Nkosi Sikeleli Africa!

This week saw the RTA trial the world’s first autonomous pods, in cooperation with Next Future Transportation. Weighing 1.5k kg and carrying up to ten passengers, each pod can travel at 20 kph and can operate for three hours before the need to recharge. Dubai is keen to be able to have 25% of all local journeys autonomous by 2030.

To the surprise of a few, all fifty luxury apartments (of the 1.3k being built) in Dubai Science Park, with a Bitcoin price tag, have been snapped up. The US$ 300 million Aston Plaza project, developed by UK nationals, Michelle Mone and Doug Barrowman, was thought to be the first in the world to utilise cryptocurrency. With development under way, completion is slated for 2020.

Damac awarded its first major contract of the year – after spending US$ 954 million in 2017 – to Emirates Electrical Engineering LLC for the third 132/11KV substation in its Akoya Oxygen development; it will provide energy to 2.9k villas and 855 apartments for phases 6, 7 and 9 of the project that covers 55 million sq ft.

Ghantoot Gulf Contracting has been awarded a US$ 22 million Nakheel contract to build the Palm’s St. Regis Beach Club which will be part of the 289-room St. Regis Dubai hotel. The property is located in the 52-storey Palm Tower, due to open next year.

Following the January announcement of its new brand, Jumeirah Group has wasted no time in setting up Zabeel House by Jumeirah hotels. It will soon manage two properties, with a combined total of 350 keys, in Al Seef, adjacent to the Al Fahidi historical district.

January’s STR report provided good news for the Dubai hospitality sector, with RevPAR up 1.0% to US$ 192 and occupancy rate nudging 1.5% higher to 86.4%. It was a welcome change to see that demand at 5.5% exceeded the supply increase of 3.6%. One of the main factors for this turnaround was the introduction of visas on entry for certain nationalities that resulted in a 121% increase in the number of Russians over the year, with more Chinese also visiting the emirate. Indeed Dubai recorded a 64% increase in events and international conferences it hosted to 212. It is estimated that US$ 195 million in revenue was generated attracted 95k participants.

Dubai will be rocking in May as the emirate hosts the largest gathering of internal auditors. The international body is hosting 3k professionals from 110 countries who will be able to listen to 100 global speakers. Events like this should be the icing on the cake for the hospitality sector and no doubt MICE will continue to be a growing contributor to the progress of the local economy. Last year, Dubai recorded a 64% increase in events and international conferences it hosted to 212. It is estimated that US$ 195 million in revenue was generated, attracting 95k participants.

On Sunday, Emirates signed a US$ 16 billion Airbus contract for 20 A380 jumbos (with a further option for 16), with delivery commencing in 2020.

January’s Emirates NBD Dubai Economy Tracker rose 1.3 to 56.0 month on month – an indicator that the emirate’s non-oil economy is returning to robust health. The main drivers were gains in construction (ahead of Expo 2020), as well as increased activity in the wholesale and retail sectors. The introduction of VAT in January placed pressure on both input and output prices but the recent uptick in oil prices brought more confidence into the market. The three best performing sectors were wholesale/retail, travel/tourism and construction – at 56.1, 55.7 and 55.2 respectively.

Having just acquired Union Properties PJSC’s 50% stake in Emicool for US$ 136 million, thus taking full control of the provider of cooling services, Dubai Investments is reportedly interested in divesting 30% of the company in an IPO later this year. It is estimated that the company could be valued at between US$ 354 million to US$ 408 million. Another potential IPO could see DIC’s real estate investment trust being listed on either of Dubai’s bourses. It is estimated that the company has up to US$ 2.5 billion of projects in its books of which US$ 1.4 billion are under construction, with the balance in either the tender or design stage.

Meanwhile the holding company reported an 18.0% decline in 2017 profits to US$ 272 million, caused mainly by some late year transactions being held over until this year.

The DMCC confirmed that it had granted a licence to Dubai gold trader Regal RA DMCC to trade cryptocurrencies – the first company in the region to do so officially.

Emaar Entertainments is set to open the region’s first visual reality park in Dubai Mall. The facility will feature attractions, allowing visitors to interact using immersive rides, educational journeys and games.

Al Ahli Holding Group announced that it had received an Islamic US$ 340 million financing package so as to extend its Dubai Outlet Mall.  The expansion, covering some 3 million sq ft, will be completed by Q4 2019 which will then make the facility, which already has a built-up area of 1.1 million sq ft, one of the largest in the world.

With the reporting deadline being today (15 February), there has been a raft of results from listed companies on the DFM – some good, some not so.

After two years of losses, including US$ 926 million in 2016, Arabtec Holding posted a US$ 34 million profit last year, as revenue increased by 12.0% to US$ 2.5 billion. The contractor also intimated that it had a backlog of US$ 4.7 billion at year end.

Dubai Holding’s Emirates International Telecommunications is reportedly in discussions to raise US$ 572 million to refinance loans due to mature in 2020. The company that has stakes in Axiom, Du and Telecom, agreed in December to sell its 35% share of Tunisie Telecom to Dubai-based Abraaj Group, Its net operating profit dipped 21.9% to US$ 343 million, as a result of a 2016 profit on the sale of a subsidiary. Q4 profits were 53.5% lower at US$ 47 million.

Damac Properties announced a 25.2% decline in 2017 profits to US$ 752 million, although revenue was 4.1% higher at US$ 2.0 billion. The Dubai-based developer pointed to higher cost of sales (20.9% up to over US$ 1.0 billion) and a 23.3% hike in general expenses to US$ 299 million, as root causes for the deficit.

Amlak Finance had a disappointing year as 2017 net income was down 52.0% to US$ 14 million (and operating profit 24.9% lower at US$ 48 million) with revenue also lower – by 44.4% to US$ 118 million. Reasons for the decline appear to be a softer property market and low oil prices for most of the year.

Etisalat posted a 12.1% decline in Q4 profits to US$ 537 million as 2017 surplus remained flat at US$ 2.3 billion. Annual revenue was down 1.3%, mainly because of the unfavourable impact of the Egyptian pound against the dirham.

Emaar Properties came in with a healthy 16.0% boost in 2017 profits to US$ 1.6 billion, with revenue 21.0% up at US$ 5.1 billion. Interestingly, non-UAE operations now account for 19.0% of the company’s turnover. In November, it hived off 20.0% in a listing of unit Emaar Development which raised US$ 1.3 billion. This unit, basically responsible for its hospitality & leisure, commercial leasing and entertainment business, posted an annual 29.9% hike in profit to US$ 741 million.

Emaar Malls returned impressive Q4 and annual 2017 results with both revenue up 35.0% to US$ 308 million (and US$ 989 million for the year) and profit 27.0% to US$ 156 million (and 11.0% to US$ 566 million).  Its Dubai Mall was again the world’s most popular mall with 80 million visitors and occupancy across its portfolio was at 94%. The company expects to continue its expansion of The Dubai Mall Fashion Avenue and open its New Springs Village this year.

Maybe Drake & Scull could have turned the corner after a torrid time. Q4 saw the company just about break even with a wafer thin profit, compared to a US$ 98 million loss in the same period in 2016; quarterly revenue was 18.4% up at US$ 118 million. However, over the whole year both revenue and profit headed south; turnover was 17.0% lower at US$ 736 million, whilst losses worsened 71.2% to US$ 380 million.

Gulf Navigation registered a 7.0% hike in gross profit to US$ 13 million, whilst its total asset value increased by 12.2% to US$ 293 million over the year.

DXB Entertainments posted disappointing figures with losses in both Q4 – US$ 69 million (US$ 79 million a year earlier) – and for the year posting a US$ 304 million deficit compared to a US$ 132 million loss in 2016. Its 2.3 million visitors last year were well short of its annual 6.7 million target number. The park operator is reportedly in discussions with lenders to restructure its 2014 US$ 1.15 billion loan facility, initially used to build the facility.

Aramex posted a 14.0% hike in Q4 revenue to US$ 360 million, as profit surged by 25.2% to US$ 45 million. For the year, the Dubai-based courier saw profit up 2.1% to US$ 118 million, with revenue 8.8% higher at US$ 1.286 billion.

Having to close various non-profitable stores, retailer Marka reported a worsening of its losses to US$ 59 million – 44.7% higher than in 2016 – as revenue sank by 67.9% to US$ 26 million. The company, which has never made a profit since its 2014 début on the local bourse, has been badly hit by falling disposable income and the rising cost of tourism. It introduced a major restructuring programme last year that has seen an improvement inasmuch that H2 losses of US$ 18 million accounted for just 30.5% of the annual deficit.

Amanat Holdings posted a 10.0% hike in 2017 profits to US$ 11 million, as revenue pushed 6.0% higher to US$ 24 million; income from its associate businesses, excluding a one-off charge, increased 65.0% to US$ 9 million. Specialising in healthcare and educational investments, the Dubai-listed company now holds a 21.7% stake in Taaleem Holdings, having bought an additional 5.3% share in October for US$ 14 million.

Although CBD posted an 11.8% hike in Q4 profits to US$ 92 million, its annual figure was flat at US$ 273 million – an indication that the bank was recovering from disappointing nine-month figures that had seen a 5.2% decline in profits to US$ 181 million. Operating expenses were 3.5% higher at US$ 181 million.

