Leave A Light On

Leave A Light On                                                                                           30 January 2020

Asteco expects that a further 50k residential units, (along with 2.5 million sq ft of office space), will be added to Dubai’s property portfolio this year. Because development costs are approaching their lowest practical level, the property consultancy expects an easing in sale prices for new projects but predicts further falls in the secondary market. The newly formed higher committee, set up by HH Sheikh Mohammed bin Rashid Al Maktoum last September, will no doubt tackle the market’s supply issues and work towards greater collaboration between government-related entities and private-sector companies.

Another consultancy is seeing the first signs of growing market confidence, as rents begin to stabilise and declines in apartment sales prices have slowed to 2% in Q4. Chestertons report that in Q4, the market saw a 60% year on year increase in transaction values, whilst off-plan units recorded a 99% increase; volume-wise the numbers were up 39k and 68k. The firm also expressed concern relating to over-supply, indicating, that this year, twice the amount of units are scheduled to be completed, compared to 2019’s figure of 45k which was the highest annual number in five years. However, 2020 should be a better year for Dubai realty, as rental rates are beginning to level out, whilst there has been a slowdown in sales price declines.

With regard to apartment prices, Chestertons indicated that prices (per sq ft) were flat at US$ 281, US$ 272, US$ 231 and US$ 191 in Dubai Marina, Business Bay, The Greens and Dubailand. On the downside, there were Q4 falls noted in JVC and Motor City – down 9% to US$ 187 and 7% to US$ 159 per sq ft. Meanwhile, average Q4 villa prices were 3% lower. Including Jumeriah Park, The Meadows and The Lakes declining 8% to US$ 202, 3% to US$ 224 and 2% to US$ 271 per sq ft respectively. Arabian Ranches nudged up 1.9% to US$ 220 per sq ft.

Data Finder estimates that Emaar registered 8.6k off-plan property sales in 2019, equating to a 36% market share – a 260% year on year increase; this figure does not include Emaar’s two new launches. The next three developers were Damac accounting for 8.9% of the market – with 2.1k transactions – followed by Dubai Properties and Azizi Developments, with shares of 8% and 6% respectively. Just when most of the developers were battening down their hatches in 2019, focussing on deliveries and selling existing inventory, Emaar continued with major launches including its US$ 6.8 billion project, The Valley, and phase 3 of Arabian Ranches. In the secondary market, Emaar was again at the front with 2.3k transactions last year, followed by Nakheel (2.0k) and Damac.

In relation to the apartment rental market, only Downtown posted an increase in returns, whilst the likes of DIFC, Discovery Gardens, Dubai Silicon Oasis, Dubailand, International City, and The Views remained flat in Q4. Likewise, in the villa segment, rates remained static, including popular locations such as Al Furjan, Jumeirah Golf Estates, Jumeirah Islands, JVT Palm Jumeirah, The Lakes and The Meadows; this is probably an indicator that the market may well have finally bottomed out. However, rents did drop further in Victory Heights and The Springs – down 4% to US$ 34.1k and 3% to US$ 38.5k for an average 3 B/R unit.

Samana Developers’ second Dubai project is a two-year US$ 27 million development in Arjan, adjacent to Dubai Miracle Gardens. Saman Hills, to be built by Atcon Construction, will comprise 250 studio – 2 B/R apartments, with studio prices beginning at US$ 109k and 1 B/R at US$ 163k. Work has already started on its first entrée into the market – the US$ 21 million Samana Greens at Arjan – and handover is expected by the end of March.

In a bid to revolutionise Carrefour’s online orders, MAF has joined up with the US Tech company, Takeoff, as the new venture plans to build several automated micro-fulfilment centres (MFCs), at select stores, over the next two years; the new small warehouses will process online orders, (replacing the current manual method), so that goods can be picked up or readied for delivery. The technology can deal with 2k daily orders.

In line with its improved funding structure and liquidity, Moody’s has upgraded Dubai Aerospace Enterprise’s corporate family rating to ‘Baa3’ from Ba1 and also its senior unsecured rating of subsidiary, DAE Funding LLC, to ‘Baa3’ from ‘Ba2.’ The credit rating agency noted that DAE’s lower leverage and timely repayment of a loan from its parent, the Investment Corporation of Dubai, were reasons for the credit upgrade. In 2018, increased its portfolio to 125 aircraft, valued at US$ 3.5 billion and also issued US$ 1.9 billion of new unsecured debt.

For yet another month, UAE fuel prices have not changed. The Fuel Price Committee has decided that Special 95 remains at US$ 0.578, although diesel goes up US$ 0.005 (0.1%) to US$ 0.654.

