Slow An’ Easy

Slow an’ Easy                                                                                             28 November 2019

Signs that the property slump may have bottomed out, after four years, continue with the average monthly loss, in capital values, falling 0.8%, compared to the average 1.0% decline so far this year. The latest ValuStrat report shows that the declines were felt in all locations, except for International City, ranging from Palm Jumeirah’s 0.4% to Discovery Gardens’ 1.3%. It also noted that, with two months to go to the end of the year, overall sales volume has already surpassed the whole of 2018. Furthermore, the weighted average residential price per sq ft has slumped 32.2% since its 2014 peak, dropping below the important Dhs 1 million level – US$ 272k.

Last Sunday, 24 November, saw the DLD deal with a record 515 realty transactions, (valued at US$ 241 million) – the highest one day number since the giddy heights of 2008. According to Data Finder statistics, the most expensive transaction, at US$ 9 million, was a five-bedroom penthouse on the 45th floor of The One JBR. Three quarters of all transactions were for off plan properties, with 248 of the 387 total, for apartments. This is yet another indicator that the sector may be finally climbing off its bottom, after a long four-year bull market.

Citing a “supply-demand imbalance,” S&P reckons that the local real estate market may not see much of an improvement in the near future, after shedding a further 10% in value since February. It reports that the quarter ending December will remain weak, as new supply comes online but that Expo 2020 may ease the pressure somewhat, but it will not be the panacea many had hoped for. The current property glut is one of the main factors behind Dubai’s H1 GDP faltering to 1.9% (from 3.1% a year earlier) to US$ 56.7 billion.

Nakheel saw two openings this week with Nakheel Mall on Jumeriah Palm and a US$ 46 million, four-level retail complex and multi-storey car park (for 900 vehicles) at Dragon City. Encompassing 118k sq ft, it will house 150 shops and kiosks and this addition will surely see the annual number of annual visitors increase from its current number of 40 million. At its Dragon Mart, there are 1.7k Chinese workers operating in 5k outlets. One of its biggest tenants, Sun Tour, occupies the entire retail area, with a wide a range of products on offer including clothes, household goods, electronics, luggage etc. Reckoned to be the world’s biggest Chinese trading hub outside mainland China., Dragon City houses Dragon Mart 1 and 2, along with two hotels – ibis Styles and a Premier Inn – whilst Dragon Towers, the community’s first residential development, is under construction

The Landmark Group is to invest US$ 272 million in constructing a warehousing and distribution facility in Jebel Ali Free Zone which will be the biggest, at 700k sq ft, in the region. The Group, with revenues of US$ 5 billion, from its 48 brands and 2.2k regional stores, is also hoping to tap into the ever-growing e-commerce sector, as well as managing the warehousing needs of non-Landmark Group distributors/retailers. A new company, Omega Logistics, has been formed to operate the high-tech distribution facility.

Summer proved a boost for Dubai tourist numbers, as the total of international visitors, for the first nine months of the year, was 4.5% higher on the year to 12.1 million, despite a 5% decline in the emirate’s leading source of arrivals from India; UK numbers were 2% lower. There were welcome increases in visitors from Saudi Arabia, (2% higher), Oman (28%), and China (14%). The top five source markets were India, Saudi Arabia, UK, Oman and China with numbers of 1.39 million, 1.25 million, 851k, 778k and 729k respectively. With Expo fast approaching, and now less than year to opening, the pipeline of new hotel rooms is, as expected, beginning to fall, now at 5.7% year-on-year. By the end of Q3, Dubai had 716 hotels and a 119.8k room portfolio, with an average occupancy level of 73%. The most recent data from STR shows that revenue per available room in August had declined 12.6% to US$ 73 as “hotel rooms are being competitively priced in an effort to stimulate demand and keep up with accelerating room supply”.

