From A Distance! 24 September2020
Since the UK government introduced an eight-month break in Stamp Duty Land Tax that sees no duty paid on any property transfer less than US$ 640k (GBP 500k),
UK house sales have risen 14.5% and 15.6% in July and August. The stamp duty holiday, which is scheduled to end on 31 March 2021, has reportedly protected almost 750k jobs in the housing sector and wider supply chain such as housebuilders, estate agents, tradespeople, DIY retailers and removal firms. It has also contributed to a 9.9% hike in spending on household goods and home improvements compared to pre-pandemic February levels. Another study by Checkatrade estimates more than 10% of Britons hope to buy a new home by the end of March 2021, with a third of that total using the cash saving from the tax holiday on home improvements and renovations. Maybe a similar “holiday” from the up to 4% registration fee of the value of transferred property here in Dubai may see a similar result and prove a fillip for the sector and the local economy?
Saudi Arabia’s Musharaka REIT Fundhas paid DMCC US$ 13 million for a single 5.4k sq mt plot of land sale, with a self-storage facility, and a total built up area of 13.9k sq mt. Musharaka will lease it to the ‘The Box Self Storage Services Co,’ with an initial 8.7% rental yield.
Despite the pandemic, Dubai manages to keep its head above water, as illustrated by the emirate’s gold and diamond air-cargo trade making US$ 18.3 billion, weighing a total 601.3 tons, in the four months to 30 June. Data from Air Customs Centre Management, at Dubai Customs, shows that imports accounted for 53.0% of the trade (US$ 9.7 billion – 428.8 tons), with reexports accounting for (US$ 8.0 billion – 161.2 tons). Over that period, 31.6k transactions took place.
Al Habtoor Group has agreed a partnership with Mobileye, the independent Jerusalem-based autonomous car division of Intel Corp that may see a fleet of self-driving ‘robotaxis’ on Dubai’s roads within two years. The Israeli input will mainly be to provide mapping technologies for Advanced Driver Assistance Systems (ADAS), self-driving vehicles and smart city solutions to the UAE. Initially, the plan is to equip 1k vehicles with Mobileye’s 8 Connect system to map Dubai – and collect data – with testing starting next year; this will be followed by a pilot programme a year later, followed by a commercial service in 2023.
This week a strategic partnership agreement has been finalised between the Dubai Chamber of Commerce and Industry and Tel Aviv Chamber of Commerce. Following a joint study, identifying synergies and sectors of mutual interest, the parties will look at ways to bring benefits for the public and private sectors across the Middle East and further cross-border collaboration across economic sectors. Both sides will actively encourage and support new businesses, start-ups, and scale-ups in each other’s country.
In another move to further enhance bourgeoning UAE/Israeli relations, and to promote the flow of bilateral trade, DP World and Israel’s Bank Leumi signed an agreement. They will try to identify opportunities to develop Israeli ports and logistics assets, as well as to simplify working capital requirements through trade finance to improve cargo flows. This is the latest in a series of agreements between UAE and Israeli companies, (including DP World and Dove Tower combining to develop trade infrastructure and Bank Leumi working with Emirates NBD), following the signing of the Abraham Accord between the two countries in Washington DC last week. The UAE’s Minister of Economy Abdulla bin Touq expects greater cooperation in sectors such as health care, food security, aviation, finance, tourism, energy, science and technology.
A wholesale market platform, that links buyers and sellers globally, has been formed by a venture between Investment Corporation of Dubai and Dubai South. Dubai Global Connect is a one million square metre purpose-built facility, initially focussed on furniture/living, food and fashion. With no financial details readily available, the development, also known as “City of Trade”, will be constructed in phases, with the first one encompassing 400k sq mt. Located adjacent to Al Maktoum International Airport, and connected to Jebel Ali Port, the infrastructure will also be supported by a digital wholesale trading platform, which will connect online wholesale traders – both sellers and buyers. The main aim is to build a unique trade infrastructure that enhances efficiencies in global trade flows through Dubai. Normal wholesale markets focus on promoting local businesses, but DGC is different as it focuses on a macro audience – regional and global – to trade goods from all around the world. ICD, the principal investment arm of the emirate’s government, owns stakes in some of Dubai’s biggest and best-known names, including Emirates airline, Emirates NBD and Emirates National Oil Corporation, as well as holding minority stakes in Emaar Properties, the Dubai Airport Free Zone and the World Trade Centre.