The DFM opened on Sunday (11 February), at 3326, and having shed 291 points the previous four weeks managed to just stop the haemorrhaging – up 4 points to close at 3330 by Thursday, 15 February. Emaar Properties was down US$ 0.07 at US$ 1.70, with Arabtec falling US$ 0.02 to US$ 0.70.  Volumes continued on the low side at 186 million shares traded on Thursday, valued at US$ 81 million (compared to 159 million shares worth US$ 107 million the previous Thursday – 08 February).

By Thursday, Brent Crude had a flat week trading only US$ 0.02 lower at US$ 64.33, with gold heading the other direction – up US$ 35 (2.6%) to US$ 1,355 by 15 February 2018.

Uber reported slightly better Q4 results, with revenue 11.8% higher at US$ 2.2 billion and its loss narrowing to US$ 1.1 billion. During the quarter, the car ride hailing company raised US$ 14.0 billion in new funding, as a consortium led by Japan’s SoftBank, became a leading stakeholder with 17.5% of the company.

Despite a US$ 1.6 billion charge (as well as US$ 2.7 billion in 2016) on its troubled A400M military aircraft, Airbus posted a near tripling of 2017 profit to US$ 3.6 billion, despite revenue being flat at US$ 86.0 billion. The main factors behind these impressive results included record deliveries of 718 (688 – 2016), a net capital gain of US$ 754 million from the divestment of its defence electronic business and favourable exchange rates (as the US$ weakens).

Lotte Group is now looking for a new chairman, as the current holder has been sentenced by South Korean courts to thirty month in prison for bribery. Shin Dong-bin was found guilty of offering millions of dollars in bribes to Choi Soon-sil, a friend and adviser to former president Park Geun-hye.

As far back as 2008, at the height of the GFC, Barclays made a US$ 3.0 billion loan to Qatar Holding which in turn used the funds to buy shares in the bank. Now a decade later, the UK’s Serious Fraud Squad is to charge the bank for unlawful financial assistance. Last June, the SFO took action against the bank’s holding company and four executives. This time, the banking unit is being charged – and if found guilty, there could be major repercussions for Barclays including severe sanctions.

Another bank in ongoing trouble is RBS. Not only will it soon post its tenth consecutive annual loss, it will also find out how much it will have to pay US authorities over the misspelling of residential mortgage-backed securities, that could be as high as US$ 5 billion; it has already set aside US$ 3.3 billion. Last year, a settlement with the US Federal Housing Finance Agency cost the bank US$ 5.5 billion. The bank, which is actually finally trading in the black, is still 71% owned by UK taxpayers and the Chancellor, Philip Hammond is reluctant to do anything until the US fine is confirmed. Whatever happens, the UK taxpayer, as appears to be the norm, will pick up the tab.

Yet another bank in trouble is Punjab National Bank, India’s second largest stake-run bank. It has been the subject of a US$ 1.8 billion scam, equivalent to 50 times its latest quarterly profit figure and a third of its market value. There are fears that the scam, which is linked to a single Mumbai branch and benefits only a handful of people, could affect other banks and hurt confidence in the country’s already tarnished banking system.

In Australia it is not one bank but all of them who are involved in a royal commission into their past wrongdoing. They have been accused of customer exploitation and corporate fraud among other scandals – and if true then one can understand why they are among the most profitable in the world. The enquiry is expected to examine misleading and deceptive behaviour in the industry and conduct which fell “below community standards and expectations”. The commission will also examine the pension, insurance and wealth management industries and will inevitably find that the general public has not only been let down but also ripped off by unscrupulous practitioners. Whether public trust can ever be restored is unlikely.

Bitcoin has had an impact on many individuals as its value has gone from a US$ 20k high down to US$ 6k and then back to its current level of just over US$ 10k – all over the past two months. Now its effect is being felt in several countries including Iceland, a country with a population of just 336k; electricity use at Bitcoin mining supply data centre computers  and cooling systems (at 840 gigawatt hours) is greater than the 700  gigawatt hours used by the country’s homes.

December US wholesale stock piles beat forecasts, increasing by a further 0.4%, having jumped 0.6% the previous month. For the year 2017, the figure came in at 3.4%.

China’s influence on the US economy continues to cause worries as reports indicate that it is holding US bonds, notes and bills, totalling US$ 1.28 trillion  – 12.0% higher than at the end of 2016; its global balance stands at US$ 3.16 trillion. This could be a trump card for the Chinese authorities as bilateral trade tensions between the two super powers appear to be worsening.

Both the EU and the eurozone saw their economies grow at the fastest pace – 2.5% – in a decade last year, whilst both blocs recorded 0.6% growth in Q4.

Driven by higher fuel import prices and net EU trade declining (with imports being greater than exports),the UK’s trade deficit grew by US$ 1.7 billion to US$ 15.0 billion and by US$ 10.0 billion for the quarter.

A Visa Index report indicated that UK consumer spend in January was 1.2% lower than the same month last year – the first time there has been a January fall since 2013; the main drivers seem to be lower spending in the high street and transport. This trend is expected to continue until wage growth exceeds the inflation rate – little chance in the short term since latest inflation remains at 3.0%, whilst wage growth is nearer 2%.

The global equity markets continue to trade under volatile conditions with the current environment continuing at least in the short-term. The three US bourses have all shown positive YTD results, with the Dow Jones Industrial Average, S&P 500 and Nasdaq Composite all higher at 25,200 (1.9% – 24,719 on 01 January), 2,731 (2.1% – 2,674) and 7,256 (5.1% – 6,903).

It seems likely that Cyril Ramaphosa will replace Jacob Zuma as the next president of South Africa. Following nine years of apparent misrule, which saw the country skip from one scandal to another and with nepotism running wild, there was an air of inevitability that he would be pushed. The biggest challenges facing the incumbent will be to tackle corruption at all levels and to restore confidence in the besmirched criminal prosecution system. Somehow the country has to quadruple its current miserable 1.4% growth rate, introduce measures to slash the 27% unemployment level and try and regain international confidence which has seen global agencies cut the country’s debt to junk status. Nkosi Sikeleli Africa!

Posted in Finance | Tagged , , , , , , , , , , , | Leave a comment


Another global brand is set to enter the emirate’s hotel sector as Omniyat announce the launch of a 5-star hotel and luxury residences managed by Dorchester Collection. This will be the first of several regional projects planned between the two parties. The original Dorchester opened its Mayfair doors in 1931 and is considered one of the best hotels in the world. The Dubai project will see the iconic brand follow in the footsteps of the original property and its other established hotels in locations such as Beverly Hills, Paris and Rome.

MAG Lifestyle Development will hand over the first phase of its MAG 5 Boulevard six-building project in Q2, six months earlier than expected. Comprising 528 units (ranging from studio to 3 B/R), and within a gated community that has a pool, jogging tracks and a community centre. Phase 2 of the US$ 218 million project (with seven buildings) will be completed by Q2 next year.

An increasing number of Dubai’s private schools is reducing or freezing student fees, including the likes of Horizon International (by up to 33%) and Repton (by around 10%). The two main drivers are that current expat salary packages are more likely not to include an education allowance and increasing competition among establishments in a market that could be becoming over-supplied.

Four-year old Broccoli is set to become not only one of the largest restaurant operators in the country but is also aiming high on the global stage. Currently, it boasts 48 franchised outlets in the UAE and a further 101 worldwide including in India, Saudi Arabia and the UK. The Dubai-based company reports that it has a further 54 properties under construction and that 200 franchises are in the planning or design phase.

DEWA has awarded a US$ 300 million contract to a consortium of Siemens and Egypt’s Elsewedy to build a power plant in Al Aweer. The project, involving 815 megawatts gas turbines, is expected to be finalised by Q2 2020.

Dubai Properties has appointed Raed Al Nuaimi to succeed as its group chief executive, taking over from Abdullah Lahej. The incumbent had been with North25, a new entity formed to lead Dubai Holding, among other projects. Another high profile change sees Dubai Holding appointing former CFO, Amit Kaushal, as its CEO to replace Edris Alrafi who has left the investment firm, after being appointed in April 2017. A third senior management change sees Malek Al Malek replacing Amina Al Rustamani as chief executive of Tecom Group, which operates, inter alia Dubai Media City, Dubai Internet City and the new D3 (Dubai Design District). Further changes include two CE appointments of Arif Mubarak at Dubai Asset Management and Nabil Ramadhan at Dubai Retail.

DP World posted a 2017 10.1% hike in gross cargo volume handled to 70.1 million twenty foot equivalent units, with a 9.7% increase on a like for like basis; Q4 showed even better results at 10.3% and 9.9%. The two main drivers behind these positive results were a rise in global trade and a growth in market share. The Q2 opening of Container Terminal 4 will see DP World’s handling capacity increase to 3.1 million intermodal containers in JAFZA.

The federal government has approved a US$ 1.9 billion plan to build 7.2k houses for UAE nationals. The cabinet, chaired by HH Sheikh Mohammed bin Rashid Al Maktoum, directed that the residential areas should be in line with global environmental standards. It is estimated that over 80% of the population own their homes – one of the highest levels of private ownership in the world.

