Latest data from Mo’asher, the official index of the Dubai Land Department, saw a 0.54% hike to 1.121, put down to pent up demand from the government’s easing of restrictions; for apartments, the index was at 1.189 and villas 1.060, its highest figure since last November. May sales figures of 1.44k transactions, with receipts of US$ 673 million, brought the five-month YTD total to 13.6k, valued at US$ 7.6 billion. Of the May sales, 66.5% were off-plan and 33.5% were existing homes. The DLD report added “there are increased opportunities for buying in the market due to the relaxed mortgage cap and the best mortgage products and interest rates we have seen in 15 years.”
Although still awaiting further details, Dubai Summer Surprises will go ahead from next Thursday, 09 July to 29 August, with more than 700 retail brands already signed up to offer promotions across more than 3k outlets, with discounts of up to 75%. Obviously, this year’s event will be different to those of previous years, with extra health and safety precautions in place. Since 02 June, Dubai malls and shopping centres have been allowed to reopen at 100% capacity.
Flydubai will resume flights initially to twenty-four destinations starting on 07 July, and increasing to sixty-six through the summer period, dependent on countries being able to open up and accept international travel.; bookings started on Tuesday. On the same day, Dubai’s Supreme Committee of Crisis and Disaster Management posted that residents can start returning home “provided the destination countries agree to receive them.” Under strict new regulations, Dubai is set to open up for overseas visitors as from 07 July, after being closed since 25 March. Both incoming tourists and residents will be required to produce a medical certificate, showing a negative Covid-19 test result, within the past four days – or undergo a mandatory PCR test at the Dubai airports. Those found ‘positive’ will have to be isolated “at an institutional facility provided by the government for 14 days at their own expense”.
Following federal cabinet approval this week, UAE now has six national airlines, as Wizz Air Abu Dhabi joins Emirates, Flydubai, Etihad Airways, Air Arabia and Etihad Airways’ low-cost joint venture with Air Arabia. The Hungarian-based low-cost airline, in a venture with Abu Dhabi state holding company ADQ, has already applied for an air operator’s certificate from the UAE’s aviation regulator. The new venture is expected to launch a bigger than first anticipated operation from Abu Dhabi, with a fleet of A321neo aircraft.
HH Sheikh Mohammed bin Rashid al Maktoum has paid tribute to Saeed Lootah, who died this week at the age of 97. He tweeted that, “I have known in him a bright mind, wisdom and tranquillity” and that “he was a self-made merchant, with a mark on Dubai’s economy.” The entrepreneur founded the world’s first Islamic Bank, setting up Dubai Islamic Bank in 1975, to provide a Sharia-compliant alternative to conventional banking. Earlier this year, DIB acquired Al Noor Bank that created a financial institution, with assets of US$ 75 billion and one of the largest Islamic banks in the world. Mr Lootah also established a construction company, S.S. Lootah Contracting Company, as a joint venture with his brother Sultan in 1956. Over the years it has expanded into a myriad of sectors, including realty, education, healthcare, financial services and energy. He also set up Dubai Medical College and Dubai Pharmacy College. He has seen Dubai grow and was one of its pioneers noting that “In the old days, traders were different than today. Today traders want to make money, but the early traders wanted to build up the world.”
There was no surprise to see that Dubai’s GDP posted a 3.5%, Q1 decline, not helped by the arrival of the pandemic, leading to the emirate taking a hit from mid-March, with lockdowns and other restrictions. Furthermore, being a leading global trade hub did not help matters as international trade and the global economy were both badly impacted, with the knock-on effect being felt here in Dubai. Although still a major player in the local economy, accounting for 23% of Dubai’s GDP, trading contracted 7.5% in the quarter, with transport/logistics 5.5% lighter, but still accounting for 12.1% of GDP. The biggest loser, in percentage terms, was hospitality (hotels and F&B), declining 14.8% on the year; last year, it contributed 5.1% to the economy. The agricultural, manufacturing, construction and utility sectors, which between them added 20.5% to Dubai’s economy last year, posted a marginal annual dip of 0.5%. Not to be outdone, the banking and insurance sectors, which contributed 11.6% to Dubai’s well-being in 2019, nudged 0.3% higher, compared to Q1 2019. The healthcare and education sectors had mixed results with the former declining 3.7% and the other 1.1% higher, year on year. Even the public sector, accounting for 5.1% of Dubai’s GDP, managed a 0.6% improvement.