The Central Bank has amended the country’s 2020 overall GDP forecast to a 5.2% contraction, compared to an earlier -3.6% expected downturn, with the non-oil GDP shrinking slightly less over the year at – 4.5%. In the second quarter, the negative real growth in the GDP slumped to 7.8% and 9.3% for the non-hydrocarbon sector. The bank noted that there were slowdowns in credit growth, real estate prices and employment in Q2 but now expect that a recovery in all three sectors may have started in Q3 and there will be further progress in Q4, assuming that the virus risks are under control. Driven by falling fuel and rent prices, subdued demand and exchange rate appreciation relating to the country’s main trading partners, the consumer price index remained in negative territory in Q2 at -2.3%, with inflation in non-tradeables even lower by -3.9%. The negative trend is expected to continue into 2021.
In a bid to cut costs, including reducing rent and office expenses, Careem is encouraging its office staff – stretched across 36 locations in fourteen countries – to work from home. However, those who prefer to work in the office, for whatever reason, are still able to do so. The ride-hailing app, which also plans to recruit 150 more people to develop new versions of its Super App, also noted that Careem staff were more productive and developed stronger relationships with peers in other countries while working remotely during the earlier lockdown. This new strategy comes five months after Careem laid off a third of its staff as the initial impact of Covid-19 was gaining traction.
An unknown party has offered US$ 109 million to Union Properties for a 40% stake in its subsidiary, Dubai Autodrome. This offer will be tabled at next week’s board meeting which will also discuss the acquisition of real estate assets in the UAE worth US$ 202 million. The developer established the facility, which is the UAE’s first multi-purpose motorsports and entertainment centre, in 2004. Last month, UP announced plans to list three of its subsidiaries – facilities management company ServeU, The FitOut, which specialises in interior fit-outs of offices, hotels and restaurants, and Dubai Autodrome – on the DFM. The developer is keen to cut costs, improve its liquidity and reduce its retained losses.
It is reported that the NMC fraud, that rocked the corporate world, took place over a period of eight years. Apart from the time factor, the current management’s investigation into how all this happened has been hampered by the destruction, by unnamed employees, of thousands of documents. Disgraced BR Shetty’s NMC Health’s troubles started last December when US-based activist investor Muddy Waters alleged the company had inflated its cash balances and understated its debts; four months later, it was placed into administration, (through the Abu Dhabi Global Markets Courts to fend off creditor claims), and the appointment of external investigators who discovered that the company’s debts stood at US$ 6.6 billion – not the US$ 2.1 billion as posted in the accounts.
The bourse opened on Sunday 20 September and, 38 points (1.7%) higher the previous week, shed 69 points (3.0%) to close on 2,252 by 24 September. Emaar Properties, US$ 0.02 up on the previous week, lost US$ 0.03 to close at US$ 0.78, whilst Arabtec, having shed US$ 0.03 the previous fortnight, lost US$ 0.01 to US$ 0.15. Thursday 24 September saw the market trading at 305 million shares, worth US$ 69 million, (compared to 555 million shares, at a value of US$ 397 million, on 17 September).
By Thursday, 24 September, Brent, US$ 3.46 (8.6%) higher the previous week was US$ 1.38 (3.2%) lower at US$ 42.11. Gold, up US$ 29 (2.0%) the previous three weeks, moved markedly lower down US$ 83 higher (0.4%) to close on US$ 1,877, by Thursday 24 September.
It seems that Covid-19 may have put the final nail in the coffin of coal-fired power plants, as General Electric announced plans to exit the market to focus on greener alternatives. GE noted it would close or sell sites, as it prioritised its renewable energy and power generation businesses. It is a huge reversal, bearing in mind that only five years ago, the conglomerate paid US$ 13.4 billion for a business that produced coal-fuelled turbines. Now it seems to be bowing to pressure that mirrors the growing acceptance of cleaner energy sources in US power grids. Furthermore, GE has looked at the current energy economics, as cheaper alternatives such as natural gas, solar and wind gain market traction. The decision comes just weeks prior to the presidential election, with Donald Trump having championed “beautiful, clean coal” and his opponent Joe Biden expounding the complete opposite view.