It seems that Dubai and Dallas will be the testing grounds for the first air taxis in a JV between Bell Helicopter and Uber Technologies. Testing is expected to start by 2020 and flights could start as soon as 2025.

There was no surprise with Dubai announcing yet another record year, as tourist numbers climbed 6.2% to 15.8 million. The top three market sources – India (15% higher at 2.1 million), Saudi Arabia (down 7.0% to 1.5 million) and UK, 2% up at 1.3 million – accounted for 31.0% of the total number.

Even though 2017 passenger numbers grew at their slowest pace in nine years, Dubai International still remains the world’s busiest international airport. Traffic grew by 5.5% to 88.2 million and 2018 expects to see even slower growth of 2.4%, equating to 90.3 million passengers. Annual cargo volumes were 2.4% higher at 2.7 million tonnes.

Two new government charges have been recently introduced. The first is a US$ 2.72 “ten dirham innovation fee” which will be charged by all Dubai public agencies to support educational and cultural projects, via the Dubai Future Foundation. The other, to be introduced in May, will see a waste disposal charge, starting at US$ 21.80 per tonne.

Although falling 0.9 in January to 56.8, the seasonally adjusted Emirates NBD UAE PMI showed a marked improvement in business conditions, with increases in new orders and new export orders. The introduction of VAT impacted both prices and purchases in January. Input costs rose at their fastest rate in over six years and, although selling prices were higher, not all the VAT was borne by consumers, as some businesses held back and paid at least some of the new tax.

Dubai became one of the top ten maritime capitals last year, and fifth in terms of competitiveness and attractiveness, according to Norway-based Manon Business Group. With the upcoming Dubai Harbour project – including its 1.4k berth marina – and several other waterfront attractions, the emirate will not only see its yacht berthing capacity surging 50% to 4.5k but becoming  one of the world’s most important maritime destinations by 2022.

After a 2016 loss of US$ 36 million, its seems that Shuua Capital has turned the corner having posted a healthier US$ 20 million profit in 2017 – its highest ever annual profit since pre GFC in 2007; Q4 profits came in at US$ 4 million, compared to a loss of US$ 5 million in the same quarter a year earlier.

Abraaj Group has refuted US newspaper claims that it misused funds earmarked for healthcare projects in the developing world. The Dubai-based private equity firm, with some US$ 13.6 billion of assets under management, dismissed the allegations by some 24 investors as “inaccurate and misleading”.

One of Dubai’s smaller financial institutions, Commercial Bank International, posted a healthy 40.0% hike in 2017 profits to US$ 48 million; this comes on the back of an 8.0% fall in impairment charges, a fall in its non-performing loan ratio from 8.7% to 7.2% and a 10% hike in net interest income to US$ 151 million.

The DFM opened on Sunday (04 February), at 3412, and having shed 119 points the previous two weeks dropped a further 86 points (2.5%) to close at 3326 by Thursday, 08 February. Emaar Properties was down US$ 0.03 at US$ 1.77, with Arabtec moving US$ 0.02 down to US$ 0.72.  Volumes were again low at only 159 million shares, valued at US$ 107 million, traded on Thursday, (compared to 158 million shares worth US$ 78 million the previous Thursday – 01 February).

By Thursday, Brent Crude traded US$ 5.30 (7.6%) lower at US$ 64.35, with gold heading the same direction – down US$ 28 (2.1%) to US$ 1,320 by 08 February 2018.

Two energy giants have benefited by the uplift in commodity and oil prices. BP announced that 2017 profits more than doubled from US$ US$ 3.6 billion to US$ 6.2 billion (and Q4 from US$ 400 million to US$ 2.1 billion) as oil prices rose last year. During the year the company saw production 12.0% higher at 2.27 million bpd and opened seven new oil and gas fields.

Rio Tinto had a strong year with a 69.0% hike in profits to US$ 8.6 billion, as revenue climbed 18.3% to over US$ 40 billion, that resulted in shareholders being handed a 70% jump in dividends of US$ 5.2 billion, equating to US$ 2.90 per share; the mining giant also announced a US$ 1 billion share buy-back.

A major UK law firm is launching an equal pay claim on behalf of 200k store assistants (mostly female) that could result in individual pay-outs of up to US$ 28k. If the claims, lodged with the conciliation service Acas, are successful a supermarket like Tesco could be saddled with a bill for back pay, totalling US$ 5.6 billion.

Nokia exceeded analysts’ expectations by posting a 7% hike in Q4 profits to over US$ 1.2 billion, driven by a US$ 261 million one-off patent payment from China’s Huawei. Nokia – along with other major players, Huawei and Ericsson – expects another tough trading year as demand for 4G equipment declines and with 5G gaining traction only by next year.

Tesla is starting to test stakeholders’ patience as it continues to struggle with a number of issues. In Q4, only 1.55k vehicles were delivered, with delays being attributed to continuing battery problems. Two years ago, founder Elon Musk forecast production of 500k units in 2018; this year, he has stated that the figure would be one million by 2020. Although its share value rose by 10% last year, shareholders will not be happy with the fact that the company lost US$ 2 billion in 2017, including a US$ 675 million Q4 loss (compared to being US$ 121 million in the red this time last year). More worrying is the cash burn which reached US$ 3.4 billion last year with US $ 787 million in Q4.

Toyota lifted its annual forecast operating profit by 10.6% to US$ 20.2 billion, driven by a weaker yen and enhanced domestic sales. The world’s second biggest car-maker, after VW, posted its Q3 (to 31 December) profit of US$ 6.2 billion – 54% higher, year on year, and its highest quarterly surplus in two years – with global vehicle sales up 15.4% to 2.63 million. Although operating profit more than doubled in its home market, it continues to struggle in North America where it fell 53.1%.

In attempting to join VW and GM as one of the top three car makers in China (the single biggest global market), Nissan is planning a US$ 35 billion investment with its JV partner, Dongfeng. By focusing on electric cars and a no frills local brand (Venucia), the aim is to boost annual sales by over 73% to 2.6 million within five years. Whilst the likes of Ford, Honda and Toyota have sales of around one million, GM and VW post turnovers of over 4 million a year.

Another week sees yet another international bank facing fines for past corporate misdemeanours. This time, Rabobank has agreed to pay US authorities for money laundering between 2009-2012. The Dutch bank pleaded guilty to obstructing US legislators in their enquiries and “chose to look the other way”.

IATA had good news this week for regional airlines reporting that all indicators were pointing up – traffic by 6.6%, capacity 6.4% and load factor up 0.1% to 74.7%. However, these figures were down on a global comparison with international passenger numbers up by 7.9%, capacity 6.4% and load by 0.9% to 81.4%. Despite a sluggish start to 2017, including the US ban on certain electronic carry-on items, the ME industry recovered towards the end of the year and can confidently look at doubling their profits this year to US$ 600 million. (Watch out for much improved results from Emirates come April).

Sri Lanka’s President Maithripala Sirisena has ordered an investigation into the 39-year old flag carrier, Air Lanka, following its 2008 controversial parting with Emirates. The then leader, Mahinda Rajapakse, (who ruled for a decade until 2015), terminated the ten-year management agreement with the Dubai-based carrier and replaced the Emirates’ appointee with his brother-in-law, who had no prior industry knowledge. Since then, the once profitable airline has lost more than US$ 1 billion and has incurred debts totalling US$ 3.2 billion. A separate probe is looking into the purchase of Airbus planes at a cost of over US$ 2 billion.

With reservations about weak consumer spending, the Reserve Bank of Australia decided to hold interest rates at the record low 1.5% which has remained unchanged for the past 17 months. However, at this week’s meeting, the RBA commented that there had been improvements in both business conditions and investment.

The future of one of the world’s biggest coal mines (estimated to produce 60 million tonnes of thermal coal a year) is in doubt when the Australian government confirmed that it would not be financing a rail link to the US$ 12.6 billion Carmichael mine near the Great Barrier Reef. Adani, the Indian miner, was granted a lease in 2016 and is still trying to find US$ 790 million funding for phase 1 of the 189km rail link. Last year, the mining company advised mining services giant Downer, that it would not be proceeding with a US$ 1.6 billion contract, preferring to manage the mine on its own – and to save on costs.

Another Asian economy performing better than expected is Indonesia as its Q4 GDP grew by 5.2%, year on year, (and 5.1% for the year), driven by an 8.5% jump in exports. The major problem facing authorities is that consumer spending continues to lag and that more job creation is badly needed. Although government spending and investment both rose – by 3.8% and 7.3% – in Q4, December retail sales, at 2.6%, disappointed. President Joko Widodo needs to boost consumer confidence, to encourage more spending, as well as spend more government money on capital investment and social assistance.

In December, the US trade balance deficit was 5.4% higher, month on month, at US$ 53.1 billion; the value of monthly imports was 2.5% up at US$ 256.5 billion whilst exports grew at a slower (1.8%) level to US$ 203.4 billion. For the year 2017, the deficit came in at US$ 504.8 billion, with exports of US$ 2,329.3 billion lower than imports totalling US$ 2,895.3 billion.

The EU has upgraded its growth forecasts for the next two years to 2.3% (from 2.1%) and 2.0% in 2019, both lower than the 2017 actual of 2.5%.