Latest news in the Drake & Scull International sorry saga sees the company filing criminal complaints against its former CEO, Khaldoun Tabari, and his daughter, Zeina, both currently in Jordan. The former founder was arrested in Amman, at the Queen Alia International Airport, following an arrest warrant filed by UAE authorities and the issue of an Interpol red notice earlier in the month. Since then, DSI, which confirmed that it had discovered several instances of fund misuse by the previous management, has filed new complaints against the former CEO, his family members and other former executive managers.

2020 has started badly for Bavaguthu Raghuram Shetty, as the Indian billionaire has not only seen shares in his UAE-based hospital operator NMC Health slump, after an influential US asset manager, Muddy Waters Capital, issued a report criticising NMC’s accounts and disclosing a short position, but that the Shetty family had pledged more than 50% of their stake in Finablr to secure loans. The Shetty-backed payment processor’s shares have lost over 34% in value since a cyberattack rocked one of Finablr’s popular brands – Travelex. Overall, it is reported that Shetty may have seen US$ 1.5 billion disappear from his family fortune, as their US$ 3 million stake has been halved since the recent troubles hit.

Fears that the recent escalation of tensions between Iran and the US would have a negative impact on the local aviation sector have proved unfounded. According to the Emirates COO, Adel Ahmad Al Redha, the airline has not been affected by the latest spat and that its capacity remained “healthy” in January – there being no decline in traffic as average seat factor was in excess of 80%.

Saif Al Suwaidi, director general of the UAE’s General Civil Aviation Authority, is “not very optimistic” about the Boeing 737 Max’s return to UAE skies by the middle of the year, the latest target set by the US plane maker for its grounded jet. Once Boeing and the US Federal Aviation Administration have completed their own checks and reviews, the GCAA will conduct its own safety assessment. To date, the local regulator has yet to receive Boeing’s entire fixes to its flight control software, which was implicated in both crashes. Meanwhile, Boeing’s second biggest Max customer, Flydubai, with 250 aircraft on order, will probably have to lease more jets after the latest delay.

Troubled Union Properties is planning a US$ 54 million expansion to Dubai Autodrome and is in the “final stages” of signing a preliminary agreement with China National Chemical Engineering. It also announced that it was considering turning three of its units – ServU, The Fitout and Dubai Autodrome – into private joint stock companies. Its newly appointed chief executive, Khalifa Al Hammadi, has a major challenge to restructure and manage UP’s accumulated losses, as latest results showed Q3 losses expanded by 32% to US$ 22 million on the back of lower revenues; they were down 29% to US$ 30 million, with losses being incurred on some of its investments.

A week after announcing that it will pull operations in Oman, because of “the absence of the regulatory factors that provide us with a healthy investment environment”, Careem confirmed that it was cutting its payroll numbers by 5%, (estimated to be 200), and, at the same time, reassigning a further 10% to new roles. The ride-hailing firm, which recently finalised its US$ 3.1 billion takeover by Uber, indicated that it was “modifying the shape and skills of the team so we can operate even more efficiently to simplify and improve even more lives.”

Following an agreement in Davos, with CV VC and CV Labs, the DMCC is to launch the world’s largest ecosystem for cryptographic, blockchain and distributed ledger technologies – Crypto Valley. The ecosystem will support start-ups and will introduce co-working facilities, innovation services for corporate clients, training (in blockchain and entrepreneurship), mentoring and funding. The three partners will also collaborate on a comprehensive blockchain strategy, aligned with the Dubai Blockchain Strategy.

As an indicator that investor confidence is returning quicker than thought, Dubai Multi Commodities Centre registered almost 2.0k new companies, (an increase of 5.4%, year on year), in 2019, with Q4 showing the highest quarterly return in four years – 20% higher at 559 companies, including 202 in October. FDI from key global markets, such as India and China, continues to move higher.

Emirates NBD posted a 44.0% jump in 2019 net profit to US$ 3.9 billion, as total income came in 29.0% higher at US$ 6.1 billion, driven by increases in loans, (which resulted in net interest 26.0% higher), and fee income. Core operating profit rose 4.0%, mainly attributable to the bank’s 99.85% acquisition of Turkey’s DenizBank.  During the year, in which total assets grew to US$ 186 billion, the bank was allowed to double its foreign ownership to 40% which also helped to push figures higher.

Its sister bank, Emirates Islamic, posted a 15% hike in total annual profit to US$ 289 million, on an 8% rise in total income to US$ 736 million, driven by increased customer deposits and higher investments in Sharia-compliant bonds. Total assets grew 11% to US$ 17.7 billion, as customer deposits were up 9% to US$ 12.3 billion.

Emirates Central Cooling Systems Corporation posted an 8.3% rise in annual net profit to US$ 237 million on the back of a 7.9% increase in revenue to US$ 597 million. During the year, Empower added more district cooling plants, that now supply 1.2k buildings and a 120k customer base. Last year, the company awarded a US$ 54 million contract to build a district cooling plant in Dubai Production City and also launched what it calls the world’s first unmanned cooling plant at Jumeirah Village Circle.