A 2018 IMF report indicated that Dubai, and its various related entities, had debts of US$ 123 billion, equating to 110% of the emirate’s GDP. This week, one of those entities, Dubai World, made its final creditors’ payment of US$ 8.2 billion, two years ahead of schedule – the final repayment of a ten-year 2011 loan, following the GFC, which left the company teetering on bankruptcy. Dubai World used funds from various sources to finally settle the debt, including US$ 6 billion from Port and Free Zone World, various asset sales, including the sale of Economic Zones World for US$ 2.7 billion, dividends from associated companies, including Infinity World, and a US$ 3 billion Dubai Islamic Bank loan.
With little or no flights, it seems that the busiest people at Emirates have been the accountants. It is reported that, over the past two months, the carrier has processed almost 650k refund requests, worth US$ 518 million.
In a bid to assist their drivers’ finances, Careem, in association with Visa, has offered its drivers real-time access to their daily trip earnings. The cashless payments service will start in the UAE in Q3, to be followed by Saudi Arabia, Egypt, Jordan and Pakistan. The new system will give the drivers instant cash, instead of the current time lag in paying drivers that ranges from hours to days, depending on the market. Visa estimate that digital payments now represent at least a third of all face-to-face transactions, in nearly fifty countries, with the UAE figure higher at 50%.
For the third month in a row, UAE July fuel prices will remain unaltered, with Special 95 and Diesel selling at US$ 0.490 and US$ 0.561 per litre respectively.
Nasdaq Dubai added a further US$ 2.5 billion worth of Sukuk listings to its expanding portfolio which now totals US$ 71.1 billion. The three Indonesian government Sukuks – a ten-year US$ 1 billion bond and two US$ 750 million (one of a five-year maturity green issuance and the other for thirty years), were 6.7 times oversubscribed. The Indonesian government is the bourse’s largest sukuk issuer on two counts by both value (US$ 17.5 billion) and number of listings (fourteen).
In June, non-Arab foreigners accounted for 30% of the trade, valued at US$ 1.7 billion, conducted on both the Dubai and Abu Dhabi bourses, with this sector preferring the Dubai market for purchases, at US$ 436 million and Abu Dhabi for sales at US$ 490 million. The total trades came in at US$ 5.5 billion, of which 61.4% was at the DFM.
Damac Properties is one of Dubai’s largest privately-owned property companies, with more than 1.4k employees and a presence in six countries. As of 31 March, it had about 4.4 million square metres of projects either in planning or in progress. It is reported that Hussain Sajwani, the founder and 72.2% major shareholder, is weighing up a bid to take the company private but this was later denied by company secretary, Magdy Elhusseiny.
The bourse opened on Sunday 28 June and, 192 points (9.7%) higher the previous five weeks failed to continue its recent good form, down 26 points (1.2%), to close on 2,087 by 02 July. Emaar Properties, US$ 0.02 higher the previous week, was US$ 0.03 lower at US$ 0.73, whilst Arabtec, up US$ 0.01 the previous two weeks, shed US$ 0.01 to US$ 0.16. Thursday 02 July saw the market trading at 198 million shares, worth US$ 61 million, (compared to 280 million shares, at a value of US$ 59 million, on 25 June). The bourse gained 94 points in the month from 1,971 to 2,065 but was well down (25.3%) from 2,765 to 2,065 YTD. Emaar ended the month up US$ 0.06 from its monthly opening of US$ 0.69 to close the month on US$ 0.75, but a YTD slump of US$ 0.35 from its 01 January opening of US$ 1.10. Meanwhile, Arabtec’s 30 June price of US$ 0.16 was up US$ 0.01 on its 01 June opening of US$ 0.15 and YTD US$ 0.20 lower from its opening year balance of US$ 0.35.
By Thursday, 02 July, Brent, down US$ 2.58 (6.2%) the previous week, regained that loss and more, up US$ 3.49 (8.9%) to US$ 42.76. Gold, having gained US$ 55 (3.2%), the previous three weeks, was US$ 20 (1.1%) higher to close on Thursday 02 July, at US$ 1,790. Brent had started the month on US$ 35.49 and the year on US$ 66.67and closed 30 June at US$. 41.15. Gold had started the month on US$ 1,737 and the year on US$ 1,517 and closed 30 June at US$ 1,800.