It can only be Dubai when the latest addition to the police vehicle fleet is a Mercedes-AMG GT 63 S that can go from 0-100kmh in 3.2 seconds and has a top speed of 315 kph; it is powered by a 4.0-litre, twin-turbo V8, generating 639 horsepower  This brings the number of luxury patrol cars to fifteen, all of which are used in tourist areas – such as Burj Khalifa, MBR Boulevard, JBR and La Mer – to help enhance the force’s security presence. The next supercar to be added to the fleet is set to be a Tesla Cybertruck.

Emirates has become the first international carrier to sign a code-sharing and interline agreement with India’s SpiceJet. This will enable passengers to take advantage of many more flight options on routes common to both airlines, as well as access to a more extensive route network. It will enable travellers to book just one ticket to any of Emirates’ nine points across India and connect onwards to 172 domestic routes that are part of SpiceJet’s network. Interestingly, SpiceJet is also in talks with potential investors in Ras Al Khaimah for equity partnership for its proposed airline venture, with it holding a 49% stake in the proposed airline venture, with the remaining 51% equity to be taken by one or multiple potential local investors in RAK.

Meanwhile, Emirates has ordered 30 Boeing 787-9 Dreamliners, a new addition to its fleet, as the airline continues to review its route network and make-up of its future fleet, as its A-380 jumbos slip out of service over the next decade. The new package comes with a list price of US$ 8.8 billion, with Emirates exercising its rights to replace some of its 777X orders with the 787; now that order has been reduced to 125 planes. With a US$ 16 billion order for fifty A-350-900 earlier in the week, it is evident the Emirates is moving to more flexible and smaller aircraft to lead its expansion into the next decade.

Flydubai has been successful in raising a five-year US$ 500 million term loan to refinance its expiring first sukuk issued in 2014 for “for general corporate purposes and refinancing”. Emirates NBD and Noor Bank acted as global coordinators on the deal. The budget carrier has been hit by the fact that its Boeing 737 Max fleet has been grounded for nine months, losing the airline “at least two or three periods of good revenue and profit,” according to its chairman, Sheikh Ahmed bin Saeed Al Maktoum. If there is no resolution going into Q1, then this would have a “significant” impact in the second half of its fiscal year, with Christmas, New Year and Easter holiday coming up. To add extra capacity over the holiday period, flydubai has leased four next generation Boeing 737-800 aircraft from the Czech airline Smartwings on a wet lease until the end of January; with its 737 Max fleet still grounded, the carrier is fully utilising the remaining the forty 737-800 jets

There is a possibility that the US will not have a pavilion at next year’s Expo, as there is a struggle to find construction funds, with federal government financing for capital expenditures or operational expenses, associated with US pavilions or exhibits at World Expos, being legally prohibited. Even Secretary of State Mike Pompeo is concerned, saying there is “too much at stake” for the country not to participate in the event. If funding from private sources is not forthcoming, the country’s international reputation would be damaged, and it would have no chance of hosting similar events in the future.  There is some hope for a last-minute reprieve, as the House of Representatives has approved a bill, requesting that the government waive those regulations, and provide emergency funds. This now has to pass through the Senate and, if successful, then signed into law by President Trump.

There was no surprise to see DEWA name a consortium, led by ACWA Power and Gulf Investment Corporation, as the preferred bidder to build and operate the 900 MW fifth phase of the Mohammed bin Rashid Al Maktoum Solar Park. It proved to be a world record, at US$ 0.016953, as the lowest bid per kilowatt hour (kW/h).  Starting from Q2 2021, the fifth phase will become operational in stages and, when completed, the solar park will be the largest global single site facility, with a production capacity of 2.863k MW.

According to the latest UBS and PwC Billionaires Insights report, there are still seven billionaires living in the country, whose total wealth diminished 18.3% to US$ 19.6 billion last year. On a global stage, billionaires’ wealth dipped 4.4% to US$ 8.5 trillion, driven by a strong greenback and volatile equity markets; the fall followed five years of annual growth during which time their wealth almost quadrupled. However, US tech tycoons bucked the trend with a slight increase over the year.

