So You Think You’ve Got Troubles                                                              01 April 2021

Azizi Developments recently celebrated the handover of Mina, its luxurious development on the eastern crescent of Palm Jumeirah and is on its way to complete its ambitious target of handing over 10k residential units in 2021. Future handovers include Al Furjan, (Plaza and Star in April and Berton in May), phase 1 of MBR City’s Riviera’s phase one in June, and Dubai Healthcare City. Prices for the Mina development start at US$ 708k for a 1 B/R apartment to US$ 7.3 million for a penthouse, with a private pool; to date, 96% of the 120 1 B/R and 54 2 B/R residences, as well as four spacious penthouses, have been sold. The development, encompassing 38.5k sq mt of built-up area project, will include retail units and other amenities.

Another world record for the emirate came with the announcement that Dubai’s Address Beach Resort has the world’s highest infinity pool in a building. The pool, located in JBR and 294 mt up, on the building’s 77^th floor, is only accessible to hotel guests. It is divided into a 75m-long swimmable zone, a wet sunbed area and a sunken pod water feature.

According to the Consumer Confidence Index, released by Dubai Economy, Q1 consumer confidence rose to 145 – its highest level in almost six years – mainly driven by improvements in personal finance conditions of consumers. There is growing optimism on personal finance conditions improving in 2021, with 84% of consumers expecting a boos this year, compared to 73% in Q1 2020. The Index also noted that 84% of consumers are optimistic about the overall economy during the next 12 months. Furthermore, 87% of consumers see chances of getting a job improving over the next twelve months, pointing to a brighter job market.

As part of the emirate’s clean energy strategy, which aims to produce 25% of its energy from clean sources by 2030, and 75% by 2050, Dubai Holding is leading a consortium of local and international companies developing a 200-megawatt, US$ 1.1 billion energy-from-waste project. The consortium, which also includes Itochu Corporation, Hitachi Zosen Inova, Besix Group and Tech Group, will operate the PPP (public-private partnership) project under a 35-year concession period, agreed with Dubai Municipality. The project, one of the biggest of its kind in the world, will be partly financed by a loan of US$ 900 million from several banks. It is estimated that the plant, located in Warsan, will treat 5.7k tonnes of municipal solid waste per day, converting a total of 1.9 million tonnes of waste per year into renewable energy. The facility will have the capacity to process up to 45% of Dubai’s current municipal waste generation.

DEWA is planning to invest US$ 408 million to acquire the Ras Al Khaimah-based Utico’s Hassyan seawater reverse osmosis plant in a thirty-five year agreement. The plant, owned by a private utility company, will have a daily capacity of 120 million imperial gallons and will be built under the independent water producer (IWP) model. It is an increase in daily desalinated water capacity to 750 million imperial gallons – 60% higher than the current level – with the utility aiming to produce 100% of desalinated water, using a mix of clean energy and waste heat, by 2030; the authority also plans to reduce water consumption by 30% by 2030. This is another PPP project with DEWA partnering with sovereign entities from Saudi Arabia, Bahrain, Oman and Brunei.

The bourse opened on Sunday 28 March and, having lost 108 points (4.1%) the previous week, regained 62 points (2.5%) to close on 2,558 by Thursday 01 April. Emaar Properties, US$ 0.05 lower the previous week, moved US$ 0.03 higher to close at US$ 0.97. Emirates NBD and Damac started the week on US$ 2.97 and US$ 0.30 and closed on US$ 3.12 and US$ 0.32. Thursday 01 April saw the market trading at 115 million shares, worth US$ 31 million, (compared to 69 million shares, at a value of US$ 36 million, on 25 March).

For the month of March, the bourse had opened on 2,552 and, having closed the month on 2,550, down just 2 points. Emaar traded lower from its 01 March 2021 opening figure of US$ 0.98 – down US$ 0.02 – to close February on US$ 0.96. Two other bellwether stocks, Emirates NBD and Damac, started March on US$ 3.04 and US$ 0.32 and closed on 31 March on US$ 3.13 and US$ 0.33 respectively.

By Thursday, 01 April, Brent, US$ 6.83 (8.6%) lower the previous fortnight, lost a little more ground, shedding US$ 2.06 (1.5%) in this week’s trading, to close on US$ 64.65. Gold, US$ 2 (2.4%) lower the previous week, nudged US$ 3 (0.1%) higher, by Thursday 01 April, to close on US$ 1,730. There are reports that both Saudi Arabia and Russia are in agreement that the current Opec+ cuts will be eased, with oil curbs being reduced by 350k bpd per month  from May until July, with demand not yet being strong enough to prevent prices declining. Last year, the group agreed to cut 9.7 million bpd, equating to 10% of global output, but then eased back to 7.7 million bpd, as demand recovered. Saudi has also a further 1 million bpd quota cut in place that will probably stay in place until at least July.