Meanwhile, the US President has indicated that there is no future for TikTok in the US unless Oracle and Walmart have “total control” of the company; currently, the deal sees the two US companies each holding 10% shares and China-based owner ByteDance retaining an 80% stake in Tik Tok Global. If this deal had not gone through, the app would have been banned from the US on security grounds. Prior to the agreement, Oracle issued a statement that the two US companies would own a combined 20% stake but also added “Americans will be the majority. And ByteDance will have no ownership in TikTok Global.” In contrast, ByteDance maintained that it would be keeping an 80% stake in TikTok Global, and as well as it would not be transferring ownership of the valuable algorithms that power TikTok. The Chinese company also poured water on a US$ 5 billion contribution, requested by the President, from the two companies, towards a new education fund.
ZeniMax Media, the parent company of the video games studio Bethesda Softworks, has been acquired for US$ 7.5 billion by the Xbox owner Microsoft. The deal will add the likes of titles such as Fallout, Doom, Skyrim, Quake and The Elder Scrolls to Xbox’s portfolio. Phil Spencer of Xbox commented that the two firms “shared similar visions for the opportunities for creators and their games to reach more players in more ways”. Xbox has indicated that the publisher’s franchises would be added to its Game Pass subscription package for consoles and PCs, (that already has access to 200 games), which could be seen to make the PlayStation 5 less attractive to some players than the forthcoming Xbox Series X; both machines are due for launch in November.
HSBC is in a spot of bother for past misdeeds following reports that the bank had continued to allow fraudsters to transfer hundreds of millions of dollars, after the bank had discovered the Ponzi scheme scam. The revelations came via the so-called FinCEN Files, (obtained by Buzzfeed), a leak of 2.7k documents, mostly consisting of Suspicious Activity Reports. The files relate to alleged money-laundering transactions, totalling in excess of US$ two trillion and involving several banks that took place over most of this century. The bank’s share value dropped 5.3% on the day adding to its woes, including the impact of Covid-19 outbreak in China and US-Sino geo-political tensions, that has seen its market value halved so far this year. JP Morgan is another bank involved and one other bank implicated in the scam, Standard Chartered, shed 6.2% in Monday’s trading. It seems that on a global scale, banks cannot help themselves. It is reported that US authorities repeatedly flagged transactions as suspicious in the years between 1997 and 2017, yet the banks apparently took little or no action. It does seem like open season for some banks to assist oligarchs and terrorists to allow the flow of trillions of dollars of dirty money through their systems.
Another former stock market favourite, Rolls Royce, appears to be in dire trouble, with its shares hitting their lowest level (8.4% lower at US$ 225) since 2004 on Monday. This comes after the UK company announced it was in talks with several SVWs as it considers “funding options to enhance balance sheet resilience and strength”; it is reported that the maker of aircraft engines is looking for funding in the region of US$ 3.4 billion. Its financial woes, made worse by the pandemic which has turned the aviation sector on its head, sees RR’s liabilities higher than its assets which makes the cost of borrowing higher than it would be for a solvent business. In H1, it posted a US$ 7.3 billion loss. There are other financing methods that the company will be considering including a rights issue (which is probably the least desirous given the low share price) or even a new debt issuance.
Fosun, which owns Club Med and completely took over Thomas Cook when it went bust last year, has released ambitious plans for its post-Covid holiday sector, which it expects to happen once a vaccine has been found. The Chinese travel firm, which has already dramatically down sized the historic English company, relaunched Thomas Cook in China in July which it describes as a success, with more than 170k customers, and has now relaunched the brand in the UK as an online travel agency. The strategy for the Chinese relaunch is more than an-online operation but a lifestyle platform which offers a range of related products and services, hotels, tickets, entertainment, education and retailers selling gifts and souvenirs. Fosun has also started building ten new Club Med resorts to be ready for the end of 2022.