Latest data indicates that OPEC has cut its members’ production levels to 22.7 million bpd, its lowest level since the 1991 Gulf War. The group reduced output by almost two million bpd in a further attempt to flatten the supply/demand curve, and bring some sort of equilibrium to the market, caused by global lockdowns, travel restrictions and business closures.
In the US, Chesapeake Energy Corp has sought protection from bankruptcy by a Chapter 11 filing in a Texan court. The country’s sixth largest natural gas producer, US$ 10 billion in debt, has dealings with drilling firms and gas transporters that could be badly impacted if the company goes under and cancels regulated natural gas contracts in a bankruptcy court. This will be a serious problem for leading energy service and pipeline companies, already reeling from the recent collapse in oil prices – and an even bigger one for banks who have major exposure in the shale sector.
Last month, BP announced that it had cut the value of its assets by US$ 17.5 billion and this week it was Shell’s turn to warn that it may have to reduce the value of its assets by US$ 22.0 billion. It also forecast that the oil price will hover around US$ 35 this year, US$ 40 in 2021 and up to US$ 60 in the longer term. Since Covid-19, demand for oil has slumped, as many countries initiated lock down and travel restrictions, resulting in air travel slumping by over 85%. There is no doubt that the future for fossil fuels is uncertain and oil companies are beginning to hedge their bets much sooner because of the impact of the pandemic.
Ineos, owned by British billionaire Jim Ratcliffe, is set to invest US$ 5.0 billion to acquire BP’s global petrochemicals business, as the petro-giant transits to its new strategy of low carbon energy and becoming net carbon neutral by 2050. The chemicals business, specialising in aromatics and acetyls, has a big footprint in Asia and has an annual production of 9.7 million tonnes of petrochemicals. In 2005, Ineos, acquired BP’s chemicals subsidiary Innovene. BP has now divested all its standalone petrochemical assets, having shed US$ 15 billion worth of assets throughout 2019 and 2020.
In the aviation sector, Airbus confirmed that it will have to slash 15k jobs from its current payroll of 134k, of which 1.7k would be from its UK operations in Broughton and Filton, involved mainly with commercial aircraft.; talks with the various unions involved are continuing. Since the onset of Covid-19, and global air traffic tanking by more than 90%, the end-users – the global airlines – are not only reluctant to buy new aircraft but are also haemorrhaging cash reserves because their fleets still need maintaining and lease payments/loans serviced. With production dipping by more than 40%, the industry does not expect any resemblance to pre-Covid 19 activity retuning until 2023. Other aviation-linked companies also announced inevitable redundancies – Air France/KLM, 6.5k jobs, and EasyJet a further 2k, as well as closing three UK bases.
Tesla has overtaken Toyota to become the world’s most valuable carmaker, after its market cap touched US$ 209.5 billion, eclipsing its Japanese rival by some US$ 4.0 billion. This sort of valuation turns Economics 101 on its head, when Toyota has sold thirty times more cars (10.5 million to Tesla’s 367k) and had revenue of US$ 281.2 billion – almost eleven times greater than the electric carmaker’s US$ 24.6 billion. After years of never making a profit, Tesla has turned in three consecutive growth quarters, but the money will be on the Japanese conglomerate to return to its number one position before long.
Last year, Amazon boosted its investment in the car sector, taking positions in electric truck maker Rivian and participating in a US$ 530 million funding round in self-driving car start-up Aurora. Now, it is reported that Amazon will pay over US$ 1.2 billion to acquire Zoox, an early developer of self-driving cars. The two entitles would combine resources to create a ride-hailing fleet that would compete with the sector leader, Alphabet’s Waymo, as well as for Amazon to add the vehicles to their delivery fleet. The six-year old company was valued at US$ 3.2 billion, after a 2018 funding round, but plans to launch a pilot programme for its ride-sharing services were aborted due to Covid-19; in April, 100 employees were retrenched. The pandemic has only highlighted the fact that the industry was already facing problems and even the US$ 30 billion Waymo has not expanded operations elsewhere since its 2018 launch in Arizona.