The latest twist in the befuddled Brexit talks sees the May government ruling out any future customs union with the EU. If the UK were to join the customs union, then it would be prevented from striking any global independent deals. Currently, the government is considering two options – a new customs agreement with the bloc and a highly streamlined customs arrangement.

The Labor Department reported the biggest wage gain in over eight years, as employment expanded quicker than expected, at 200k, with the unemployment level unchanged at 4.1%. The expansion appeared to be across the board, a sure indicator that the whole economy is showing signs of robust growth. The average hourly wage for private sector workers posted a monthly 2.9% hike but overall wage growth is anaemic and could impact on consumer spending trends.

On Friday (02 February), the Dow Jones Industrial Average fell 666 points – its biggest daily point fall since December 2008. Investors are beginning to worry that not only that stocks may have been overvalued but inflation fears as the labour market tightens with the possibility of earlier than expected Fed action on rates. The S&P 500 and Dow, along with the Dow, saw their biggest weekly losses in two years.

However what is lost in the hullabaloo is that the markets have been on a roller coaster from late last year with most indicators heading north (probably too quickly). A correction has taken place since the middle of January and to put things into perspective all three bourses have been down over the past five days (in a range of between 5.30% and 5.46%), over the past month down between 4.28% and 5.0% but all up over the past three months in the range of 1.28% and 1.58%. When there is so much volatility in the market the best advice is to lay low!

There are local reports that the QE2, berthed in Dubai since its 2008 arrival, (and after being retired following its 1969 launch), is to become a permanent hotel and maritime museum. Located in Port Rashid, it had appeared to be left to the elements but has been the subject of a major overhaul in the past year. The new 300-key hotel could be open as soon as this year but its owners, Dubai’s Port, Customs and Free Zone Corporation, remain numb on the subject. The world famous cruise liner, which carried 2.5 million passengers over six million miles in its 29-year history, is finally laid to rest and no longer Sailing!

Posted in Finance | Tagged , , , , , , , , , , | Leave a comment

You’ve Got Your Troubles

According to recent data from Dubai Land Development the property market is on the rebound, as H1 transactions were 16.8% higher at US$ 36.0 billion compared to H1 2016.  With increased government spending and the upcoming Expo, the sector will continue heading north.

A JLL report indicates that 2018 will see much of the same as last year for the Dubai realty sector, with sale prices and rents continuing to fall because of the additional supply entering the market. One of the main factors behind the slowdown is that last year’s 1.7% growth was well below the 4.1% historic average. It is estimated that the total residential stock stands at 491k (with apartments accounting for over 80% of the total) and that the number of new launches is well below that recorded in the peak years of 2007. Despite this, the majority of current sales are for off-plan properties which totalled 25.6k last year. But what happens if the emirate’s economy grows 4% this year which is a distinct possibility? Will there be a marked upturn in the sector?

A Chesterton report indicates that last year, off plan property deals increased year on year by 60%, with a marked rise towards the end of the year. The top three locations (by value) were The Lagoons (US$ 218 million), Downtown (US$ 212 million) and Business Bay (US$ 207 million), with Dubailand, Business Bay and Al Furjan  being the most in demand. However it is to be noted that in Q4 ready property sales volumes, quarter on quarter, were 17% higher as off-plan headed the other way – down 8%; transaction values were up 15% whilst off plan declined by 16%.

The agency estimated prices for both villas and apartments dipped 3% in 2017 and expects much of the same this year as new units add to the emirate’s property portfolio; 45% of the new supply over the next five years will be priced below US$ 272 per sq ft.

Relative-newcomer, Danube Properties, announced that it had sold new homes to the value of US$ 223 million last year. Since its 2104 inception, the company has been involved in nine projects, comprising 3.2k units, valued at US$ 774 million.

Following approval by the Department of Tourism and Commerce Marketing, Sabah Rotana is to be built on SZR. The 54-storey tower, with 533 rooms and serviced apartments, is in collaboration between developer RSG Properties and hotel operator Rotana.   The 5-star hotel will be ready prior to the opening of Expo in October 2020.

BinGhatti Hospitality is planning to invest US$ 136 million in an expansion plan that will see more than 200 branches over the next three years. The Dubai-based company is involved in hospitality management services across the region.

DXB Entertainments reported that last year there were over 2.3 million visits to Dubai Parks and Resorts, with 34.6% (796k) of the total in Q4. The largest integrated theme park destination in the region is benefitting from a major restructuring program introduced in Q3 2017.

Dubai-based ASGC has been appointed the main contractor for AccorHotels’ 25hours One Central. The 434-room property will be the brand’s largest hotel in the world and will open in 2020.

Swedish & Sweid has appointed Core Savilles as their lead sales agent for the 32-storey Banyan Tree Residences – Hillside Dubai. The development will include a range of 1 – 4 B/R apartments, as well as three penthouses along with a resident-only clubhouse.

The RTA has awarded the first two road construction contracts – improving the Jebel Ali-Lehbab Road and the construction of bridges on Sheikh Mohammed bin Zayed Road – as part of the six-phase Expo Roads Improvement Project. Phase 1 is valued at US$ 371 million, with the project‘s aim to ensure that visitors to Expo have a hassle-free route in and out of the mega event.

Spain’s ACCIONA Producciones y Diseño has been awarded a contract to work on the technical development and museographic implementation for phases 2A, 2C and 2D of the Shindagha Museum project. Located in Dubai’s Historic District, work on these phases is expected to be completed by year end.

A Colliers International report noted that 6.8k rooms were added to the country’s hotel inventory, bringing the total number to 77.7k; this is set to rise by a massive 53.1% by 2020 to 119k. Russian visitor numbers almost doubled last year whilst there was double digit growth of Chinese nationals. The consultancy expects an improvement in occupancy rates but because of increased supply and more affordable hotels, there will be an inevitable dip in profitability indicators.

Having attracted 327k medical tourists in 2016, generating over US$ 272 million, the Dubai Health Authority is keen to reach 500k by 2020. The emirate is making “significant progress” and just needs to see an annual growth of 11% to reach this ambitious target.

Dubai Municipality is to build the world’s largest waste-to-energy project, at a cost of US$ 681 million. Located in Al Warsan, the plant will treat up to 1.82 million tonnes of waste annually with a capacity to produce 185Mw of power, equating to the electricity needs of 120k homes. With work starting by mid-year, the development will take two years to complete. Along with DEWA, other stakeholders will include Belgium’s Besix Group and the Swiss Hitachi Zosen Inova.

It appears that there will be further delay in the startup of the country’s first nuclear as the regulator, the Federal Authority for Nuclear Regulation, has announced that Nawah is not ready to receive its operating licence. The company – a JV between Emirates Nuclear Energy Company and Korea Electric Power Corporation – is to build four APR-1400 reactors, with the first one due to be operational this year.

Dubai Silicon Oasis is planning to spend US$ 136 million to set up a campus of Rochester Institute of Technology, with a capacity for 4k students. The first phase of the 129 sq mt project, costing US$ 54 million, will be completed within two years, with phase 2 on line by 2023.

UAE petrol prices rose again on 01 February – this time, Special 95 is up 6.1% to US$ 0.651 per litre, whilst diesel, at US$ 0.678 is 6.8% higher. Prices rises reflect the recent hike in oil costs which last year saw Brent up 16.4% and Special 95 by 16.9%.

Although 2017 revenue was 8.0% higher at US$ 8.7 billion, Majid Al Futtaim Group registered only a 1.9% hike in profit to US$ 1.1 billion, as some of its units registered slower growth last year. Of the three divisions – Properties, Retail and Ventures – revenue was higher by 3.0% to US$ 1.2 billion (EBITDA – US$ 790 million), 8.0% to US$ 7.1 billion (US$ 327 million) and 14.0% to US$ 572 million (US$ 70 million). respectively. The group’s bottom line was not helped by the currency devaluation out one of its largest overseas markets, Egypt.

Nakheel posted a massive 58% surge in Q4 profits to US$ 455 million, as annual profit was 14% higher at US$ 1.5 billion, driven by diversification and an uptick in the property market. The developer spent US$ 2.2 billion on construction contracts during the year.

Gulf Navigation Company is set to acquire a major shareholding in Singapore-based Atlantic Navigation Holdings which has assets totalling US$ 177 million. When finalsied, the Dubai-based operator will manage a total of thirty supply and maritime service ships.

Al Ghurair Group, via its subsidiary Canal Sugar Co, is set to invest up to US$ 1 billion in Egypt on two projects – US$ 550 million in which the company will lease and reclaim 181 acres of desert in Minya and the balance for a plant to produce 750k tonnes of high-quality sugar from beet.

Emirates NBD launched a US$ 1.2 billion Australian denominated bond as part of its so-called Kangaroo programme, with a 4.75% indicative annual coupon. Meanwhile Dubai Islamic issued a five-year, US$ 1 billion sukuk at a 3.625% profit rate; this was part of the bank’s US$ 5 billion sukuk programme.

Emirates NBD is also in preliminary discussions with Russian-based Sberbank to acquire 99.85% of Turkey’s Denizbank. Dubai’s biggest bank, with Q4 profits 17% higher at US$ 597 million, is keen to expand its overseas operations. In 2013, it had bought BNP Paribas’ Egyptian banking business.

