Love Is In The Air                                                                                            13 February 2020

Luxhabitat estimated that last year 1.5k villas and 16.5k apartments were transacted in Dubai’s prime residential market, equating to a 23.0% rise in value to US$ 11.5 billion. Taking in the overall prime residential market, the average price per sq ft dipped 3.7%, with villas at US$ 367 and apartments at US$ 473. There was a marginal 1.0% decline in the volume in the secondary market to US$ 5.3 billion, with the most popular areas being MBR, Downtown and Palm Jumeirah, with totals of US$ 1.03 billion, US$ 844 million and US$ 736 million respectively. In the off-plan prime market, registration volumes almost doubled, whilst transaction volumes jumped 36.1% to US$ 5.5 billion. The consultancy reckoned that the average villa price was US$ 1.1 million and for apartments US$ 681k.

Another study has concluded that the rate of decline in Dubai property prices has slowed markedly in H2, with more interest by buyers taking advantage of the value to be found in the market. Property Finder also forecast that prices will stabilise further this year with a possibility of some sort of recovery in 2021, as new supply falls, with new launches having all but dried up. The UAE-based property portal estimated that average villa prices slowed from 4.3% in H1 to 3.2% in H2, with apartments faring better with declines of 3.9% followed by 1.1% in H2. Bigger than average H2 price falls for apartment were found in Barsha Heights, Jumeirah Lakes Towers, Damac Hills, Discovery Gardens and Dubai Marina– by 13.4%, 11.9%, 9.7%, 7.7% and 7.0% respectively. In relation to villa prices, the three big losers in H2 were JVC, Jumeirah Village Triangle and Motor City – by 8.7%, 4.6% and 4.5%. In 2019, of the 42k overall real estate sales transactions, 23.7k were off-plan sales and 18.3k for secondary properties. It also estimated that this year will see 61.6k new units added to Dubai’s portfolio – 26.5% higher than in 2019. Whether this happens by December remains to be seen.

According to Knight Frank’s latest report, Dubai’s 2019 residential sales prices continued to spiral downwards, falling 6.0% in the year, although it noted that the market was showing “very early signs of recovery as we begin to see a sustained increase in transactions volumes”; there was a 26% increase over the year. It cited the major problem facing the sector was the large volume of new supply – this, estimated to be 63k – although by year end actual handovers will be somewhat less.

Kiklabb: Licensing & Workplaces has opened its 25k sq ft flagship office in the QE2 hotel, moored at Mina Rashid terminal. The project will see Kiklabb providing workplace solutions, co-working spaces and desk choices to customers, as well as the option of trade licences, (either from Dubai Free Zone or Dubai onshore). Data from Colliers estimates that there are 650k sq ft of flexible and co-working space in the emirate and, that within five years, 60% of all GCC office demand will be for such flexible spaces.

Emirates has signed a five-year deal with French football club, Olympique Lyonnais, to become its main sponsor starting next season; no financial deals were readily available. Apart from having its logo -“Fly Better” – on the club’s kit, it will have highly visible branding across Groupama Stadium, as well as hospitality, ticketing and other marketing rights. In 2012, Emirates became the first regional airline to connect Lyon to the MENA region. The airline already has an extensive exposure in sponsoring European clubs, including Arsenal, Benfica, Hamburg, Olympiakos and Real Madrid, as well as being the title sponsor for the Emirates FA Cup in England since 2015.

DP World will soon finalise agreements on the construction of a new port and economic zone in Dakar, which will transform the Senegalese capital into a major logistics hub and gateway to west and north-west Africa. Port de Futur, located adjacent to the new Blaise Diagne International Airport, will become a multi-purpose port including economic and logistics zones. The Dubai-based port operator already has an African presence in Algeria, DRC, Egypt, Mozambique, Rwanda and Somaliland.

Serco Middle East will continue their long association in Dubai, going back 70 years, and has been awarded a major four-year contract for frontline hospitality services for both of the emirate’s airports; no financial details were made available. The agreement will see Serco employ 1k to ensure that hospitality and passenger processing services meet the airports’ exacting international standards. It has also been involved with maintenance of its large buildings and infrastructure portfolio, as well as providing a full range of engineering and estates services for both terminals 1 and 2 and to other cargo and ancillary buildings at Dubai International.