Brent started the month on US$ 64.42 and shed US$ 0.88 (1.4%) during March to close on US$ 64.42 Meanwhile, the yellow metal lost US$ 60 (3.4%) in March having started the month on US$ 1,773 to close on 31 March on US$ 1,713.

What a mess the financial world is in when it is reported that some Goldman Sachs have been complaining of having to work a 95-hour week under “inhumane” conditions. Now it is reported that team leaders have been paying, from their own pockets, for food hampers to all their team members. It seems that senior management have ignored the problem to take responsibility and further action to rectify the embarrassing work situation that some of their lower-ranking employees face.

If there are no more UK lockdowns this year, JD Wetherspoon, with a current portfolio of 871 pubs, plans to invest US$ 200 million in opening eighteen new pubs, and 2k new jobs. The pub chain also confirmed that it. would not only “significantly extend” 57 existing pubs as part of the project but would also invest a further US$ 1 billion to open 15 new pubs, and enlarge fifty existing pubs, each year for the next decade.

Financially it has been another good year for Denise Coates CBE, the boss of the gambling firm Bet365, and said to be the founder and majority shareholder in Bet365 Group, has been awarded one of the biggest pay packets in UK corporate history. In the year ended 29 March, she earned a salary of US$ 579 million and picked up dividends of US$ 66 million, making a total of US$ 645 million; her annual salary was 50% higher compared to the previous year. Although revenue fell 8% to US$ 3.85 billion, and profits slumped 74% to US$ 268 million, the company noted that the arrangements were “appropriate and fair” – a view probably not shared by many outsiders. According to the High Pay Centre, she earned more than the bosses of every FTSE 100 company combined. She has taken over the mantle as the highest paid UK executive from hedge fund tycoon, Sir Chris Hohn, who last month was paid US$ 479 million in dividends from his The Children’s Investment fund, after doubling annual profits; interestingly, he was once chancellor Rishi Sunak’s boss at TCI.

Jessops, the High Street photographic equipment chain, with 120 staff and 17 outlets, has filed a notice to appoint administrators and advisors FRP to help it restructure the business. It still plans to continue to trade, when lockdown restrictions lift in April, as it considers a rescue deal in the form of a Company Voluntary Arrangement. This is not the first time that the retailer has had financial problems; in 2013, the current owner bought Jessops out of administration, after it had collapsed with US$ 112 million of debt and in October 2019, it issued a similar CVA notice. (A CVA ensures that landlords will not receive their fixed rent but a percentage of a shop’s revenue instead).

Microsoft Corp confirmed that it would sell augmented reality headsets, based on its HoloLens product and backed by Azure cloud computing services, to the US army; the ten-year contract could be worth up to US$ 22 billion Since 2019, both parties have been working on the prototyping phase of what is called the Integrated Visual Augmentation System, or IVAS, and this has now moved into the production phase of the project.

With the aim of increasing its capacity, the world’s largest contract chipmaker is to invest US$ 100 billion over the next three years. Taiwan Semiconductor Manufacturing Co has already announced that it would spend up to US$ 28 billion this year to develop and produce advanced micro chips. A global chip shortage has hit the car industry, with Volkswagen, Honda, Toyota and General Motors all having to reduce production because when the carmakers cut production levels last year, the chip-makers switched to selling their products to other industries with greater demand. Now with the car industry slowly recovering, chip-makers are finding it difficult to satisfy their current demand. Furthermore, demand from other sectors, including consumer electronics, has also increased and there has been a marked growth in demand for semiconductor technology, with the Covid-19 pandemic further accelerating digitalisation. Shortages across the board are expected to continue for the rest of the year.

With revenue nudging 3.2% higher, despite the impact of the pandemic, and tightening US pressure, Huawei posted a record 2020 profit of US$ 9.9 billion, at 3.2 higher on the year; the Chinese telecom giant returned revenue figures of US$ 136.6 billion. Prior to Trump-led pressure to curtail its activities in the US, the world’s leading supplier of telecom networking gear and a top smartphone brand, regularly posted 30%+ annual revenue growth figures, but since 2018 it has begun to slow, so that by 2019 sales still expanded, but at a lower 19% level. The Trump administration cut Huawei off from key components and banned it from using Google’s Android operating systems in its handsets.

