All Things Must Pass!

All Things Must Pass!                                                                  23 September 2022 

The 2,401 real estate and properties transactions totalled US$ 1.83 billion during the week ending 23 September 2022. The sum of transactions was 243 plots, sold for US$ 351 million, and 1,659 apartments and villas, selling for US$ 956 million. The top three transactions were for land in Burj Khalifa, sold for US$ 27 million, another for US$ 14 million in Al Barsha South Fourth and the third for US$ 13 million in Umm Suqeim.  Al Hebiah Fifth recorded the most transactions, with 102 sales transactions, worth US$ 67 million, followed by Jabal Ali First with 37 sales transactions, worth US$ 44 million, and Al Yufra 2, with 20 sales transactions, valued at US$ 7 million. The sum of the amount of mortgaged properties for the week was US$ 254 million, and 119 properties were granted between first-degree relatives, worth US$ 78 million.

Driven Properties claim that a five-bedroom, 4.6k sq ft townhouse, sold for almost US$ 10 million, was the most expensive to be sold in Dubai; the Villa Amalfi development is located on the Jumeirah Bay Island, with the townhouse community built around a private park and features a range of community facilities. In August, the single biggest residential land sale in Jumeirah Bay fetched US$ 49 million and, a month earlier, a garden villa was sold for US$ 18 million – making it the most expensive to be sold on Palm Jumeirah. Many analysts opine that the emirate’s ultra-prime luxury properties will post record 2022 price increases north of 15%.

Damac Properties’ hospitality arm announced plans not only to expand its local portfolio but also to seek overseas opportunities abroad.  Damac Hotels and Resorts expects “strong” occupancy rates at its properties this year and will open two hotels in Dubai in the coming months – the Navitas Rotana and another hotel at Damac’s Aykon City on SZR. Currently, the developer has 5k rooms over seven properties – Paramount Midtown, Damac Tower by Paramount Hotel Dubai, Radisson Hotel Dubai Damac Hills, Damac Maison Cour Jardin, Damac Maison Distinction, Damac Maison Mall Street and Damac Maison Canal Views.

Dubai posted 7.12 million visitors in H1, (compared to 2.52 million a year ago), as its tourism sector rebounded strongly from the impact of the coronavirus pandemic, driven by government initiatives, the successful hosting of Expo 2020 Dubai and other major international events this year. It is estimated that the whole country received twelve million hotel visitors, up 42.0%, that contributed US$ 5.17 billion to the country’s economy. HH Sheikh Mohmmed bin Rashid Al Maktoum noted that “our indicators today are stronger than our indicators before the pandemic, and our economic growth is faster than before the pandemic, and our tourism, commercial and development sectors are larger than before the pandemic.”

HH Sheikh Ahmed bin Saeed Al Maktoum, Chairman of the Dubai Supreme Council of Energy, chaired its 72nd meeting held virtually, which discussed, inter alia, several topics, including the results achieved by the Dubai Carbon Abatement Strategy 2030, which aims to reduce 30% of carbon emissions by the end of 2030; this is in line with the country’s efforts to achieve net-zero carbon emissions by 2050. Last year, it was estimated that carbon emissions fell 21%, over the year, attributable to solar energy taking a bigger share and enhanced waste recycling in power and water production, industry, ground transport and waste treatment. The meeting also reviewed national initiatives and strategies to achieve net-zero carbon emissions and consolidate a low-carbon economy.

WETEX and Dubai Solar Show will open its 24th annual three-day exhibition on 27 September, and is expected to attract 1.75k companies from fifty-five countries. Saeed Mohammed Al Tayer, MD & CEO of DEWA noted that “organising WETEX and Dubai Solar Show is in line with the vision of the wise leadership to promote sustainable development in the UAE and consolidate Dubai’s position as a leading global hub for green economy and a preferred destination for organising and hosting major international events, conferences and exhibitions”. WETEX and DSS 2022 is held in conjunction with the 8th World Green Economy Summit, organised by the World Green Economy Organization, DEWA, and the Dubai Supreme Council of Energy, under the theme ‘Climate Action Leadership through Collaboration: The Roadmap to Net-zero.’