The bourse opened on Sunday 26 January and, 89 points (2.9%) up the previous fortnight, lost some ground, down 48 points (1.7%) to 2790 by 30 January 2020. Emaar Properties, having shed US$ 0.05 the previous week, was US$ 0.02 lower at US$ 1.10, whilst Arabtec, US$ 0.08 lower over the previous five weeks, was down a further US$ 0.03 to US$ 0.28. Thursday 30 January saw the market trading only 308 million shares, worth US$ 119 million, (compared to 106 million shares, at a value of US$ 49 million, on 23 January). In January, the bourse was 25 points (0.9%) higher, as Emaar remained flat over the month, with Arabtec shedding US$ 0.07 from its 2020 opening of US$ 0.35.

By Thursday, 23 January, Brent, losing US$ 5.95 (9.5%) the previous three weeks, ditched another US$ 3.94 (6.3%) to close at US$ 58.40, not helped by the coronavirus alert that has the potential to further disrupt global trade. Gold, up US$ 93 (6.3%) the previous six weeks, rose a further US$ 6 (0.4%), closing on Thursday 30 January at US$ 1,571.

Blaming lower oil prices, Royal Dutch Shell posted a 32% 2019 decline in profits to US$ 15.8 billion, with its CEO Ben van Beurden saying that 2019 witnessed “challenging macroeconomic conditions in refining and chemicals, as well as lower oil and gas prices”. He also confirmed that the petro giant was still committed to strengthen its balance sheet and to continue with plans to complete its US$ 25 billion share buyback programme.

As expected, the Federal Reserve kept rates unchanged at 1.75%, whilst indicating that it was determined to avoid what has been happening in other global economies – a disinflationary downdraft; this could be a forerunner for the central bank to introduce easier monetary policy sometime this year. What is certain is that there will be no rate hike in Q1.

With the appearance of greens shoots of a possible recovery, the Bank of England has held interest rates at 0.75%, backed by seven of the nine members of the Monetary Policy Committee. Even the outgoing Governor, Mark Carney, has indicated “the most recent signs are that global growth has stabilised and that fewer companies in the UK are worried about Brexit”. However, he did warn that “caution is warranted,” as the “pick-up in growth is not yet widespread” and that an event like the coronavirus outbreak was a “reminder of the need to be vigilant” when “it comes to bumps in economic growth around the world.” However, the Bank’s latest economic estimates suggest the UK economy did not grow at all in Q4.

There was a raft of year-end figures posted during the week, including Facebook which recorded its first profit drop in five years – down 16% to US$ 18.4 billion – as costs jumped 51% to US$ 46.7 billion, driven by burgeoning legal expenses. The tech company has been mired in privacy and content concerns but, despite the decline, 2019 revenue was 27% higher at over US$ 70 billion. However, the market was not happy as its share value dipped 6% on the day. During the year, the tech giant was fined US$ 5 billion by US regulators to settle privacy concerns – and this week, it agreed pay US$ 550 million to settle an Illinois lawsuit over its use of photos for its facial recognition technology. In December, it was estimated that 1.7 billion people were active daily users and that an average of 2.3 billion people were active on its family of platforms each day.

Apple’s latest quarterly net profit jumped 11.3%, year-on-year, to a record US$ 22.2 billion, on the back of an 8.9% hike in revenue at US$ 91.8 billion, driven by enhanced earnings from iPhone, (7.6% up to US$ 56.0 billion), and services; this led to its share value rising 4.3% on the day. Global revenue outside the US accounted for 55% of total revenue, as China sales were 3.1% higher at US$ 13.6 billion. With the tech company aiming to “reach a net cash neutral position over time”, it returned almost US$ 25 billion to its shareholders in the quarter. Apple lost its second place in the global smartphones’ shipment race (with a 12.4% share) to Huawei’s 18.2%, still some way behind Samsung, again leading the pack with 21.3%.

To nobody’s surprise, Boeing posted its first annual loss – at US$ 636 million – in more than two decades, as the fallout from the 737 Max crisis continues to pummel the firm; latest estimates indicate that the bill for the grounding will be more than double that was initially expected at over US$ 18 billion and rising. Q4 sales at US$ 17.9 billion came in 17.5% lower than analysts’ predictions. In the understatement of the week, the newly appointed Boeing head, David Calhoun, said “we recognize we have a lot of work to do.” He has to focus on two major issues – to get the plane back in the air and to restore confidence in a much-tarnished brand. Boeing has a total backlog in orders worth US$ 464.4 billion.

