether the slowdown has bottomed out, or there is worse to come, despite the steps already taken by the government, along with whether new investments, from the private sector, have started to materialise.

The Institute of International Finance estimates that the total of global debt will touch a massive US$ 255 trillion by the end of the year, having risen 3.1% in H1 and nearly 40% over the past decade, with little sign of a slowdown on the horizon. The debt, for which the US and China account for over 60% of the increase, now equates to 320% of global GDP and has been spurred by looser financial conditions. Non-financial sector debt – borrowing by governments, households and other businesses – accounts for $190tn, (76%) of total debt, with government debt – driven mainly by the US – expected to reach US$ 70 trillion. Global bond markets have jumped nearly a third since 2009 to US% 115 trillion, with government bonds accounting for 47% of that total and rising. With high debt burdens, 60% of the world’s countries expected to see below-potential growth next year, a global manufacturing recession, trade wars, threats of deflation and  record low rates (to try and boost borrowing), it is all but inevitable that some sort of recession is on the cards. The first thing that will happen is the bond market bubble bursting and the outcome will not be pretty.  When it comes to debt, there is no doubt that The World’s A Mess.