Less than a year since its formation, Dubai-based online marketplace Seafood Souq is already planning to expand its operations later in 2020, beginning in Oman and Saudi Arabia. The start-up is keen to develop the seafood sector by enhanced traceability between suppliers and buyers, as well as improved transparency leading to better pricing. Technology has helped all stakeholders to track, in real time, when an order was placed and when the fish were harvested, packaged, transported to Dubai and delivered; it will also help with food safety by avoiding mislabelling which is a bugbear in the industry with reports indicating that 20% of samples of seafood have shown this problem. One of the main aims of the company is to prove “that you can build technology out of this region that is not mimicking technology from somewhere else,” with an IPO not out of the question.

AWJ Investments runs eight F&B concepts across 24 outlets in the Middle East including Operation: Falafel which is now being rolled out in New York in Q2, as well as in Paris and London. Over the next two years, Operation: Falafel, known for its modern twist on casual ME street food, will open 400 shops around the world, with selected franchise partnerships. The company is keen to work with the right investors and operators so as to ensure the quality of their food and to ensure that both the consistency and quality are maintained.

At least nine UAE banks are targeting Indian nationals who have returned home leaving behind bank debts, with defaulters estimated to owe US$ 7 billion in debts. With the recent introduction of a new Indian reciprocal agreement, the banks can now service notices and approach the Indian court system to help with any redress. To date, most of the cases appear to be chasing corporate loans but without doubt, the number of individual cases attracting the banks’ attention is bound to increase. Because of the difficulty of following up with Indian debts and the time- and money- consuming bureaucracy of the legal system, most debts were left outstanding. Now that the Civil Procedure Code allows the decrees of certain UAE courts in civil cases to be enforceable in India, the rules have changed in favour of the UAE financial institutions and there are many worried former expat Indians expecting the worst.

This week, the federal government gave approval for Aster DM Healthcare to hold a 100% equity stake in its Dubai-based subsidiaries, which had previously been capped at 49%, in line with local ownership rules. The group, with 20.5k employees, (including 3k doctors) and one of the largest and fastest growing healthcare chains in the MENA region, is in the process of obtaining approvals for hiking this 100% stake to its subsidiaries in the other six emirates.

Having lost 46% of its share value in London last week, after being targeted by short seller Muddy Waters Capital LLC, NMC Health Plc saw its shares bounce back 18% on reports that it had received approaches from private-equity firms, including Kohlberg Kravis Roberts & Co and GK Investment. The operator of the UAE’s biggest network of hospitals has also carried out a review which indicates that the actual shareholdings of Chairman Bavaguthu Raghuram Shetty and Vice Chairman Khaleefa Butti Omair, along with other investors, have been incorrectly reported; both have been requested by the board not to attend any board meetings until the anomaly is settled. Its share value had slumped 80% since December, when Muddy Waters questioned the validity of the company’s financials, hinting to the possibility of potential overpayment for assets, inflated cash balances and understated debt. Last week, it published a tweet asking if the major shareholders were not selling shares because of margin calls and that NMC’s margins are “too good to be true” relative to peers.

Because of accumulated losses of US$ 417 million, Deyaar’s board has recommended a capital reduction to offset the amount. Majority-owned by Dubai Islamic Bank, and listed on the DFM, the developer posted a 6.2% decline in 2019 revenue to US$ 164 million, with a US$ 19 million profit. However, 2020 is shaping up to be a better year for the Dubai-based developer, as the handover of its second of six districts in its Midtown master development. Afnan, is currently in progress, whilst work on its three hospitality projects (with 1k keys) has started. Furthermore, the handover of Bella Rose project is expected by the end of the year.

Dubai Islamic Bank posted a 2.0% rise in 2019 net profit to US$ 1.4 billion, on the back of a 17.0% hike in revenue to US$ 3.7 billion. Operating expenses remained relatively stable at US$ 640 million, with cost to income ratio 1.4% lower at 26.9%. Customer deposits were up 5.1%, topping US$ 44.7 billion, whilst its high margin sukuk portfolio came in 6.5% higher at US$ 9 million. DIB’s non-performing financing ratio and impaired financing ratio stood at 3.94% and 3.89% respectively.