Salik Company’s IPO, which saw 24.9% of its share capital being sold by the remaining shareholder, the Government of Dubai, was a massive 49 times oversubscribed, with the gross demand for the AED 2 shares (US$ 0.545) garnering US$ 50.2 billion for all tranches. The qualified investor tranche attracted US$ 40.7 billion of demand from across the globe and was oversubscribed 52 times, whilst the retail offering was 119 times oversubscribed, attracting more than US$ 9.4 billion from local investors. It will see its first trade, on the DFM, next Thursday,  and will open with a market cap of US$ 4.1 billion, (AED 15 .0 billion).

The DFM opened on Monday, 19 September, 128 points (3.8%) higher on the previous week, shed 80 points (2.3%), on Friday 23 September, to 3,409. Emaar Properties, US$ 0.11 higher the previous week, lost US$ 0.07 to close the week on US$ 1.69. Dewa, Emirates NBD, DIB and DFM started the previous week on US$ 0.71 US$ 3.54, US$ 1.64, and US$ 0.47 and closed on US$ 0.68, US$ 3.43, US$ 1.65 and US$ 0.45. On 23 September, trading was at 99 million shares, with a value of US$ 60 million, compared to 158 million shares, with a value of US$ 144 million, on 16 September 2022.  

By Friday 23 September 2022, Brent, US$ 9.45 (9.4%) lower the previous three weeks, dropped a further US$ 5.20 (5.7%) to close on US$ 86.15.  Gold, US$ 43 (2.5%) lower the previous week, fell a further US$ 33 (2.0%), to close Friday 23 September, on US$ 1,652.  Gold, meanwhile, dropped to its lowest level since the early days of the Covid-19 pandemic, but as rising interest rates usually result in lower gold prices, gold will continue to head south for the rest of the year and US$ 1,500 is not out of the question by 31 December.

Today, oil prices tanked to an eight-month low, losing 4.76% on the day, driven by investor worries about an almost certain global recession, as somnolent central bankers have now realised that rising inflation was actually a real problem that would not just disappear in time. Now many are introducing belated monetary tightening measures, including aggressive rate hikes, to return inflation to their mainly 2% targets – a move that should have started more than twelve months ago. As it is inevitable that any global recession will impact on the oil sector, with demand falling, we could see Brent trading at US$ 70, or even lower, by the end of the year.

A Boeing executive has commented that Saudi Arabia has the potential to become a big player in the ME aviation industry and could join the region’s three front runners – Emirates, Etihad and Qatar. It comes at a time when the kingdom embarks on a plan to develop its air transport sector, as outlined in its Vision 2030. Backed by a US$ 100 billion investment, its aviation sector is aiming to triple annual passenger traffic to 330 million by 2030, boosting the number of destinations from its current 99 to 250 and establishing a new flag carrier RIA – with reports it has managed to poach Etihad’s CEO Tony Douglas. Over the next two decades, there is a forecast for almost 3k new planes, valued at US$ 765 billion, as the regional passenger traffic and commercial fleet is projected to more than double. Almost 70% of this total will be the result of growth, whilst the balance will replace older planes with more fuel-efficient models such as the Boeing 737 Max, 787 Dreamliner and 777X.

Whilst not admitting or denying the SEC’s findings, Boeing and its former chief executive, Dennis Muilenburg, agreed to pay US$ 200 million and US$ 1 million respectively to settle civil charges by the US Securities and Exchange Commission. The SEC had claimed that both had misled investors about its 737 MAX, which was grounded for twenty months after two fatal crashes that killed 346 people. It seems that the plane maker knewafter the first crash that a flight control system, (Manoeuvring Characteristics Augmentation System), posed a safety issue, but assured the public that the 737 MAX airplane was “as safe as any that has ever flown the skies.” After the second crash, in Ethiopia in March 2019, the SEC said, “Boeing and Muilenburg assured the public that there were no slips or gaps in the certification process with respect to MCAS, despite being aware of contrary information.” A fund will be established for the benefit of harmed investors. To date, these two crashes have cost Boeing more than US$ 20 billion. In a sign of global corporate dysfunction, that seems to put profits over people, Muilenburg departed Boeing with US$ 62 million in compensation and pension benefits but received no severance pay.