Dubai Islamic is also to seek shareholders’ approval to raise US$ 450 million, through a share issue, which will see the option for stakeholders to purchase one share for every three held, with the possibility of a discount being offered. If it goes ahead, the bank’s capital base will increase by 33.2% to US$ 1.8 billion. At the same meeting this month, the shareholders will also be asked to approve a US$ 605 million 2017 dividend.

According to Central Bank figures, total bank deposits grew by 3.0% to US$ 443 billion during 2017. Total assets of the country’s operating banks fell 0.3% to US$ 734.3 billion, with banking credit also dipping- 0.9% to US$ 430.5 billion.

Mashreq posted a 6.5% hike in 2017 profits to US$ 572 million on the back of a 2% fall in operating expenses and a 14.2% drop in impairment provisions. Both the bank’s total assets and loans/advances were up – by 1.9% to US$ 34.1 billion and 2.9% to US$ 17.1 billion respectively.

Dubai Financial Market announced an 8.0% dip in annual 2017 profits to US$ 63 million, with revenues dipping 4.0% to US$ 125 million. Q4 saw disappointing returns for the bourse – with marked declines in both revenue (17.0% lower at US$ 29 million) and profit down 24% at US$ 16 million. A 5% cash dividend has been proposed by the board.

The DFM opened on Sunday (28 January), at 3469 and having shed 62 points a week earlier dropped a further 57 points (1.6%) to close at 3412 by Thursday, 01 February. Emaar Properties was down US$ 0.07 at US$ 1.80, with Arabtec edging US$ 0.02 higher to US$ 0.74.  Volumes were lower at 158 million shares traded on Thursday, valued at US$ 78 million (compared to 247 million shares worth US$ 89 million the previous Thursday – 25 January). For the month, Emaar was down US$ 0.10 at US$ 1.79 and Arabtec traded higher up US$ 0.06 at US$ 0.71 from their year openings of US$ 1.89 and US$ 0.65.

By Thursday, Brent Crude traded US$ 0.77 (1.1%) lower at US$ 69.65, with gold heading the same direction – down US$ 15 (1.1%) to US$ 1,348 by 01 February 2018. For the month, Brent  was up (3.4%) from US$ 66.62 to US$ 68.89 whilst the yellow metal fell US$ 2 (3.0%) to US$ 1,343.

It seems that troubled Toys R Us is looking for a buyer for its UK operations which employ 3.2k after a disappointing festive trading season. The UK’s biggest toy retailer looks certain to close doors if a buyer cannot be found. Suffering from mounting pressure from Amazon and other online competitors, Toys R Us has increasing problems in its home location where it plans to reduce its number of shops by 20% to just over 700.

Boeing reported an impressive 92% hike in Q4 profits to US$ 3.1 billion and a recorded sale of 763 aircraft in 2017. Earnings were boosted by a one-off gain from US tax cuts and increased demand for its workhorse 737.

However, it was not all good news as, to the surprise of many, Boeing has lost its landmark case against Bombardier which refuted the claim that both the UK and Canadian governments had given unfair subsidies to the Canadian aerospace firm. This comes after December’s ruling by the US Commerce Department that imposed 292% tariffs on imports of its C-Series planes. Apart from the 1k workers at Bombardier’s Belfast plant, it was also good news for Airbus who had taken a majority share in the C-Series when the Canadian firm was struggling and looking likely to lose the case.

The low-key German Reiman family, through their JAB Holding vehicle, has many lucrative investments including 38% of Coty (Max Factor and Rimmel), 8% stake in Reckitt Benckiser (Mr Sheen, Airwick, Dettol, Nurofen and Durex), 50% of Jacobs Douwe Egberts and doughnut chain Krispy Kreme. This week it was in the market and snapped up Dr Pepper Snapple, the world’s fifth-largest fizzy drinks company, for US$ 18.7 billion.

Following a major multi agency US probe, three banks – Deutschland Bank, HSBC and UBS – along with eight employees have settled the various cases for alleged manipulation in the country’s futures and commodities market. One of the cars involved the use of spoofing – involving placing bids to buy or sell contracts with the intent of cancelling them before execution.

Despite posting record 2017 sales (6% higher), Intel has lost its top global position as the biggest chip maker (by sales) to Samsung Electronics. The South Korean company posted annual chip sales totalling US$ 69.0 billion with profit of US$ 11.2 billion.

With reports that Apple is looking to half its Q1 production of its 10th anniversary smartphone to just 20 million, the tech giant saw US$ 60 billion wiped off its market value this week.

Fujifilm is planning to slash 10k from its payroll by 2020 as its subsidiary, Fuji Xerox – a 55-year old JV with Xerox – is struggling in an “increasingly severe” market. The Japanese company, a manufacturer of printers and copiers in a dwindling market, is to take a majority 50.1% stake by absorbing Xerox and forming “New Fuji Xerox”.

Instead of taking some of the blame for their role in the demise of Carillion (which had 450 government contracts), MPs are now looking at the big four auditors – Deloitte, EY, KPMG and PwC – to see what work they had carried out for the past decade. It does seem strange that one of these firms is now acting as a liquidation ‘special adviser’, after working with the government on Carillion’s pension scheme when it was still in business. Furthermore, the company’s only auditors for the past 18 years had approved audited accounts last March which included a US$ 2.2 billion goodwill valuation and had also signed off four months before a massive profits warning, following a US$ 1.2 billion write-down of the value of its contracts. Two banks were in the market for financing this week. When it went under, the company had a market cap of just US$ 85 million and liabilities of over US$ 7.0 billion, including a pension deficit of US$ 3.6 billion.

Capita seems to be going the same way as Carillion which last June announced a management shakeup and a loss of a major contract, followed by a profits warning and then a slump in its share value. Now the outsourcing firm which last month lost a lucrative Deal with Prudential, has announced major management changes, issued yet another profit warning and seen its market value plunge by more than 37%. Like Carillion it has several major government contracts including operating London congestion charges and collecting BBC licence fees.

After two months in 5-star incarceration at Riyadh’s Ritz Carlton, Prince Alwaleed bin Talal was freed earlier in the week. He – and up to 200 hundred others – had been detained as part of the country’s crackdown on corruption but the flamboyant businessman expects to be cleared of any wrong doing. He denied that he had been involved in money laundering, bribery and extorting officials, but whether he paid a US$ 6 billion “settlement” is still unknown. On the news of its chairman’s release, Kingdom Holding Co saw its share value up by over 10% – the maximum allowed on a day’s trading and the most since November 2014 – and by a further 7% the following day.

Officials have announced that there are no longer any detainees at the Ritz Carlton but it is unclear how many are still in detention, assuming no settlement had been reached. Last week, it was reported that 95 of the 185 held remained in custody. It was also announced that the purge has resulted in the repayment of US$ 106 billion to the government. When compared to say Apple’s current cash balance of US$ 163 billion (net of debt) it does not seem that much!

More positive economic data emanating from the US sees December’s personal income 0.4% higher, following a 0.3% hike the previous month, whilst personal spending and real spending increased by 0.4% and 0.3% respectively.

The fact that UK average pay increases at 2.1% are lower than inflation levels of 3.0%, resulting in a decline in real wages, is but one driver behind December mortgage approvals of 36.1k falling to their lowest level in nearly five years – and 19% down year on year. Another contributing factor was the mistimed November 0.25% hike in rates which has exacerbated an already serious problem. Not surprisingly, national house prices have flattened, led by falls in London.

Q4 EU growth slowed to 0.6% (0.7% in Q3) but showed a stronger 2.6% increase for the year. This return was slightly lower than the 2.7% posted in the eurozone and marginally higher than the 2.5% recorded for the UK. Meanwhile there was a decline in the eurozone’s inflation rate to 1.3% in January, compared to December’s 1.4% (and the bloc’s target of 2.0%). Meanwhile there was an improvement in the eurozone unemployment figures with the December figure of 8.7% (compared to 9.7% a year earlier). There are still major problems in both Greece and Spain where the unemployment levels are still at a worryingly high 20.7% and 16.4% respectively; the message to both governments, You’ve Got Your Troubles!

Posted in Finance | Tagged , , , , , , , , , , , | Leave a comment

American Dream

Following recent bleakish reports by several consultancies on the state of Dubai’s realty sector in 2018, it is refreshing to read that at least one, PropertyFinder, indicating that it is not all doom and gloom. Whilst conceding that 2017 prices had fallen across the board – villas by up to 9% and apartments in the low, single digit range – it foresees a turnabout ahead of Expo 2020.  There is every possibility that the sector will come off its bottom in Q1, driven by the facts, that according to Reidin, population growth is double that of new supply, oil prices are nearer to US$ 70 (and not US$ 40) and both the Dubai and global economies are to grow by up to 3.9% this year.

Tiger Group has started work on two of its Dubai projects. The UAE-based developer expects the 41-floor O2 Tower – with 600 apartments -in Jumeirah Village Circle to be completed within three years. With 85% of the Jumeirah Village Triangle Al Jawhara Tower already sold, the company expects that the 532 studios will be ready by Q2 next year.