Despite great pressure from the US, the Johnson government is to permit China’s Huawei to be used in UK’s 5G networks, with restrictions that will see the firm from supplying kit to “sensitive parts” of the network, known as the core; one other would be allowed to account only for 35% of the kit in a network’s periphery, which includes radio masts. It will also be excluded from military bases and nuclear sites, to partly placate US concern of a spying risk. The ever-optimistic Foreign Secretary Dominic Raab is confident that it would not affect the UK’s intelligence-sharing relationship with the “disappointed” US and other close allies. His decision was prompted by Beijing warning the UK there could be “substantial” repercussions to other trade and investment plans if no participation were allowed.

All the bad news from the aviation sector has recently pointed towards Boeing but Airbus is likely to have to pay up to US$ 3.3 billion in a settlement agreed with French, British and US authorities, alleging bribery and corruption – and the use of the ubiquitous middleman. Investigations started in 2016 after Airbus reported itself for being involved in “fraud, bribery and corruption”. It requested the regulator to look at documentation about its use of overseas agents in deals involving the use of export credits that were used by many governments to support exporters, including in this case Airbus.

Finally, the Indian government has announced that it plans to sell its entire stake in the national carrier. Although it carries liabilities, in excess of US$ 8 billion, the deal will also involve taking over some of Air India’s debt – US$ 3.2 billion of a US $ 8.0 billion total  – and comes a year after the government offer of only a 76% controlling stake garnered no buyer interest. The airline is but one government asset that is up for sale as the country goes through its slowest economic growth in a decade and needs to offload loss-making companies to improve its balance sheet. The airline, which owns 56% of its 146-plane fleet and has lucrative international and domestic landing and parking slots, employs 14k and faces increased competition from lower cost carriers.

Every week it seems that another sorry story, in one way or another, appears to reflect the dire state of the Australian banking sector. This time it is reported that sixty current and former Macquarie employees, including its current chief executive Shemara Wikramanayake, who was then head of asset management, appear to have been involved into short-selling activities, being named as suspects in a German investigation. A total of some 400 suspects are being investigated for their roles in “cum-ex trades”, where two parties simultaneously claim ownership of the same shares and therefore claim tax rebates they are not entitled to. The practice was banned in Germany eight years ago and authorities are seeking to recover billions of dollars from traders and banks that allegedly profited from such schemes. It seems that Macquarie acted as a lender to a group of funds involved in the share trading in 2011, from which it withdrew in 2012.

Following a global investigation into money laundering and tax evasion, involving an unnamed Central American bank, several hundred Australian tax avoiders are in danger of facing civil or criminal charges. Multi-country raids from a joint task force, including tax agencies in United States, UK, Canada, Australia and the Netherlands has discovered a sophisticated network established to conceal tax and launder criminal proceeds. Now the Australian Tax Office is looking into the affairs of hundreds of Australian individuals (as opposed to companies) suspected of having channelled undeclared income through the scheme.

It is not only the tourist, farming and wine sectors left reeling from the Australian bushfires but also the US$ 2 billion timber industry. For example, almost 50k hectares of pine plantations in the Riverina, owned by Forestry Corporation, were burnt in the Dunns Road bushfire and this could well lead to a shortage of timber, woodchips, and paper. It is estimated that the Riverina region in NSW has seen the loss of 330 hectares.

Friday finally sees the UK exit the EU, a bloc that has deep-seated structural problems and continues to be beset by bureaucracy. One remarkable fact is that the EU accounts for 7% of the global population but is responsible for over 50% of all welfare spending worldwide. Even its flagship member, Germany has been teetering on recession, with any growth progressing at a snail’s pace, not helped by its crisis-hit car industry and disappointing export figures. Two of the other leading economies, France and Italy, are also struggling, with the Macron government facing major problems in its attempt to reform unaffordable pension schemes and streamline the public sector. Meanwhile, Italy has been wallowing in a state of economic paralysis and perma-recession and has the highest debt – at 135% of GDP – in the EU; there is no doubt that this will continue at high levels in the absence of prudent economic management, specifically in relation to pension reform and overhauling trade unions by the Conte government. There is no doubt that the bloc is in a very fragile shape, with growth forecast of only 1.2% this year.

There will be envious eyes looking over the Channel, as the UK starts its new life with the IMF forecasting that it will be the fastest growing G7 economy.  The country will be run by a government, with a heathy mandate to make Brexit work, and no longer having to face an establishment, that ran a fear campaign to try and keep the country in the hands of a meddlesome and unelected EU bureaucracy. It is almost four years since the referendum, following which the doomsayers were forecasting that sterling would sink to be on par with the greenback and that the economy would fall off the cliff.  History shows otherwise. The UK will now be able to set their own trade terms, with the likes of the US, China, India and other fast-growing economies, and not have to rely on bureaucrats and twenty eight other meddling and slow-moving countries to decide for them, most of whom take more from the EU treasury than they put in. Who is going to pay them now that the UK, which pays up to 13% of the bloc’s budget, has left?  Hopefully the EU will Leave A Light On.

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