Commercial Bank International posted a 50.2% slump in 2019 profits to US$ 30 million on the back of a 15.9% fall in annual net operating income to US$ 212 million. However, there were Q4 increases in both profit and revenue by 22.6% to US$ 10 million and 3.6% to US$ 55 million respectively. In what the bank described 2019 being “a challenging year for the banking industry, due to the challenges in the global economy and markets.”, CBI noted an 8.1% fall in expenses to US$ 102 million, as capital adequacy increased by 1.4% to 15.4% at year end.

As mobile revenues lost 8.0% to US$ 1.8 billion, Du posted a 6.2% dip in total 2019 revenue to US$ 3.4 billion, with annual profit 1.3% lower driven by a decline in mobile prepaid and handset sales, along with higher investments to roll-out 5G faster; like for like profits soared 9.0%. Although Q4 revenues declined 6.0%, profit skyrocketed by 30.0%. The telecom has proposed an annual dividend of US$ 0.0926, of which US$ 0.0354 has already been paid out last August. In 2019, capex rose 46.8% to US$ 409 million, mainly because of the investment in 5G network.

Damac Properties posted a 27.9% decrease in 2019 revenue to US$ 1.2 billion, resulting in an annual loss of US$ 10 million, (for the first time in a decade), following a US$ 411 million profit a year earlier. The developer has cut back on the number of new launches in 2019 so as to focus on selling completed and near completion inventory. Last year, it delivered 4.7k units and booked sales of US$ 845 million.

There were disappointing 2019 results from Union Properties, posting a 29.7% slump in revenue to US$ 208 million whilst falling into a US$ 60 million loss, (following a US$ 17 million 2018 profit), with bank financing costs related to subsidiaries’ loans having “contributed significantly” to achieving net losses last year, “which are currently being settled,” Last month, the developer issued a turnaround plan, focussing on a US$ 54 million expansion of Dubai Autodrome, converting three of its entities to standalone companies and tying up  with China National Chemical Engineering Ltd for future expansion plans.

With 2019 revenue 4.3% lower, at US$ 6.7 billion, profits at Emaar Properties nudged 1.1% higher to US$ 1.7 billion, driven by costs being cut by 7.0% and other income up 3.0% to US$ 250 million; however, income tax related expenses shot up from just US$ 3 million to US$ 83 million. UAE sales contributed US$ 4.1 billion to the top line, whilst 72.1% of its sales backlog is in the country. The developer confirmed that 70% of its twenty-two 2019 off-plan releases have been sold and that it had 30k homes under development. International operations contributed 18% of the total turnover, at US$ 1.2 billion, led by Egyptian and Indian operations. US$ 2.0 billion revenue was derived from its recurring revenue from hospitality and leisure, entertainment, and commercial leasing along with Emaar Malls. Namshi, the e-commerce fashion and lifestyle platform, fully acquired by Emaar Malls in 2019, posted a 21% hike in revenue to US$ 278 million.

Despite the doom and gloom surrounding the Dubai retail sector, Emaar Malls still posted increases in 2019 revenue (by 5.0%) to US$ 1.3 billion and net profit by 2.7% to US$ 624 million; the twin drivers behind the improvement were a strong performance of its shopping malls and online retail business. Over the year, the addition of the Zabeel Extension at The Dubai Mall and the complete acquisition of Namshi, posting a 40% hike in Q4 profits to US$ 92 million on sales of US$ 280 million, helped push figures northwards.  Occupancy levels in the malls continued at around 92%, whilst footfall totalled 136 million, of which 84 million visited The Dubai Mall. Two new developments are expected to start business later in the year – the 200 million sq ft Dubai Hills Mall (with 500 outlets and parking for7k) and the refurbishment and expansion of its Springs Mall.

Although still making a loss, DXB Entertainments, narrowed its 2019 deficit by 65.8% to US$ 233 million, with the theme park operator posting a positive Q4 unaudited EBITDA – earnings before interest, taxes, depreciation and amortisation. (However, the 2018 adjusted loss was US$ 272 million, as figures had been distorted because of impairment charges arising from the cancellation of a Six Flags theme park and a reduction in the value of the property). Total revenue came in 9.2% lower at US$ 134 million, split four ways – theme parks (US$ 84 million), hospitality (US$ 23 million), retail (US$ 14 million) and other revenue streams (US$ 13 million). The operator did actually see Q4 with a marginal profit – its first ever quarterly surplus.