Indian billionaire, Rizwan Sajan, whose 26-year old empire includes Danube Building Materials, Danube Home, Danube Properties, Milano and Alucopanel Middle East, has no current plans to expand further, focussing on consolidation instead. He recently invested US$ 5 million, launching Danube Hospitality Solutions but commented “this is not the time for expansion, I’d rather consolidate. Definitely we will be launching one or two projects, but nothing major. I would much rather my bottom line remains intact and my top line I don’t have to worry about.”

The global digital banking and payments platform, Bankable, is opening a regional hub in the Dubai International Financial Centre that will service around fifty MENA markets. The nine-year old company has made Dubai its third international location, following London and Brussels. Backed by Visa, which has also made an undisclosed financial investment in the firm, the new entrant provides digital payment solutions, and software , that allows its clients, (such as banks, electronic money issuers and insurance companies), to streamline their payment processes. The fact that the UAE is one of the top global remittance countries, with a total of US$ 46.2 billion leaving to overseas destinations last year, should prove a fruitful business opportunity for Bankable. Other rival firms, such as TransferWise, have already established a local presence to capitalise on opportunities with financial institutions, global corporates and FinTechs all looking for more advanced methods to streamline, and reduce costs of, their payment processes. Indeed, the country is drawing more FinTech investment from both regional and global players, particularly in the payments space.

So far this year, ports operator, DP World, has listed two sukuk (one at US$ 1 billion and the other for US$ 500 million), and two conventional bonds, all valued at US$ 2.3 billion, on Nasdaq Dubai. With listings, now totalling over US$ 9.0 billion, it is the largest UAE debt issuer by value on the region’s international exchange. Majority-owned by the Dubai government, it will use the money raised for debt refinancing and to fund “growth opportunities”. By the end of 2018, it carried US$ 10.5 billion debt on its books.

Next month, Dubai Islamic Bank will seek shareholders’ approval to acquire Dubai-based Noor Bank, following regulatory approval from the Central Bank. The deal will see the UAE’s biggest Islamic Bank issuing 651 million shares, with each share worth the equivalent of 5.49 Noor shares,

Earlier in the month, Amanat Holdings posted credible results for the first nine months of the year, with all indicators heading north – profit 38.0% to the good at US$ 9 million and operating income quintupling to US$ 6 million on revenue of US$ 24 million. The company, that invests in the healthcare and education sectors, plans a further regional spend of US$ 245 million over the next few years, focussing on companies with strong growth potential; of that total, only US$ 109 million will have to be via bank loans, as it has cash reserves of US$ 136 million, having only utilised 80% of the US$ 681 million raised through its 2014 IPO. The company currently has seven assets in its portfolio, three of which are healthcare and four in education.

Union Co-op posted a 16.3% hike in Q3 profit to US$ 105 million, with revenue 2.0% higher at US$ 572 million. Over the next four years, the country’s largest consumer cooperative is planning to invest US$ 572 million in new retail projects.

The bourse opened on Sunday 24 November and, having shed 17 points the previous week, dipped 5 points to 2679 by 28 November 2019. Emaar Properties, having lost US$ 0.10 the previous four weeks, closed up US$ 0.01 to US$ 1.13, whilst Arabtec, down US$ 0.19, over the past five weeks, lost a further US$ 0.04 to end the week on US$ 0.31. Thursday 28 November saw continuing dismal trading of 147 million shares, worth US$ 59 million, (compared to 64 million shares, at a value of US$ 54 million, on 21 November). In the month of November both Emaar and Arabtec lost ground – down from their month openings of US$ 1.16 and US$ 0.48. – by US$ 0.03 and US$ 0.17 respectively; YTD, Emaar was flat (with exactly the same balance at the beginning of the year as at the end of November) with Arabtec losing US$ 0.03 over the past eleven months. For the month of November, the index fell from its 01 November opening of 2745 but YTD was 149 points (5.89%) higher from its year opening of 2530.

By Thursday, 28 November, Brent, having gained US$ 2.69 (4.4%) the previous week, shed US$ 0.68 (1.1%) to US$ 63.97. Gold, having declined US$ 10 (0.7%) the previous week, was down US$ 2 (0.1%), closing on Thursday 28 November at US$ 1,461.