Probably the clearest sign that the UK retail sector is in deep trouble comes with news that Intu, with US$ 5.8 billion worth of debt, has gone into administration after failing to reach an agreement with its creditors. The firm, which runs seventeen shopping centres around the UK, including the Trafford Centre, the Lakeside complex, Nottingham’s Victoria Centre and Braehead, also announced that its share listings on the London and Johannesburg bourse had been suspended. It is estimated that, in the last quarter, only 18% of commercial rents were collected and there are worries about the future of the 2.5k staff working for Intu and the 130k jobs in the wider supply chains. Although the company has gone into administration, the shopping centres are separate companies, owned by banks and other lenders, and are still open for business. Last Friday, Intu had a market value of just US$ 20 million, a frightening fall from its 2006 valuation of US$ 16.3 billion. The problems facing Intu and other mall operators, including online sales and a slump in rental income, (by 37% to US$ 390 million), will only get worse but the reality is that there is too much retail space in the UK.
Another week, another set of bad news for the UK High Street. This week sees the demise of Byron Burger as it tries to appoint administrators, most probably KPMG, to protect it from creditors while it seeks a rescue deal. The restaurant chain, with 1.2k staff and 52 outlets, is reportedly in discussions with three potential suiters and is hopeful that it can be sold as a going concern. Similar chains had been struggling even before the onset of Covid-19 and the virus has only exacerbated their troubles. In May, for example, Casual Dining Group, owner m of Café Rouge et alia, appointed administrators.
SSP, which has Upper Crust, the Caffè Ritazza chain, deli operator Camden Food Co. and luxury bar chain Cabin in its portfolio, announced that 5k UK jobs could be at risk, if the pace of recovery in the country does not speed up. SSP is very closely knitted to the travel sector and employs 39k staff worldwide across, with 2.8k outlets in thirty countries, including the US, China and India. With the huge reduction in UK passenger traffic, the firm confirmed that only ten of its 580 food and drink outlets were currently open but they expect the number to rise to 25% of its total food and drink outlets across the UK, mostly at railway stations and airports, to be open by Q4. You know when times are bad when your April and May revenue figures were 95% down on the same two months in 2019.
As noted in an earlier blog, Primark, owned by Associated British Foods, has seen monthly sales sink from US$ 815 million to zero overnight, as Covid-19 restrictions saw its UK, US and European stores closed; strangely, the shop does not have any on-line trading, claiming they would be unable to keep prices for its clothing as low if it that service were introduced, but does sell gift cards via its website. The company indicated that it would had to have laid off a lot of its 68k workforce, if it were not for various governments’ furlough schemes. As well as Primark, which contributes about two-thirds of the group’s revenue, ABF also owns food brands including Twining’s tea, Blue Dragon sauces and Ovaltine and is lucky in as much it has cash reserves of US$ 1.0 billion and an agreed US$ 1.4 billion loan facility. ABF shares were trading yesterday at US$ 2.43, giving a market cap of US$ 19.2 billion – down 28.2% on February – with H1 profits lower by 44.2% at US$ 270 million.
This week, as reality starts to hit home, and the furlough buffer begins to be tapered down, there has been a catalogue of redundancies and administrations confirmed by some big High Street names, including:
- Harveys – into administration but still trading, with 240 job cuts and 1.3k positions under review
- Bensons for Beds – in a pre-pack administration, the existing owners bought back the furniture chain but 35% of its 242 outlets will close
- Casual Dining Group – 91 (Café Rouge and Bella Rouge) outlets will close immediately, and 1.9k of the firm’s 6k staff will lose their jobs
- TM Lewin – weeks after being bought by a private equity company, the shirt and suit maker will close all its sixty-six stores and retrench 86% of its workforce with the remaining to focus on on-line shopping
- Cath Kidston – its sixty UK stores, employing 900, will not reopen, having fallen into administration, with only its brand and online shop being bought
- John Lewis – will close stores but numbers, and job losses, have yet to be confirmed
- Arcadia – the Topshop owner is looking at 500 job losses
- Harrods – have plans for about 700 job cuts.