With fewer trades over the year, and revenue 2.7% lower, Dubai Financial Market posted a 3.9% decline in 2019 net profit to US$ 33 million as revenue dipped 2.7% to US$ 86 million; despite the figures, a US$ 54 million dividend has been proposed. Q4 saw better results as both revenue and profit headed north by 2.0% and 15.0% to US$ 20 million and US$ 7 million. During the year, the index was 9.3% higher, whilst trading value shed 12.5% to US$ 14.4 billion. Transactions from foreign investors totalled US$ 768 million and owned 17.35% of total market valuation.

The bourse opened on Sunday 09 February and, 68 points (2.4%) lower the previous fortnight, lost more ground, down 36 points (1.3%), to 2734 by 13 February 2020. Emaar Properties, having shed US$ 0.08 the previous three weeks, was US$ 0.04 lower at US$ 1.05, whilst Arabtec, US$ 0.15 lower over the previous seven weeks, was down a further US$ 0.03 to US$ 0.21. Thursday 06 February saw the market trading  133 million shares, worth US$ 81 million, (compared to 108 million shares, at a value of US$ 59 million, on 06 February).

By Thursday, 13 February, Brent, losing US$ 12.90 (19.0%) the previous five weeks, finally gained a little traction up US$ 0.91 (1.6%) to close at US$ 56.34. Gold, US$ 6 (0.4%) lower the previous week, gained US$ 14 (1.0%), closing on Thursday 13 February at US$ 1,579.

On the international stage, coronavirus claimed its first major casualty, with the cancellation of the Mobile World Congress in Barcelona, which would have attracted 100k visitors at the end of this month. Despite medical assurances that it would be safe to go ahead, the organisers bowed to the inevitable, as a mass exodus by exhibitors, including Deutsche Telekom, Vodafone, BT and Nokia, would have had decimated attendance numbers. There would have been an estimated 6k Chinese attendees. Further bad news for the organisers was that they would probably not be covered by insurance unless restrictions were imposed on public gatherings in the country on health grounds. The impact on the MICE sector in Dubai remains to be seen.

Although the coronavirus crisis has already battered oil prices, the damage will be more pronounced in the GCC as 20% of the bloc’s oil production goes to China; the position is exacerbated by the fact that China is also their main trading partner, with non-oil trade topping US$ 200 billion last year. Now COVID-19 has seen many Chinese factories closed which in turn cuts their energy and commodities’ demand. The clout of China has on the global economy is well documented and any downturn in that country has a knock-on effect which will see a slowdown in worldwide trade, tourism and industry. This week has witnessed major events and trade exhibitions – from phones to watches, planes to jeans, F1 to rugby – called off because of corona virus.  More and more organisers will pull events over fears of spreading the deadly virus. Dubai is not immune, and its economy will suffer, in line with many other countries, as COVID-19 could trigger a major global economic downturn.

Cryptocurrencies continue their 2020 upward trend, with Bitcoin already 40% higher this year topping US$ 10k for the first time since October. The rally comes at a time when the market seems to expect that coronavirus will not be as serious as first expected (and will not impact global growth) and that there will be some form of settlement in the US-Sino trade war. The on-line currencies could well have benefitted being seen as a safe haven amid ongoing global geopolitical concerns. Bitcoin should continue its upward spiral but at a much slower pace and by June could be trading 10% higher at US$ 11k.

This week, Barclays hit the headlines for all the wrong reasons, as it chief executive, Jes Staley, said he “deeply regrets” his connection with Jeffrey Epstein, with UK regulators investigating his links with the disgraced sex offender. He has admitted that he maintained contact with Epstein, who he knew from when he ran JP Morgan private bank from 2000, for seven years after his conviction. The probe by the Financial Conduct Authority and Prudential Regulation Authority will focus on Mr Staley’s “characterisation to the company of his relationship” with Epstein. This is not the first time that the Barclays banker has locked horns with regulators – in 2018, he was disciplined and fined US$ 830k for inappropriately pursuing a whistle blower, whilst his bonus was cut by US$ 650k; the bank was also hit with a US$ 20 million penalty for breaching rules. There is no surprise to see that he has the “full confidence” of the board – a portend that he may have to go this time, not helped by its market value having lost 25% during his reign at the top.

More bad news for major tech conglomerates with US reports that the Federal Trade Commission is requesting the likes of Amazon, Apple, Alphabet, Facebook and Microsoft to hand over details about a decade of deals. They are under closer scrutiny as regulators investigate whether they may have stifled competition by buying up smaller rivals. This is but the latest government investigation into whether their practices harm competition. If anything untoward is found, then there is every chance that “offending” companies could be forced to unwind deals or break off parts of their business.