Germany has seen Volkswagen seeking to raise as much as US$ 9.2 billion from putting Porsche through an IPO, which would be Europe’s largest listing in more than a decade. The giant car manufacturer is valuing the company in the region of US$ 70 billion to US$ 85 billion, with the offer period having started last Tuesday and trading to commence on 29 September. At the mid-valuation point for the preference shares, the IPO would value Porsche at 10.2 times earnings before interest, tax, depreciation and amortisation; this is markedly lower than Ferrari’s 23.1 times. Its upper valuation almost equates to VW’s total market value – comprising Audi, Skoda, the VW brand as well as Seat – of US$ 87 billion. Porsche annual sales total over 300k.

With a consortium led by LA Dodgers’ co-owner Todd Boehly, taking over the ownership of Chelsea, there are now ten English Premier League teams at least part-owned by Americans. Furthermore, there are only five clubs with British owners – Brentford, Brighton, Crystal Palace, Tottenham and West Ham. Of the foreign owners involved in  the EPL it seems that the Glazer family is the most unpopular with the fan base almost as soon as they became involved in the club at the turn of the century. By the end of 2003, the Glazers had increased their stake to 15% and then they started to explore a takeover bid, and had acquired further shares so that by October 2004, they had almost reached a 28.3% stake – with 30% the amount needed to submit an official takeover bid. In May 2005, the Glazers bought J.P McManus and John Magnier’s 28.7% stake to take their overall investment to a controlling stake of 57%, and a month later had seen their stake at 97.6% – the threshold to force a compulsory buyout of all the remaining Man Utd shareholders. It is estimated that the Glazers used US$ 293 million of their own money to buy Manchester United for US$ 870 million. It appears that the US family purchased the club, via a leveraged buyout, which was funded by loans – many of which were secured against the club’s assets – and which pushed the club into debt for the first time in seventy years.

Since their arrival, it is estimated that the family has been paid around US$ 1.75 billion, summarised below:

  • Interest                         US$ 810 million
  • Debt repayments        US$ 160 million
  • Dividends                    US$ 180 million
  • Directors’ Fees            US$ 290 million
  • Management Fees      US$ 25 million
  • Sale of Shares             US$ 300 million

When the Glazers took over control of the club back in 2005, its gross debt was valued at US$ 645 million, which is about the same it is today. Old Trafford, once the best club ground in the country, has fallen into disarray, as has its Carrington training centre; both need money spent to catch up with other leading EPL teams. The club’s finances are in bad shape, with its market value having fallen by US$ 1.32 billion over the past nine months. Having used the club’s assets as collateral in the past – and, at the same time, taken out so much from it – an increasing number of fans are calling time on the family. This week,  Manchester United have announced a net loss of US$ 125 million for the 2021-22 season, even though revenues rose by 18% to US$ 625 million. The Glazers has taken so much from this investment and put little or nothing back and it is about time the club was returned to its rightful owners – the fans – but more likely to a benevolent investor who is willing to put money into this potential goldmine.

Last month, Sri Lanka’s annual inflation rate surged to more than 70%, with the island nation still struggling with its worst economic crisis since its 1948 independence from the UK. Because of its shortage of foreign currency – brought on by mismanagement and questionable mishandling of public money – Sri Lanka has been unable to buy key imports, including fuel, fertiliser and medicine, made worse by surging global inflation that has seen food prices 84.6% higher on the year. (Indeed, the country is among the ten countries around the world with the highest food inflation). Furthermore, in the latest quarter to 31 August, the economy has contracted by 8.4%., not helped by the fact that the tourism sector that had almost dried up during Covid has been slow to recover. At the beginning of the month, Sri Lanka reached a preliminary deal with the IMF for a US$ 2.9 billion loan, but all this hinges on the country receiving funds from private creditors. India, which had loaned the country US$ 4 billion in financial aid, is in discussions to restructure this, and has deferred US$ 1.2 billion of payment on Sri Lankan imports, whilst offering a credit line of US$ 55 million for fertiliser imports. The UN’s World Food Programme has commented that “the situation could deteriorate further in the coming months without urgent assistance”.