With major UK investors concerned with its gig economy-related personnel problems – and possible negative client reaction – and not participating, Deliveroo’s IPO saw shares sinking 27.2% on its first day of trading to fall to US$ 3.91 from its start of US$ 5.37. The company had initially hoped for a share price of up to US$ 6.33. It was the UK’s biggest stock market launch for a decade and such a disappointing first day may convince other major tech players not to list in the UK.  However, Deliveroo had its own problems and if some of the UK’s biggest investment fund managers, (including Aberdeen Standard, Aviva Investors, BMO Global, charity fund manager CCLA, Legal and General Investment Management and M&G), boycott an IPO, it is bound to have a negative impact. It is also an embarrassment for the UK Chancellor who had earlier claimed that the Amazon-backed company was a “true British tech success story” that could clear the way for more initial public offerings by fast-growing technology firms.

There was no surprise to see that the Registrar of Consultant Lobbyists cleared David Cameron of any wrongdoing for contacting senior Treasury officials at least nine times on behalf of the disgraced and now bankrupt financial firm Greensill Capital. It quickly concluded that his activities had not fallen within the criteria that required registration, as he had been an in-house employee for Greensill, a key backer of UK giant Liberty Steel. The ex-prime minister will undoubtedly face other enquiries into his role with Greensill that may not be as accommodating.

Concerns over the future of Liberty Steel have grown ever since the Johnson government’s refusal to Sanjeev Gupta’s request for a US$ 242 million financial support package on the back of the fallout from the Greensill debacle. The company, that employs 5k at various plants in the UK, needs funds to pay day-to-day operating expenses and absorb recent losses. It seems that government has concerns about the “opaque” nature of Mr Gupta’s empire, which employs a further 30k worldwide so if any public funds were forthcoming, there would have to be assurances that the money was being used only in the UK. There is no doubt that the only hope for the firm is restructuring, so that any funds ensure value for money and appropriate protections for the taxpayer.

How can a mega 200k tonne container ship be blown “hard fast aground”, and, for six days, block one of the world’s biggest waterways which accounts for 12% of total global shipments? Maybe the captain of Ever Given could explain why his stranded vessel is holding up an estimated US$ 9.6 billion of goods each day, equating to US$ 400 million an hour; interestingly, the Suez Canal’s westbound traffic generates a daily US$ 5.1 billion, more than the US$ 4.5 billion from eastbound traffic. Some experts were wrongly estimating that it could take weeks to free the vessel, and on their advice, some shippers had already started moving their vessels to sail around the Cape of Good Hope, which adds 3.5k miles and twelve days to the journey. The “blockage” only took six days to clear.

After the UK government indicated that it wanted to “make sure tech firms pay their fair share of tax”, the US has threatened to retaliate with tariffs of up to 25% on items such as ceramics, make-up, overcoats, games consoles and furniture. In a possible tit for tat tax, it is estimated that it will add US$ 325 million to both countries’ exchequers. The Biden administration has argued that the 2% digital services tax – based on tech companies’ revenue – has “unreasonable, discriminatory, and burdensome attributes”. The tax, introduced last April, is aimed at search engines, social media services and online marketplaces which derive value from UK users.

On Monday, two leading global investment banks issued profit warnings, with Credit Suisse indicating it could have a “highly significant” impact on its next quarterly results and Japan’s Nomura said it could make a US$ 2 billion loss from problems at Archegos. The US hedge fund seems to have made huge investments in certain companies that have turned bad and when it came clear that it was in financial trouble, its lenders made a call on the money owed and, unable to raise further finance, the last resort was to sell their shares at a loss. On the news, the Swiss bank’s share value shed 14% and Nomura 16%.  Perhaps these two financial giants could have carried out a more detailed due diligence on Archegos – in 2012, it settled insider trading charges in the US and two years later was banned from trading in Hong Kong. At times like these, it is inevitable that others will be in the same boat and very quickly the situation could become a financial crisis.

Having flagged a possible US$ 2 billion loss at a US subsidiary, Japan’s biggest brokerage and investment bank has decided to shelve a hefty bond issuance and cancel its planned issuance of US$ 3.25 billion in senior notes. Last month, it posted a 23% jump in nine-months profit to December, to US$ 2.82 billion, driven by its US business, which includes investment banking and equity and bond trading. Last Friday, there were a series of block trades in the US, linked to sales of holdings by Archegos Capital Management, that investors said caused falls in the stock prices of numerous companies.