Meanwhile, Google has started its appeal process at the General Court in Luxembourg relating to the 2017 US$ 2.6 billion fine imposed by the EC over its alleged abuse of power in promoting its own shopping comparison service. The tech giant has argued that the case has no legal or economic merit and that not only had it fulfilled its legal obligations, to allow rivals access to its products, but also that shopping ads had helped people find the products they were looking for quickly and easily, and helped merchants to reach potential customers. Over the past three years, the EC has dished out fines, totalling US$ 8.2 billion, all relating to Google’s alleged abuses of power.

T-Mobile has been given judicial approval to go ahead with its massive US$ 26 billion takeover of the SoftBank-owned Sprint which would leave only three major players – Verizon, AT&T, and the new T-Mobile – in the US mobile phone market. Although a group of Democrat states argued that this deal would result in higher prices and would break anti-competition laws, the federal judge thought otherwise. When news broke, the markets went into a spin with Sprint shares up 80% (and increasing its market cap by US$ 15 billion) whilst in Tokyo, SoftBank closed 15% higher.

A US$ 10 billion merger between Australia’s third- and fourth-largest telecommunications companies looks set to go ahead despite objections from the Australian Competition and Consumer Commission. ASIC had argued that the merger of Vodafone and TPG would lessen competition in the country’s mobile market and that it would further concentrate the already tight telecommunications sector dominated by the Big 3 – Telstra, Optus and Vodafone – who control over 90% of the domestic market.

Nissan has estimated that the cost to the firm of Carlos Ghosn’s “corrupt practices” and “years of his misconduct and fraudulent activity” to be in the region of US$ 90 million. The carmaker’s former chairman, who escaped house arrest in Japan and now resides in Lebanon, faces multiple charges of financial misconduct including “the use of overseas residential property without paying rent, private use of corporate jets, payments to his sister and payments to his personal lawyer in Lebanon”. Ghosn denies any wrongdoing claiming that Nissan executives were concerned he was moving the firm closer to French partner Renault, part of a three-way alliance with Mitsubishi Motors.

A planned US$ 1.4 billion takeover by Edgewell Personal Care for millennial razor brand Harry’s, founded in 2013, has been abandoned because the threat of legal action by the US Federal Trade Commission (FTC) had caused too much “uncertainty”; it had warned that the deal would harm competition and hurt consumers. The six-year old newcomer, with 2.0% of the total men’s grooming market in the US, valued at US$ 2.8 billion, has taken on the sector giants including Edgewell, which owns brands such as Wilkinson Sword, and Proctor & Gamble.

The day Boris Johnson was in the middle of a major cabinet reshuffle, his next-door neighbour at No 11 Downing Street, Sajid Javid, surprisingly quit as Chancellor of Exchequer; he was quickly replaced by Chief Secretary to the Treasury, Rishi Sunak. It was reported that the incumbent, who was due to deliver his first Budget in four weeks’ time, was not prepared to fire his team of aides, as requested by the Prime Minister, who wanted to replace them with No 10 special advisers to make it one team. Several high-profile ministers were shown the door including Culture Secretary, Baroness Morgan, Northern Ireland Secretary Julian Smith, Environment Secretary Theresa Villiers, Business Secretary Andrea Leadsom, Attorney General Geoffrey Cox and Housing Minister Esther McVey. However, with the likes of Dominic Raab, Matt Hancock, Priti Patel, Michael Gove, Ben Wallace and Jacob Rees-Mogg maintaining their key portfolios, this reshuffle did not turn out to be a Valentine Day’s Massacre.

Tomorrow. Friday 14 February, many will celebrate Valentine’s Day, bringing a welcome boost to the retail sector. In both the US and the UK, it is estimated that 50% of the population will celebrate, even those without significant others. With prices tending to spike on such occasions, US consumers are expected to spend US$ 27.4 billion on the day – a 6.0% hike on last year. Interestingly, not only will US$ 358 be spent on wives and US$ 206 for husbands but on other loved ones including children, girlfriends and even themselves – shelling out US$ 280, US$ 232 and US$ 235. Cats and dogs also receive extra goodies worth US$ 96 and US$ 82 and manage to get in on the day when Love Is In The Air.