Sales will start this Saturday for Damac’s latest luxury launch – Reva Residences – with prices from US$ 190k. Located on the south ridge of Business Bay, the development comprises 1-2 B/R apartments.

At Saturday’s launch of the first phase of its private gated island Beach Vista development, Emaar recorded sales of US$ 272 million, as all 375 residences were sold out. The units – in two towers (33 and 26 storeys) – comprise a range of 1-4 B/R units and are part of the Emaar Beachfront scheme located in the new Dubai Harbour project.

The Jumeirah Group has added a second brand (following Stay Different) to its portfolio with the launch of Zabeel House by Jumeirah. Five management agreements – including properties in the UAE, Saudi and UK – have already been signed, with the newcomer offering “brilliant basics and unexpected extras set in an upscale, casual environment”.

The latest STR report indicates regional declines in the Middle East’s hospitality sector, with occupancy down by 1.1% to 65% and RevPAR (revenue per available room) 4.5% lower.

Dragged down by the increased supply of inventory, Dubai hotels registered falls in November room rates by 1.4% to US$ 286 and RevPAR (revenue per available room) by 2.8% to US$ 252. The EY report indicated that November is normally a prime month for the sector with the weather improving and mega events such as Dubai Airshow and Motor Show.

Dubai itself continues to expand ahead of Expo 2020, with its hotel room portfolio expected to grow by a massive 32.4% to 108.6k over the next two years, following a 5.2% hike in 2017. Since much of the increased room supply is in the midscale sector, rather than at the high-end, this could have a negative impact on both occupancy levels (if demand is lower than the increased supply) and revenue indicators, with more rooms at lower prices. The good news is that cheaper hotels will attract more visitors – the bad news is that average spend per visitor may suffer.

Dubai Industrial Park is set to see US$ 37 million being used on infrastructure development and road expansion. This spend will boost the park’s ability to cope with an ever increasing number of companies becoming involved with the emirate’s growth in the industrial sector, which is a key part of the 2016 Dubai Industrial Strategy. In 2016, the sector grew by 3.4% and accounted for 9.5% of Dubai’s GDP;  with manufacturing surging 31.2%, equating to US$ 9.7 billion, and industrial exports 8.6% higher at US$ 39.0 billion, it will play a significant role, as the largest contributor to GDP after oil and gas, in Dubai’s future.

Following its latest debt restructuring programme and new credit facilities, Drake & Scull International (DSI) is to build a new camp to house 5k workers; this will cater for the Dubai-based company’s labour force increasing by 41.7% to 17k.

DP World has signed an agreement with the National Investment and Infrastructure Fund to invest up to US$ 3 billion in India’s transportation sector, with an emphasis not only on seaports but also economic zones, terminals, transportation and logistics.

Expo officials have confirmed that the collapse of Carillion would have no impact on the event, as ongoing work on the three themed districts   is already underway by Al Futtaim Carillion. At the same time, it was also announced that another UK company, Laing O’Rourke, had won two construction contracts, valued at US$ 183 million. They were for the construction of Expo’s ‘Hammerhead’ access road and the Leadership and Media pavilions.

The Federal Tax Authority has announced that over 260k companies have now registered for VAT following its 01 January implementation. It is mandatory for any company with an annual turnover of over US$ 100k to register.

Adnoc Distribution is to open three service stations in Dubai, for the first time, as it expands its operations away from Abu Dhabi (where it has 360 outlets). The fuel and retail arm of Abu Dhabi National Oil Company listed on the Abu Dhabi Securities Exchange last month, with a share price of US$ 0.68.

At a cost of US$ 18 million, the RTA has added a further 32 km of cycle track covering Mushrif, Mirdif and Al Khawaneej areas. This brings the total to about 250 km of cycle paths available in Dubai. The government hopes to double this to over 500 km by 2021, as part of its strategy to encourage people to practice sports exercises and cycling.

It is reported that Dubai’s Al Shafar General Contracting is still keen on an IPO but it will happen later – rather than earlier – because of current market conditions. After a slow two years, there is a feeling that the sector may be on the upturn, as witnessed by the recent local IPOs of Emaar Development and Adnoc Distribution, as well as several investment trusts in Saudi Arabia. It is estimated that money raised from regional IPOs in 2017 – US$ 3.2 billion – was more than four times greater than in the previous year.

SHUAA Capital, already an 8% shareholder, has offered to buy a major stake in Kuwait’s Amwal International Investment which has a capital base of US$ 60 million.

The country’s largest sharia-compliant bank, Dubai Islamic, is to issue a US$ 750 million sukuk a week after announcing a 26% hike in Q4 profits to US$ 1.23 billion. As part of a US$ 5 billion financing programme, the bank, with an ‘A’ rating from Fitch, issued a US$ 1 billion Islamic bond last February.

Dubai Investments finalised the US$ 136 million purchase of Union Properties’ 50% share in Emicool to take over the entire company. Under the company’s Memorandum of Association, the remaining partner had priority to buy any shares offered for sale. The money raised will be used by the developer to expand its operations and projects.

Having recently extended its capital to US$ 272 million, Gulf Navigation is to refinance both its “Gulf Mishref” and “Gulf Mirdif” petrochemical carriers, as demand for its shipping services increases.

The DFM opened on Sunday (21 January), at 3531 and shed 62 points to close 1.8% lower at 3469 by Thursday, 25 January. Emaar Properties was down US$ 0.13 at US$ 1.87 (having gone ex div on Monday), with Arabtec flat at US$ 0.72.  Volumes were lower at 247 million shares traded on Thursday, valued at US$ 89 million (compared to 331 million shares worth US$ 153 million the previous Thursday – 18 January).

By Thursday, Brent Crude traded US$ 0.91 (1.3%) higher at US$ 70.42, with gold heading the same direction – up US$ 36 (2.7%) to US$ 1,363 by 25 January 2018.

Despite making a US$ 1 billion provision for tax payments (following President Trump’s recent overhaul), Halliburton posted a profit of US$ 0.53 a share and recorded an 18.4% Q4 growth in revenue to US$ 5.9 billion on the back of the recent surge in shale production. Figures were particularly strong in its backyard, with US revenue 88.9% higher at US$ 3.4 billion. Shares in the oilfield services provider were up 6% on the day.

The UK’s Competition and Markets Authority has rejected Fox’s proposed takeover of Sky, on the grounds of being against the public interest, as it would give the Murdoch family too much control over UK’s news providers. However, the CMA ruled that it would not be against the public interest on the grounds of broadcasting standards. Fox currently owns a 39% stake in Fox and, with Disney awaiting approval from US regulators to acquire much of the Fox empire, it may all conclude with Disney taking over Sky.

With Ikea being reportedly investigated by EU tax officials for unfair tax advantages by the Netherlands government, its CEO, Jesper Brodin, has indicated that the flat pack furniture retailer pays its fair share of global tax – in the region of 25%. Whether the Swedish company, with a Dutch head office in Delft, has operated within EU rules remains to be seen.

Qualcomm Inc has been fined US$ 1.2 billion by the EU for paying Apple “billions of dollars” not to buy chips from competitors. The initial agreement was signed in 2011 and subsequently renewed in 2013. To add to its woes, the world’s largest chipmaker is fighting a US$105 billion hostile takeover bid by rival Broadcom Ltd and continues with several court cases against Apple over patent licensing.

General Electric Co had a woeful Q4 posting a 5.1% decline in revenue at US$ 31.4 billion and, more worryingly, a US$ 10.1 billion loss (compared to a US$ 3.5 billion profit) on the back of a US$ 11 billion charge for insurance losses (US$ 6.2 billion) and taxes.

Kimberly-Clark is set to close ten manufacturing plants, with a loss of up to 5k jobs, with Q4 sales only nudging up 1%, as keen competition from rivals and store brands increases. The company has also not been helped by falling birth rates in key markets such as South Korea and the US which has made inroads in sales of nappies and other baby-related staples. The Kleenex-maker hopes to cut costs by US$ 2 billion over the next four years, 25% of which would be saved by streamlining its supply chain.

The 155-year old Bacardi, which also owns major spirits brands such as Grey Goose vodka, Dewar’s whisky and Bombay Sapphire, is set to acquire tequila maker Patron for a reported US$ 5.1 billion, to add to existing Cazadores and Corzo tequila labels. The world’s biggest privately-owned spirits firm, and the second largest by value, Bacardi is trying to boost its segment share in the “high quality, cocktail combinations and sophisticated sipping products” sector.

After last week’s US$ 16 billion order by Emirates, which effectively saved the A-380 from demise, Airbus is looking for a smaller order from BA to further boost its order book. The airline, which is the leading operator of Boeing’s 747, already has 12 of the superjumbos in service. It had also been studying second-hand 380s, used by the likes of Singapore and Malaysian, but sees the refurbishment option as not being cost effective.

HSBC has agreed to settle US$ 101 million in penalties with US authorities, following the Justice Department investigating the manipulation of currency rates. As part of the deal, the bank has promised to help with the criminal case against former traders. It also entered into a deferred-prosecution agreement – just a month after it was released from a similar order for helping Mexican drug cartels launder money and breaching international sanctions by doing business with Iran. (In 2015, five international financial institutions were each fined between US$ 200 million and US$ 925 million for similar offences).