This surprise default of a US hedge fund will send reminders to traders of the demise, in the late 1990s, of hedge fund, Long Term Capital Management. It is hoped that the Nomura problem is not as big and complicated, as it appears that it has been managing the money only of its founder and traders, rather than for external investors. But since then, there is no doubt that the financial world has become more widely interconnected, making it difficult to gauge exactly what risks and trading positions individual hedge funds have built up. The market will be watching developments closely.

March figures from ADP Research indicated that US employers added the most jobs in six months – a sure sign that the increase in Covid vaccinations and easing of restrictions, with many businesses reopening, has had a positive impact on the country’s economy. Company payrolls were 517k higher, driven by a marked uptick in in the leisure and hospitality sectors. SMEs showed better employment growth than larger companies but overall, the labour market has bounced back after an earlier sluggish improvement late last year.

Research from CoreLogic indicates that Australian house prices are rising at the fastest pace since October 1988, as the sector has recovered quicker than expected from the short-lived COVID downturn; home values in Sydney, Melbourne, Hobart, Canberra and Brisbane are at record highs. The study noted that Sydney recorded the most rapid price rise in March at 3.7% (Q1 – 6.7%), followed by Hobart’s 3.3%, Canberra – 2.8% and 2.4% monthly rises in Melbourne and Brisbane. For the first time in twelve months, capital city property prices were higher than regional markets. One of the main reasons attributable to these impressive growth figures is record low interest rates which have increased people’s borrowing capacity and encouraged first home buyers to enter the market. The current mix of lack of supply and high demand has resulted in listing numbers remaining low and the current advertising housing stock is 25% lower than the five-year average; it is estimated that for every new listing added, 1.1 homes are being sold. However, such property price increases, and bank lending becoming looser and riskier, cannot last forever and it is inevitable that measures will be taken to slow the lending boom and to “cool” the market. It is unlikely that the central bank will come to the party and tinker with interest rates in the short -term, so other measure will have to be implemented. They may include placing limits on interest only loans, high loan-to-valuation-ratio lending and high debt-to-income-ratio lending. If prices continue to grow at this rate, and lending conditions deteriorates, there is only one conclusion – and it will be messy.

Although dipping in February, because of expectations that the property tax break would expire on 31 March, UK mortgages approvals remained at their highest level since March 2016. The 87.7k figure was down 10k on the month and 16k lower than November’s record return of 103.7k. Total February borrowings were at US$ 8.5 billion, as effective interest rates nudged 0.06% to 1.91%. The UK property market has witnessed a mini boom since the Chancellor, Rishi Sunak, introduced the Stamp Duty land Tax holiday last July, by which the first US$ 690k (GBP 500k) of the purchase price of a main residence was exempt from SDLT, resulting in 2020 house prices rising a record 8.5% to US$ 350k; this “holiday” has now been extended to September.

For the seventh straight month, February consumer borrowing dropped 9.9% on the year, the biggest increase on record; with consumers repaying US$ 1.65 billion of personal debt in the month, this indicated that consumers’ repayment of existing debts outweighed the value of their new borrowing. Most of the reimbursements went on credit card repayments. When the economy opens up next week, there will inevitably be a marked increase in economic activity, with consumers’ pent-up demand released onto the market, as non-essential retail and hospitality venues start to open; Q2 and Q3 consumption growth levels could come in as high as 3.5%, dependent on no further lockdowns.

Joe Biden has managed to push his second funding package, after the US$ 1.9 trillion Covid pandemic aid deal, through Congress. This one will see US$ 2.3 trillion being spent largely in two sectors – upgrading the country’s crumbling infrastructure and tackling climate change – in a bid to boost economic growth and keep it competitive on the global stage; some of this funding will be met by increasing corporate tax by a third from 21% to 28% and raising the minimum rate charged for overseas profits. Almost 26% of the package will be invested in infrastructure, including modernising roads, replacing rail cars and buses and repairing crumbling bridges, and billions more on projects such as improving veterans’ hospitals, upgrading affordable housing, expanding high-speed broadband, and providing incentives for manufacturing and technology research. The proposal contains hundreds of millions of dollars in green energy spending, expanded care for the elderly and disabled and job training as well as billions to initiatives, such as charging stations for electric vehicles and eliminating lead water pipes.

 It is unclear what difficulties this plan will face in Congress, but early signs point to a tough – and maybe acrimonious – fight ahead. If the President gets this passed in Congress, he has more unpopular and controversial issues to face – immigration, voting rights, gun control, healthcare and race relations to name just five. So You Think You’ve Got Troubles.