Because of a slump in hotel guest numbers, the owner of Premier Inn and Beefeater has warned that it may have to make 6k staff redundant. 27k of Whitbread’s 35k staff are still being paid via the government’s furlough scheme. Their hotels have seen August stays halved, compared to a year earlier, and diner numbers a third down which would have been lower if not for the government’s Eat Out to Help Out scheme in August. Meanwhile, pub chain JD Wetherspoon posted that 50% of its 1k staff working at airport venues could lose their jobs because of the dramatic fall in travel and tourism mainly because of a downturn in trade in these pubs. On Tuesday, the sector was doubly hit by the news that, as from today, Thursday, hospitality venues will have to close at 22.00, to help curb the spread of the virus, and that the government has advised the population to now work from home “if they can” – described by UK Hospitality that this represented “effectively a lockdown” for city centre bars and restaurants.
Little wonder that Cineworld posted an H1 US$ 1.6 billion loss, (compared to a US$ 130 million profit in the same period a year earlier), as its cinemas were closed under lockdown and will now probably have to raise more funds to keep going; group revenues were down by two thirds at US$ 712 million. The cinema company has reopened 72% of its 778 global sites but six of its UK theatres remain closed. Following new government guidelines, its UK cinemas will now be closed from 25 September until November which just reinforces the urgency of negotiating waivers on banking agreements, which fall due in December and in June next year, to maintain liquidity.
It seems likely that 1k of the 6k Butlin’s employees will have to take either paid or holiday leave when the furlough scheme comes to an end next month. The iconic holiday camp, operator, privately-owned by Bourne Leisure Group, is currently working at 50%, as the UK summer comes to an end and the winter revenue stream starts to dry up. The leisure group, with Haven caravan sites and Warner Leisure Hotels in its portfolio, has managed to secure hundreds of millions of dollars in government support in the form of loans and furlough payments as well as deferred VAT and business rates since the start of the pandemic.
A sign of the times, sees owners Mars Foods changing the name of Uncle Ben’s Rice to Ben’s Original and removing the image of a smiling, grey-haired black man from its packaging. This follows a brand review by the group which concluded that the almost eighty-year old company should change its name and branding.
Expecting little prospect of the UK winning a deal on financial services in Brexit talks, JP Morgan Chase has told about 200 staff to plan to move out of London. These employees, mainly in sales and trading, have been told to prepare for relocation to other European cities and will be given six months commuting and accommodation support. It seems that the EU considers the UK jurisdiction not robust enough rules to enable cross-border trade, a process known as equivalence. Furthermore, in the event of a no deal, banks will be barred from doing investment services business from London with clients such as German and French pension funds. However, some banks are holding out on any move until a decision is known.
To add to its many woes, the people of Lebanon are now facing Zimbabwe-type inflation with consumer prices increasing 112.4% and 120.0% in July and August, as food, clothing/footwear and furnishings/household equipment jumped 367%, 413% and 664% last month. The country, still in comatose from last month’s massive Beirut explosion, is facing its worst economic crisis since the culmination of the fifteen-year civil war that ended in 1990. The country’s gross July public debt was 9.0% higher, on the year, at US$ 94 billion, of which the three major stakeholders were the central bank, commercial bank accounts and foreign investors holding 42.5%, 28.4% and 18.8% of the total debt. Although Lebanon’s current account deficit is narrowing, the central bank’s foreign currency reserves have been losing US$ 1 billion every month in 2020 – and if this continues, at this rate, there may be no reserves by this time next year. The Lebanese pound has lost more than 80% of its value in the black market against the dollar over the past twelve months. If no early positive action is taken, there is no doubt that social and political instability will prevail and there is every chance that the country’s sectarian divisions will deepen with inevitable tragic consequences. The Lebanese deserve a better life and a better government.