The UK High Street is not the only one in the world suffering from the impact of the pandemic, high property rents and the rise of e-commerce. In Australia, Seafolly became the latest retailer probably to go under as it enters into administration. With forty-four local stores and twelve overseas, it joins a raft of other Australian retailers, including rival brand, Tigerlily and G-Star Raw, that have collapsed over the past two years. For the time being, the stores will continue to operate, having all recently reopened, following the lifting of lockdown restrictions. Although May retail sales rebounded – up 16.3% over the previous month – Australian Bureau of Statistics showed they were well down compared to May 2019.
According to official figures, 594k people lost their job in April and a further 228k in May. With job losses expected to worsen, there are certain sectors that have been hit worse than others, with retail, tourism and travel taking the brunt of the damage.
Even before the onset of the pandemic, retail was struggling with many issues including high, and often long-term, property rents, declining consumer confidence and e-commerce. Earlier the likes of Colette, Harris Scarfe, Jeanswest, Bardot and G-Star Raw had all entered into administration, as Myer, Kathmandu and Rip Curl announced store closures. Despite a Q1 boost in revenue, ahead of lockdown restrictions, with supermarkets having a boost with groceries and other household items being hoarded, the next quarter witnessed falls in revenue. Woolworths will eliminate 700 warehouse jobs in Melbourne and Sydney because of automation taking over. In May, Wesfarmers confirmed that up to 167 Target and Target Country stores would be closed or be converted to Kmart stores.
In the travel sector, Qantas has already retrenched almost 4.9k staff and last week announced it would slash 6k permanent jobs, whilst Virgin, recently purchased by Bain Capital, has temporarily stood down 10k (80%) of its staff. Australia’s largest travel agency, Flight Centre, has made 6k staff, either permanently or temporarily out of work, as it tries to get to grips on what to do with the closure of international borders and coronavirus restrictions affecting the domestic tourism market.
In the finance sector, there have been cuts announced by the larger firms, as lower revenue and dipping profits become the order of the day. To date, 80% of KPMG staff have taken a voluntary 20% salary cut for four months until September, with the firm announcing it was cutting 200 professional positions. PwC and Deloitte have announced staff cuts of 400 (5%. of its payroll) and 700 (7%). On the sporting field, Rugby Australia has lost 40% of staff numbers in a move to save US$ 4 million from its payroll.
Media has not escaped, with News Group announcing cuts as it moved from print to digital, with staff numbers falling 71% to 375 in the regional and community divisions of the organisation and a further 100 from the metropolitan papers. Meanwhile, the ABC has confirmed 250 jobs will be cut as the broadcaster’s budget has been slashed by US$ 60 million.
Another major pandemic causality has been education as enrolments dried up resulting in revenue shortfalls across the board. As examples, three universities – Wollongong, Charles Sturt and Central Queensland – are planning to cut up to 300, 150 and 300 positions respectively. A May Rapid Research Information Forum paper estimated that 21k full-time university jobs were at risk, including 7k in research-related academic positions.
It is interesting to note how the ASX200 fared over Australia’s financial year ending 30 June. Energy stocks performed the worst – down by 34.1% over the year’s trading, followed by Financial, Industrial, Communications, Utilities, Materials and Consumer Discretionary – all lower by 25.4%, 17.3%, 12.3%, 8.2%, 6.8% and 2.6% respectively. The only winners were Healthcare, Technology and Consumer Staples, all three higher by 25.8%, 15.1% and 7.6% respectively. It would have to be a fool to forecast what will happen this coming year.
Since the enforced lockdown of all its global shows, and zero revenue since then, Canada’s Cirque du Soleil is taking drastic action to avoid bankruptcy and is to cut 3.5k jobs after striking a deal with existing shareholders. They have decided to take over all the Group’s liabilities and invest a further US$ 300 million in a bid to restructure the entertainments firm, as well as setting aside US$ 20 million to provide additional relief to affected employees and contractors. The Quebec-based company, which is also receiving a US$ 200 loan from the province’s government and is set to shed 95% of its staff, is best known for its acrobatic touring circuses, including six in Las Vegas. It also has musicals – including Michael Jackson One and The Beatles Love. The company expects to rehire “a substantial majority” of terminated employees when normal operations return.
Not surprisingly, the US trade deficit increased for the third consecutive month in May, by US$ 54.5 billion, or 9.7%, as both imports and exports headed south by 0.9% to US$ 199.1 billion and by 4.4% to US$ 144.5 billion, respectively. Import and export levels were at their lowest sinceJuly 2010 and November 2009 respectively. The total trade figure, (export plus import values), was 28.0% down, year on year and reflects how global trade has been impacted by the pandemic. The President would not be too happy to see that the May trade deficit with China was 7.3% higher at US$ 27.9 billion.