This week, Saudi Crown Prince Mohammed bin Salman’s visited the UAE which saw four new policy initiatives, including the possibility of a joint tourist visa for residents of both nations and an agreement to enhance cyber security efforts to prevent attacks in both countries. The eyecatcher was a US$ 70 billion investment, spearheaded by Saudi Aramco and the Abu Dhabi National Oil Co, to construct a joint oil and petrochemicals refinery in India, with a 1.2 million bpd daily capacity. With Saudi Arabia being the host country for the November 2020 G7 meeting, Prince Mohammed took the opportunity to invite the UAE to attend.

2019 has been an “annus horribilis`’ for Boeing, with the fatal crashes of two of its 737 MAX aircraft earlier in the year, followed by the grounding of the whole fleet for more than eight months and no hope of returning to the skies until Q1. Now it has been reported that the fuselage of one of Boeing’s new 777X aircraft completely ruptured in pressure tests in September and this could lead to a further delay to its launch; there are reports that the body structure supporting the door also ruptured during the tests, as well as damage to one of its wings. Only last month, the plane maker indicated that the pressure test result would not impact on the plane’s flight test schedules, but further delays are inevitable, as there will have to be design changes and perhaps the need to reinforce sections of the aircraft body; it could  now be late 2021 before the first delivery of the new plane. Emirates is the lead customer for the 777X and is not happy with the lack of progress being made and has already cancelled 20% of its original 150-plane order, replacing them with the 787 Dreamliner.

Tata Steel has announced that it will retrench 3k jobs, with 1k expected from its UK operations, with the Netherlands bearing the brunt losing 1.6k jobs. Two thirds of the job losses will be from management and office-based roles, with this restructuring coming just months after EU regulators blocked a JV with Germany’s Thyssenkrupp. To say that the steel industry is on its knees is an understatement, with the sector beset by surplus capacity and high costs, with big names such as ArcelorMittal, the world’s biggest steelmaker, idling several plants and British Steel going into liquidation in June; subsequently, there has been a provisional agreement with China’s Jingye to take over operations.

Despite the lorry windows shattering in front of him on stage, Elon Musk had a successful launch of his Cybertruck, with early reports of 146k orders; 42% of that number were for dual, 41% tri and 17% single motor models. Although no timetable was given, it is unlikely that the revolutionary designed vehicles, covered in stainless steel alloy, will be on the road before early 2022; another feature is that it will be able to go from 0 to 100 kmh in about three seconds.

In what is the largest luxury-goods deal ever, LVMH has agreed to buy Tiffany & Co. in a US$ 16.2 billion all cash deal,  by paying US$ 135 a share, aimed at raising the French conglomerate’s jewellery profile and broadening its customer base access in the US and Asia; this acquisition valued Tiffany 37% above its 26 October market price. LVMH is a global leader in the fashion and cosmetics sectors, (with 75 brands including Christian Dior), and this deal will see it more than double its current jewellery market share, with an estimated 18% off the total.

In 2007, eBay acquired StubHub for US$ 310 million and, twelve years later, it is planning to divest it to the secondary ticketing firm Viagogo for a reported US$ 4.0 billion, in a move it claims will create more choice for customers. Viagogo has had a chequered past and only last September, the Competition and Markets Authority, the UK’s competition authority, suspended legal action against the firm after it made changes to the way it operates. In May 2018, the then Digital Minister, Margot James, said that if fans had to use a secondary site to buy tickets, “don’t choose Viagogo – they are the worst”. Coincidentally, Eric Baker, Viagogo’s supremo, cofounded StubHub but left the organisation prior to the eBay sale.

US private equity firm Silver Lake has acquired a 10% stake in City Football Group, the parent company of Manchester City, for US$ 500 million, valuing it at US$ 5 billion – a record in global sports valuations. Earlier in the year, Brooklyn Nets basketball team became the highest valued US sports team, at US$ 2.35 billion, after Alibaba’s co-founder, Joe Tsai, bought a controlling share.Apart from owning the Manchester club, the Abu Dhabi group has interests in seven other clubs in the US, Australia, Japan and China. The ways in which football clubs are run have changed somewhat over the past decade, with an increasing emphasis on converging entertainment, sports and technology rather than just focussing on the football side.