Australia’s second largest bank, Westpac, can now boast that it has had to pay a record US$ 0.9 billion in fines for the nation’s biggest breach of money laundering laws and counter-terrorism financing laws. However, the fine could have been a lot worse, as the bank posted 23 million breaches of the law, with each individual breach carrying a maximum penalty of US$ 15 million (AUD 21 million). The reduced fine came after the bank negotiated a deal and apologised for its “failings” but to an outsider it looks as if the cosy establishment relationships continue and it is time for criminal action to be taken. Last year, the bank disclosed to its shareholders that it had self-reported some of the breaches to the Australian Transaction Reports and Analysis Centre and also disclosed the investigation to shareholders, including a forecast penalty. Austrac estimated that the total amount of funds involved was US$ 7.8 billion. On a local scale, Westpac is not the only bank to have been fined – in 2018, Commonwealth Bank was fined US$ 500 for similar offences, but on a smaller scale – whilst on a global scale the list, including HSBC, Danske Bank and Rabobank, is almost endless.
Poor old Alan Joyce has just seen his total pay fall by 83% because of the pandemic which has caused air travel to tank. Two years ago, the Irish-born Qantas Airways boss was Australia’s highest paid chief executive but for the year ending 30 June, he saw his pay slump from US$ 7.2 million to just over US$ 1.2 million. He took no salary from April to July this year as revenues collapsed, before returning to 65% of his base salary in August and also agreed not to receive 345k shares associated with a long-term incentive from 2017 – with the board deciding next August whether he receives them or not. Any guesses?
There are fears that up to 100k Australian businesses could collapse before the end of the tax year next June, not helped by the closing of JobKeeper and an imminent change in insolvency laws. The figure may be higher when it is estimated that the country has 2.4 million businesses – and if only 10% fail, then a lot more would go under. The new law could see ‘zombie” companies – which have too much debt and poor management and have been ticking along due to emergency COVID-19 support measures – being identified quicker. It is thought that business owners, with liabilities of less than US$ 710k (AUD 1 million), will be allowed to stay in charge while they deal with their debts. For smaller companies in trouble, quicker and easier regulations will allow for almost immediate liquidation.
One major casualty of the pandemic is the loss of so many international university students returning to study in Australia which is virtually under complete lockdown. It is estimated that only forty student-visa holders entered the country in July, as student accommodation providers witness occupancy rates dropping significantly. The seriousness of the problem can be gleaned from the following table:
|2019 arrivals||2019 departures||2020 arrivals||2020 departures|
A major problem has been caps the states have put on international arrivals – for example, South Australia has a weekly limit of 500 people. The slump in overseas student numbers sees traditional student accommodation falling from a 95% occupancy to barely 50% and ancillary businesses that rely on students for their income are also suffering. It is estimated that a third of the students’ spending was in retail and hospitality, with another third spent in the property sector. Urbis reckons that there are nearly 113k purpose-built student accommodation beds in Australia, and a further 45k+ in the pipeline, either under construction, in development or planning.
A report by UK-based InfluenceMap has noted that the Minerals Council of Australia is the “single largest negative influence on Australian climate-related policy” and that the country’s current climate policies are consistent with a 3-4 degrees Celsius temperature rise, along with an 8% increase in greenhouse gas emissions, by 2030. The report also noted Australian representative groups – including the main “culprit”, the Australian Chamber of Commerce and Industry, the Minerals Council of Australia and the NSW Minerals Council – featured disproportionately among the world’s most damaging lobbyists on climate, and most responsible for undermining the country’s climate policy. It also claimed that the big four mining giants – BHP, (judged to be the most negatively influential), Glencore, Rio Tinto and Santos – have the most concentrated network of links to industry associations that “continue to work against Paris-aligned policy for Australia”. It appears that over 75% of industry associations are pro-fossil-fuels and take positions against climate regulations and that there has been limited public scrutiny of these activities. Now outside pressure on these policies are coming to the fore, as activists and shareholder groups increase their pressure on companies to be more environmentally friendly and take a more active approach to reducing emissions
A proposed change to money laundering laws could flood the Australian stock exchange with dirty cash, experts have warned, as stockbrokers would not need to identify their clients for up to five days after making a trade. Currently, a new customer must be identified before an account with a stockbroker can be opened. It seems that AUSTRAC has already closed public submissions about identifying the source of funds used to buy and sell ASX stocks. There are global crime syndicates, some of whom have probably used certain international financial institutions in the past, who may take advantage of this rule change, if it goes through, to use the Australian bourse for laundering their ill-gotten gains.