In June, there were record returns, with 4.8 million jobs created – the best ever month since records began in 1939, as lockdowns were lifted in many states, leading to the reopening of retail, factories and restaurants. Last month, there had been 2.5 million new jobs, with a marked increase in consumer spending. Two million jobs were added in leisure/hospitality and 740k in retail. Despite this better than expected news, there was only a small decline, to 1.4 million, in initial claims for unemployment, whilst in certain states, including California, Florida and Texas, there is a possibility of scaling back and delaying reopening of retail/F&B because of the possibility of fresh coronavirus outbreaks. However, the jobless rate is above 11% and the employment figures are still fifteen million short of what they were pre Covid-19. Wall Street was happy with the news as the Nasdaq celebrated by posting a record high 10,269 points.
The UK economy is at its worst level since Q3 1979 and, when compared with the same three-month period a year ago, the economy shrank by 1.7%, with the services sector, which accounts for 75% of the UK economy shrinking by 2.3%; production and manufacturing were down 1.5% and 1.7%. March turned out to be an economic nightmare, as the economy contracted 6.9%, with consumer spending falling sharply in Q1, at US$ 26 billion, equating to 3.8% of GDP. Q2 figures, which will take in the full hit of the pandemic, will be catastrophic especially the monthly data has already reported a 20.4% slump in April – the largest monthly drop on record and equating to three times greater than the falls recorded during the 2008-2009 GFC. Some pundits consider that this has pushed sterling in a vulnerable position that could lead to a depreciation if a second wave emerged or no deal was signed with the EU by the end of the year. Others think the opposite could happen as many EU countries are struggling and if anything amiss happened, the euro could take a tumble. However, there is every chance that come Q3, the UK economy will bounce right back, perhaps up 10%.
Although big tech companies have been heavily fined by many global authorities, the likes of Facebook, YouTube and Google, seem to be treating them with disdain, as penalties have had little impact on their modus operandi. There has been a feeling that, like some banks, they are above the law and too big to fail. Despite every attempt to curtail their monopolistic activities, governments have failed whilst to date their coffers continue to be boosted by companies seeing a cheaper and more effective way to boost their sales.
Only last month, this blog posted that Amazon was in line for a potential US$ 18 billion fine by the EU for anti-competitive behaviour and the 2016 case, when the EC fined Apple US$ 14.4 billion for lowering its effective corporate tax from 1.0% to 0.005% and ordered the US behemoth to pay the money back to the Irish government; the appeal against the verdict is still ongoing. Last month, European authorities fined Google – for the third time since 2017 – US$ 1.9 billion for antitrust violations in the online advertising market. In 2019, Facebook was fined US$ 5 billion after violating a 2012 consent order concerning user privacy. It is also reported that the US House Judiciary Committee is concerned about increasing examples of anti-trust behaviour and could be planning to call the likes of Apple, Google, Amazon and Facebook to disclose internal documents about their digital markets.
However, these government dealings and fines seem to be like water off a duck’s back to these tech giants but now they appear to be very worried because they have started losing revenue. More than ninety companies, including Coca Cola, Ben & Jerry’s, Hershey, Verizon, Starbucks, Honda, Ford, Adidas, HP, Unilever and Levi Strauss, have stopped advertising, temporarily at the moment, in support of the #StopHateforProfit campaign which accuses Facebook of not doing enough to stop hate speech and disinformation. Last Friday alone, Facebook lost US$ 56 billion in its market value (8.3%). The cyber world has finally found an instrument that could change the way these tech companies have been operating on their own terms, as data privacy intrusions, fake ads, corporate malpractices and political shenanigans had proliferated without too much interference to rectify problems. Facebook can ill afford to lose advertising revenue as it accounted for 98.5% of its total global revenue of US$ 70.7 billion; Google’s ad revenue was almost double at US$ 134.8 billion. Will boycotts be an effective way to cut the size and impact that these tech giants have had in the past – and continue to do so – where global government and regulatory action has patently failed? Could boycotts be a modern version of Video Killed The Radio Star?