On the back of troubles at rival Monarch (closed down), Air Berlin and Alitalia (both in administration) and Ryanair (pilot rostering difficulties), Europe’s second largest budget operator, EasyJet posted a 14.4% hike in Q4 revenue to US$ 1.6 billion; passenger numbers were 8.1% higher, at 18.8 million, than in the same period of 2016. Following the announcement, its share value jumped 5.1%.

The UK car sector received another jolt following Vauxhall recently slashing some 650 jobs at its Ellesmere Port plant. This week, Jaguar Land Rover announced that it would be trimming production of some of its Range Rover brand – and this comes after a record global sales year in 2017. However – along with the perennial Brexit factor – the car maker cites a 2% fall in production and a 5.7% decline in UK new car sales as drivers behind the decision.

In December, the UK’s budget deficit declined, as public sector net borrowing fell 3.9%, year on year, to US$ 3.5 billion, mainly because of a US$ 1.7 billion credit payment from, of all sources, the EU; this was the lowest December net borrowing since the turn of the century. For the nine months to December, the PSNB has fallen 11.7% to US$ 69.5 billion and for the tax year ending 31 March the Office for Budget Responsibility forecasts that this December figure will be roughly the same. The UK’s public sector net debt is currently at US$ 2,445 billion, equating to 85.4% of GDP.

It seems that the UK economy is not in such a bad state as some commentators have led us to believe and this change in attitude may account for sterling topping the US$ 1.42 level on Tuesday – a welcome improvement from when it reached its lowest level in thirty years – at 1.20 – after the June 2016 Brexit vote. With inflation levels beginning to come off their recent 3.1% highs, sterling heading north (with imports heading the other way) and some positive economic indicators maybe the country’s prospects are becoming brighter, with “business returning to normal”.

Not surprisingly, the Bank of Japan has decided to make no immediate change to its monetary stimulus package which stands at an annual amount of US$ 730 billion. This will result in the Bank of Japan purchasing government bonds so that the yield remains at zero level; current account interest rates will stay at minus 0.1%. The world’s third largest economy is expected to see growth levels continue to head north, with inflation nudging higher towards the 2.0% mark.

China reported that Q4 figures indicated that the economy had continued at a steady growth pace, climbing 6.8%, year on year. Last week, the authorities reported an annual jump to 6.9% (up on 2016’s 6.7%) with three other indicators posting gains – annual industrial production 6.6% (2016 – 6.0%), retail sales 10.2% and fixed asset investment at 7.2%.

With its public debts equating to 180% of its GDP, Greece’s economy is still in dire straits. The two protagonists still have opposing views – the IMF supports major debt relief, saying that the debt burden is “unsustainable”, whilst Germany and other EU creditors maintain enough is enough (having already lowered interest rates and extended repayment periods) and that the Hellenic country should pay up all its outstanding liabilities. Some agreement between the two parties is necessary and the IMF has intimated that it will only join in the current (and third) bailout of US$ 8.3 billion if a further “haircut” takes place.

After safely navigating the three day closure of government services, Donal Trump has approved high duty on imports of solar panels (30% over four years) and large residential washing machines (50% over three years). This follows reports that the domestic industry was being unfairly targeted by heavily subsidised Chinese imports.

Once again the President has got his own way as Jerome Powell is confirmed to take over the reins of the Federal Reserve from Janet Yellen.  The former investment banker was Donald Trump’s choice and comes as a signal that he will continue with slow and deliberate rate increases and could well oversee more bank deregulation. Tomorrow he will address some of his biggest critics at the annual elite Davos forum.

As seems to be the norm, the IMF has yet again revised its global estimate just three months after their last forecast. It now sees global growth this year and 2019 to come in at 3.9%, following on last year’s 3.7%. The main factors behind this upward revision are the recent US tax policy changes (including tax cuts) and a faster than expected recovery in Europe and Asia. The growth is broad-based with a majority of global economies recording year on year expansions. Despite its bullish outlook, there is a warning about the equity asset bubble, potential problems for the UK economy (and Brexit again) and the rise of protectionism because of the America First policy – Donald Trump’s American Dream!

Posted in Finance | Tagged , , , , , , , , , , | Leave a comment

What About Us?

10% of Dubai’s total land area is to be given over to the Marmoom Reserve project which was launched by HH Sheikh Mohammed bin Rashid Al Maktoum this week. Sponsored by nine government agencies, the unfenced desert conservation reserve will be home to over 200 species of native birds and 150 types of migratory birds. It will also provide a sanctuary for 19 kinds of endangered animals and birds and be home to 26 species of reptiles and nine varieties of mammals. The development, with forty hectares of shrub land/fertile area and 10 km of lakes, will introduce more than twenty environmental, cultural and sports-related initiatives (attracting 20k participants). The Marmoom Reserve is also the site of the important 3k-year old Saruq Al Hadid archaeological site.

Driven by a myriad of factors, including higher inflation (because of the January introduction of VAT), Core Savills expect another year of downward adjustments, along with tighter investment yields for Dubai realty. However, there is an expectation of prices in the mid and premium level sectors stabilising, whilst there will be a slowdown in the rate of declining rents.

Propertyfinder Group estimates that the four most expensive locations for apartment purchases are Downtown (US$ 581 per sq ft), Old Town (US$ 535), Palm Jumeirah (US$ 501) and DIFC (US$ 489). When it comes to villas, the top five were Emirates Hills (US$ 708 per sq ft), Palm Jumeirah (US$ 664), The Lakes (US$ 373), Jumeirah Islands (US$ 358) and The Meadows (US$ 332).

The latest Cavendish Maxwell survey points to a 2017 decline for Dubai rents and sale prices – a trend that will continue into Q1. Over the year, both villas and apartments have seen average price dips of 2%. Larger than the average declines for villas were witnessed in Arabian Ranches, Jumeirah Islands, The Meadows and Victory Heights, ranging from falls of 3.0% – 3.2%; only two locations (for apartments) saw rentals drop over 3% – Downtown (3.2%) and The Greens (3.0%).

Jumeirah has appointed a new CEO, industry veteran Jose Silva, who has spent the past 25 years with Four Seasons Hotels & Resorts, with his last position being regional vice president overseeing France, Switzerland, Spain and Portugal, as well as general manager of Hotel George V in Paris. In his new role, he will be responsible for international expansion that will see additional properties to Jumeirah’s current global portfolio of 19 (and 25 under development).

TAV Construction Company has been awarded two Emaar construction contracts. The first is for two towers – the 356 mt, 88-storey Promo Tower at The Opera District and a 300 mt, 71-level tower. The other involves two towers (at 65 mt and 55 mt), along with a hotel and hotel apartments. No financial details were available. The developer also announced that its first residential tower, in its almost  five-year Emaar Beachfront Project, Burj Vista 1 – a development of over 20 buildings –  will start selling this Saturday.

Dubai-based RSG Properties expect its 19-storey JVC residential tower to be handed over early next year. The Burj Sabah will comprise studios, 1 and 2-BR apartments.

MAG Lifestyle has announced a new scheme with international partners to offer their staff exclusive discounts on some of their developments. The Dubai-based company has already established relationships with some leading GCC companies and various government agencies. The MAG International Alliances division plans to expand overseas.

DEWA announced its US$ 7.2 billion budget for 2018, 8.2% higher than last year. Capital investments – in both conventional and non-conventional energy sources – are 14.9% higher, at US$ 2.7 billion. The spend will also include power transmission (US$ 1.4 billion), power generation (US$ 736 million), energy distribution (US$ 463 million) and water transmission (US$ 136 million).

Records have been broken over the first two months of Global Village. There have been 2.4 million visitors since its 01 November opening, of which 500k were during the 46th National Day celebrations.

It seems that HEMA, with over 700 stores in twelve European countries, is to set up shop in Dubai. The Dutch discount retailer will make Dubai its first foray outside of Europe by opening three stores, selling its affordable and original design homeware and apparel.

The 72% owner of Damac has indicated that he would be “more than happy” to sell up to 15% of his company to boost the trading in its shares. Formed 15 years ago by now billionaire Hussein Sajwani, who is worth a reported US$ 5.2 billion, the company has a market value of US$ 5.67 billion, with shares trading on 18 January at US$ 0.94.

It seems highly likely that the EU will remove the UAE from a 17-country blacklist of tax havens following “new commitment letters”. The move means that the country will not now face sanctions from the EU.

The 45-year old UAE-based Union Cement Company has divested 92.83% of its business (for US$ 305 million) to Shree Cement. This was the Indian company’s first overseas acquisition, allowing it to boost annual production by 13.6% to 33.2 million tonnes.

It is reported that seven-year old Careem could be involved in an IPO, but probably not in 2018, that will probably value the ride-hailing company at US$ 1.5 billion. In 2016, the Dubai-based company was valued at US$ 1 billion when it raised US$ 350 million from investors that now include Daimler AG, Rakuten and Prince Alwaleed bin Talal.

Another entity that may go public is Emirates National Oil Co which could go the way of its capital neighbor ADNOC by a public offering of its fuel-retailing unit. ENOC could raise US$ 7 billion by hiving off its retail division but any decision would be some time off and may only involve a small share of the business. It operates 116 service stations and services 90 million customers every year.