Victoria Beckham Limited has continued posting deficits, ever since its 2008 launch, with the latest 2018 loss of US$ 29 million, as revenue dipped 16% to US$ 45 million, with demand for the former Spice Girl’s high-end clothes, having “plateaued”. The company, which sells fashion and accessories, in more than 400 stores around the world., is to introduce several measures to firm up future sales, including launching its own cosmetics range, striking a partnership with Reebok and cutting prices. The business is controlled by Victoria and her husband David Beckham, via their company Beckham Brands Holdings, which itself made its first ever loss, at US$ 2 million, following a US$ 16 million profit the previous year.

Just days after Uber lost its new licence to operate in London, following repeated safety failures, Indian ride-sharing firm Ola is planning to launch its ride-hailing services in the UK capital; it has operations in other parts of the country but has already begun signing up drivers. Earlier in the year, Ola was granted a licence from Transport for London and has built a “robust mobility platform for London which is fully compliant with TfL’s high standards”.

The consequence of an October 25% hike in sales tax to 10% was that Japan’s retail sales slumped 7.1% on the year, to its lowest level since March 2015, as consumers cut spending in the month., indicating a marked weakening in domestic demand. The tax hike was prompted by the government to reduce Japan’s public debt, equivalent to more than twice the country’s GDP and the highest in the industrial world. Seasonally-adjusted retail sales fell 14.4% month-on-month in October. The economy is also being hit by declines in exports and production and the odds are that the trend will continue into 2020.

Australian stocks hit record highs on Wednesday, with the benchmark ASX climbing to 6,879 points on the back of the possibility (once again) of the US and China signing an interim trade deal before year-end. At the same time, the Aussie dollar slipped to US$ 0.6764, attributable to the strengthening greenback. Meanwhile, there was more disappointing economic data from the September quarter, despite rates being at historic lows, with little chance of them moving higher in the foreseeable future. With private sector investment falling again – now 1.5% lower on an annualised basis – along with tepid retail and construction results, Q3 GDP growth will inevitably be heading south, even though net exports have moved higher. It is apparent that the low interest rates have yet to make a meaningful impact on boosting spending and the question is if – and not when – they will do so?

The UK Office for National Statistics (ONS) reported that October borrowing reached US$ 14.4 billion, 25.8% higher than a year earlier, as the total for financial year (starting 01 April) was up 10% at US$ 59.4 billion. At the same time, national debt climbed 1.8% to US$ 2,308.1 billion, equating to 80.4% of GDP. It is inevitable that come year end, on 31 March 2019, last year’s US$ 6.4 billion current account surplus will disappear because of the rise in borrowing in recent months. So, whoever wins the December election will have difficulty in fulfilling all their promises, with public spending set to grow to its highest level since the 1970s.

The OECD has called for urgent action from governments, stating that extreme weather events may result in disruption of economic activity that could lead to long lasting damage on capital and land.  The world body reiterated that the lack of government involvement to date has already had a negative impact on business investment and this can only deteriorate unless positive action is taken.

The OECD is yet another world body indicating that the world’s economic prospects have steadily deteriorated, forecasting global growth will be around the 3% mark. Their latest downbeat report blames, among other factors, lack of direction on climate policy for holding back business investment. In many countries, the weakening economic performance has arisen because of lack of investment and slowing trade. Another major threat is that China is rapidly turning into a more services-oriented economy, which will see a downturn in the country’s demand for imported goods for its industries to process.; the other Chinese factor, adding to the global malaise, is that the rate of annual growth has steadily headed south over recent years and the days of 8%+ figures could well be halved in the future. The best the rest of the world can hope for is that the slowdown is controlled and not too abrupt – and is Slow an’ Easy.

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