With the government’s furlough programme coming to an end at the end of next month, it is reported Chancellor Rishi Sunak is considering alternative options, including top-up schemes similar to those already operated by governments in France and Germany. Instead of paying 80% of an employee’s wage, this will allow firms to reduce employees’ hours while keeping them in a job, with the government paying part of the lost wages when no work is being carried out. If nothing is done in the meantime, unemployment figures will skyrocket in November. Such a scenario would be cheaper than the US$ 52.5 billion it has cost to run furlough, bearing in mind the bill for Kurzarbeit, which has been extended until the end of 2021 by the German government, has a forecast cost of US$ 40.5 billion by the end of 2021.
With the UK economy under increasing pressure from escalating Covid-19 cases, and the reintroduction of tighter restrictions in many areas, along with apparent little progress in Brexit negotiations, the Chancellor has been in parliament to set out the government’s new support scheme to save millions of jobs and businesses from a winter crisis. Whilst acknowledging that the UK should be prepared for at least six months of hardship and that its economy will undergo a “more permanent adjustment,” he introduced several measures to bolster the sagging economy.
These included more financial support to various industries including extending a VAT cut for hotels, cafes and restaurants until the end of March to support the hospitality and tourism sectors which are struggling with much reduced demand. He replaced the government’s furlough scheme, which will end at the end of next month, (and had helped 32% of eligible jobs since its introduction to 30 June), by paying a third of the wages of staff in “viable jobs” who are forced to work lower hours due to reduced demand; the government and the employer will each pay a further third of the wages. There will be an extension until 30 November of business loans, such as the ‘bounce back’ and ‘coronavirus business interruption’ support. To date, more than one million businesses have taken out a bounce back loan, with an average loan size of US$ 40k. A new ‘Pay as You Grow’ system allows businesses to repay their loans over a period of up to ten years or switch to interest-only repayments for six months.
August saw the UK government borrowing US$ 46.7 billion – 85% more than the comparable figure of US$ 7.0 billion a year earlier. For the first five months of the fiscal year (April – August), the government has already borrowed US$ 225.6 billion, beating the previous annual record of 2010, following the GFC. By the end of the year, 31 March 2021, the borrowing could well touch the US$ 500 billion mark, as the government tax revenues slow down considerably, whilst its spending, on keeping the economy turning over, moves in the other direction. Another record set in August saw the country’s debt top US$ 2.6 trillion (GBP 2.0 trillion) for the first time ever, and US$ 324.4 billion higher than in August 2019; the figure now exceeds the size of the UK economy.
September PMI figures from both the UK and the eurozone were disappointing as the Flash UK Composite PMI data dipped to 55.7 from a three-month low 59.1, a month earlier; the eurozone fared worse with a monthly decline of 1.8 to 50.1. (The threshold figure between expansion and contraction is 50.0). Thedecline is a result of rising infections that has led to governments reintroducing more lockdown rules which have had a knock-on impact on various economic sectors. The big losers are those workers in the service sector, whilst data shows that driven by increased demand, factory production is moving northwards.There are concerns, on both sides of the English Channel, that if September figures trend into Q4, there is every possibility that the gains made in Q3 will be lost and recession will return in early 2021.
On the orders of the Pontiff, one of the more high-ranking Vatican officials, Cardinal Giovanni Angelo Becciu has resigned. It is reported that he had been using church funds in a controversial US$ 240 million deal, to invest in a luxury London building. He had also been suspected of giving Church money to his brothers and also propping up a failing Roman hospital which employed his niece. The deposed 72-year old Italian cardinal, a close aide to the Pope had previously held a key job in the Vatican’s Secretariat of State, was called to a showdown meeting with Pope Francis today, following which a communique confirmed that the Pope had accepted Becciu’s resignation as prefect and his renunciation of “all rights connected to the cardinalate”. He had been involved in several controversies and was a major character in conspiracies about alleged attempts to undercut financial reforms, when he suspended an audit of all Vatican departments by PwC. The Vatican has not been immune from scandals in the past and has had probably more than its fair share of financial shenanigans. The latest one may seem to indicate that Pope Francis has had enough and a long-needed clean-up has begun. Someone’s watching From A Distance!