Last week’s damming economic data, including worryingly high inflation figures and disappointing consumer price reports, ensured that the Federal Reserve had no alternative but to hit the market, with yet another massive interest rate increase this week. Although energy prices have dipped, the increases seen in the likes of housing, food and medical costs have seen so-called core inflation accelerating. The initial factor behind rising prices was demand surging as the world’s largest economy emerged from the pandemic amid supply chain snarls. Since then, others came into play including extended Covid lockdowns in China and surging energy and food prices due to the Ukraine conflict. Added to this is the fear that if the expectation that rising prices become the norm, for consumers and businesses, then there is the danger of stagflation, and it is this possibility that is making the Fed push rates higher and quicker than ever seen before in history. Since June, there have been three straight 0.75% hikes and there are concerns that pushing rates higher and quicker could tip the US economy into recession. Then we will see the dollar falling back to what should be its ‘true’ value, whilst currencies such as sterling will recover.

For obvious reasons, all the news in the UK press concerns the plight of the pound and many seem to forget the sorry state of the Euro which slid to a new twenty-year low at US$ 0.969, driven by the usual factors plus the almost certain win by a right-wing party in Italy’s weekend polls rattling investor confidence. Following the collapse of the government of former EC bureaucrat, Mario Draghi, the Fratelli d’Italia party, led by Giorgia Meloni, will be in power by Sunday night; the right-wing party has campaigned on an anti-EU platform and its victory will see a major political shift in Italy. The currency has seen YTD falls of over 15%, with steeper falls in the coming weeks expected, whilst European bonds weakened with the 10-year bond yield gaining 7 basis points to 1.958% on Thursday. Inflation continued to move higher with August rates, in both the EU and the EC, increasing 0.3% to 10.1% and 0.2% to 9.1% respectively, whilst the S&P Global flash eurozone composite PMI fell 0.7 to 48.9. The ECB is playing catch-up, as it has been far too slow in fighting inflation and may rue their inaction; the economic warning signs have been evident – but not heeded – for the past nine months.  

Last month was almost Armageddon for the energy sector, as gas wholesale prices were more than fifteen times higher than a year earlier. In August, wholesale prices for gas were soaring to 15 times the steady level they were at before August 2021. At the time, there were independent forecasts that prices would shoot even higher next January to US$ 5.4k (GBP 5k). Towards the end of September, wholesale gas prices have fallen by more than half, but they are still six times higher than they were in mid-2021. The government has bankrolled UK households by agreeing to pay the difference between the actual cost and the ‘typical’ US$ 2.7k bill (GBP 2.5k). Obviously, the cost to the taxpayer will be dependent on the actual energy price and could be in the region of US$ 54.2 billion to US$ 162.9 billion, (GBP 50 billion to GBP 150 billion).

Today, pound sterling tanked, ditching 3.6% in value on the day closing below US$ 1.09 – and a new 37-year low. Over the past three months, the battered currency has seen more than 11% wiped off its value compared to the greenback, with Friday also seeing it trade against the Euro at its lowest level since January 2021. The Chancellor of the Exchequer, Kwasi Kwarteng, (yet another government product of Eton), scrapped the country’s top rate of tax of 45%, (so now that rate is 40%), and also abandoned a planned rise in corporate taxes, just two days after the government had introduced the hugely expensive plan to subsidise energy bills for households and businesses. The market reacted to this borrowing-funded mini budget, which is estimated will cost the UK taxpayers US$ 434 billion (GBP 400 billion) over the next five years, by slamming the currency and seeing government bonds suffering their worst day in decades, as well as sending international investors running for the door. Undoubtedly, the Chancellor’s plan to cut taxes spooked the global bourses, with investors losing confidence in the UK’s ability to control its finances and continuing to push payback time well into the future. Feeding on the growing momentum, the drive against sterling will continue into next week but will eventually ease as the market turns on the Euro instead. Eventually, the dollar’s strength will ease and sterling will recover but to perhaps lower levels than seen at the beginning of the year. All Things Must Pass!

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