Following this week’s merger of Al Ansari Exchange and Al Ansari Exchange Services, the new entity, with a US$ 327 million operating capital, becomes the largest exchange and remittance house in the UAE, having a 35% local market share. It expects to see a 14.3% increase in the number of branches to 200.

At this week’s general meeting, Emaar shareholders rubber-stamped the distribution of US$ 817 million this month and a further US$ 272 million in April. This arose after the developer issued 20% of Emaar Development shares in a successful November IPO.

The earnings season began this week in earnest, with mixed results being reported. Despite 2017 revenue climbing 75.5% to US$ 205 million on the back of its on-going Midtown development, Deyaar posted a 39.7% decline in profits to US$ 36 million. However, the 2016 bottom line had been boosted by an impairment write back and an investment gain.

The developer is majority owned by Dubai Islamic Bank which posted an 11.0% hike in net profit to US$ 1.23 billion, driven by higher fee-based income and lower than expected credit costs. Total income was 18.1% to the good at US$ 2.8 billion, with net operating revenue up 13.6% to US$ 2.1 billion.

Emirates NBD reported a 15.0% hike in 2017 profits to US$ 2.28 billion, on the back of marked growth in core fee-based income and lower credit costs. Total income – at US$ 4.2 billion – was 4.8% higher on the year, with net interest income rising 7.0% to US$ 2.9 billion. Recently introduced cost cutting measures resulted in a 1% drop in expenses to US$ 1.3 billion.

Emirates Islamic turned 2016’s Q4 loss of US$ 23 million to a US$ 55 million profit in Q4, as annual returns surged almost sevenfold from US$ 29 million to US$ 191 million. Consequently, its Return on Equity rose from 2% to 10%, whilst customers’ deposits were 2% higher at US$ 11.4 billion.

The DFM opened on Sunday (14 January), at 3495 and nudged 36 points higher (1.0%) by Thursday, 18 January, to close at 3531. Emaar Properties was up US$ 0.04 at US$ 2.00, with Arabtec down US$ 0.03 to US$ 0.72. Volumes were higher at 331 million shares traded on Thursday, valued at US$ 153 million (compared to 180 million shares worth US$ 65 million the previous Thursday – 11 January).

By Thursday, Brent Crude traded US$ 0.25 higher at US$ 69.51, with gold heading the same direction – up US$ 5, to US$ 1,327, by 18 January 2018.

By selling off some 30% of its business in listing its mobile-phone division, SoftBank Group expects to reap some US$ 18 billion. The IPO – expected to use both Tokyo and London stock exchanges – will take place later in the year and will be Japan’s biggest in 30 years when Nippon Telegraph and Telephone Corp went public.

Melrose Industries has made a US$ 9.6 billion hostile takeover bid for UK-listed engineering company, GKN that would leave its shareholders with 57% of the combined business. GKN’s recent problems include a US$ 180 million write-down in its US aerospace plants which it now plans to divest from its car parts division.

Ferrero Group is set to acquire Nestlé’s US sweets and chocolate business in a US$ 2.8 billion deal which would then make the Swiss food company the third largest confectioner in the US. The US market, valued at over US$ 8 billion a year, is the largest in the world with the two biggest companies ahead of Ferrero being Mars and Hershey.

Airbus announced on Monday that if it did not receive any new orders, it would stop production of the A380 superjumbo. In its ten-year history there have been 317 orders, with 142 emanating from Emirates. Three days later a US$ 16 billion order from the Dubai carrier (for 20 planes and an option for a further 16) saved the jumbo from almost certain oblivion. The scale of the problem can be seen from the fact that Airbus was producing 27 planes a year which will fall to only eight in 2019. Further good news for the plane maker came with the announcement that, for the fifth year in a row, it had sold more planes than its arch rival Boeing – with 1,109 orders and 718 deliveries against 912 and 763.

Beating original government estimates by 0.4%, China’s economy expanded by 6.9% last year – the first time since 2010 that the pace of growth had headed north. As is the norm these days, there are analysts who think these figures may be overstated and that expansion has been weaker than reported.

Although he will fail to get any praise from his critics surely President Trump can take some kudos from his recent overhaul of the US tax system which has seen Apple (among others) planning to increase investment as a result of his decision. Furthermore the tech giant will pay US$ 38 billion in tax (based on the US$ 250 billion it holds in overseas vaults) and will create an additional 20k jobs in its home country. By 2022, Apple is expected to contribute US$ 350 billion to the US economy and spend US$ 55 billion with domestic suppliers. The tax programme saw corporate rates slashed from 35% to 21% and will give an immediate boost to an economy that is already in top gear.

Although there was a 0.1% fall to 3.0%, UK’s inflation level is still more than double that of the Eurozone’s 1.4%. However any fall from a six-year high is welcome to UK consumers who have been hammered by the double whammy of falling sterling (pushing up the price of imports) and slow wage growth, lagging well behind the high inflation level. Meanwhile Germany’s consumer price inflation – at 1.8% – rose to a five-year high and well up on the 0.5% rate this time last year.

Sterling is on a roll and was trading this week at over 1.38 to the greenback – its highest level since the June 2016 Brexit referendum when it had sunk overnight to 1.21. Two of the drivers for the latest boost were reports that both Spain and the Netherlands were open to a softer Brexit deal (in contrast to the hard-line approach of the mainly unelected EU bureaucrats) and indications that the ECB may be unwinding its stimulus package.

As widely expected by most – but somewhat of an apparent surprise to the May government – Carillion has gone into liquidation. UK’s second biggest construction company failed to convince its creditors that it would be able to settle its outstanding liabilities – particularly because it had a bank balance of only US$ 20 million and had run up huge debts, after losing money on major contracts.

As the company’s debt levels surged and its inability to pay its liabilities, it was inevitable that creditors would cut off credit lines, including banks that could now face a US$ 2.8 billion loss. What seems to have happened was that Carillion got badly hit by major cost overruns, including three major government construction projects, valued at nearly US$ 2 billion – the Aberdeen bypass, the Royal Liverpool University Hospital and the Midland Metropolitan Hospital.

As far back as 2015, hedge funds and financial speculators were betting (and winning) millions of dollars that Carillion would hit the buffers which came true last July when its share price first crashed. Its former chief executive reportedly received over US$ 2.0 billion in severance pay in 2016 and was still receiving a salary of US$ 830k; other executives were also being paid beyond their exit date.  Of all the stakeholders in this sorry mess, the government seems to have been the most short-sighted, giving the beleaguered company more work of US$ 2 billion, even after the company’s July profits warning. Unfortunately, it will be all the others who will suffer because of this mess and they should be asking the May administration What About Us?

Posted in Finance | Tagged , , , , , , , , , , , | Leave a comment

Reasons To Be Cheerful

There was a 6.0% increase in the number of Dubai realty transactions to 69k last year, with the value 4.0% higher at US$ 77.8 billion, reflecting the continued growth in the sector. Of the total transactions, the biggest contributor was the sale of land, buildings and units accounting for 49k, valued at US$ 31.1 billion – with mortgages for the same three totalling 15.7k at US$ 37.7 billion. The top five investing nationalities remained unchanged- UAE – US$ 6.9 billion, India – US$ 4.2 billion, KSA – US$ 1.9 billion, UK – US$ 1.6 billion and Pakistan – US$ 1.4 billion. The leading three sales locations were Palm Jumeirah (731 transactions for US$ 3.3 billion), Business Bay (769 – US$ 4.9 billion) and Dubai Marina (1,127 – US$ 1.0 billion).

Dubai’s latest mega plan was unveiled this week – Knooz Al Sharq City in the heart of Dubai. The US$ 1.9 billion mixed use community development, extending over an area of 20 million sq ft, will combine various historic Islamic architectural styles. Surrounded by a giant wall, with seven main gates, it will have old-style housing, shops, markets and museums, as well as traditional hotels called caravansaries.

Azizi Developments announced that it would deliver seven of its Al Furjan projects in H1, including Roy Mediterranean and Montreal by next month. Five other developments – Plaza, Azizi Star hotel, Samia, Farishta, and Shaista – will be released in Q2. The Dubai-based property developer estimates the total value of these projects to be US$ 490 million.

Following an agreement between Nakheel and the AccorHotels, the 252-key, 16-floor hotel in Jumeirah Village Circle will be Ibis-branded when it opens in 2021. This property is just one of 17 projects in the Dubai developer’s ambitious hospitality expansion programme.

Later this quarter, the Gevora Hotel, on SZR, will become the tallest hotel in the world taking over the mantle from its neighbour JW Marriott Marquis. With 75 floors and 528 guest rooms, the dry hotel will be one metre higher at 356 mt.

The Dubai Land Department is trying to follow the success of the DSF (Dubai Shopping Festival) by organising the DPF – the Dubai Property Festival. The three-day event in April will include auctions, from both developers and investors, and perhaps special price discounts and the waiver of some bank fees. It will be open to any developer – as long as they are backed with an escrow account – and the general public.

DP World is expected to spend US$ 3 billion in capital expenditure over the next three years as it extends its global reach and looks for worthwhile international investments. The company expects to benefit from global trade moving upwards last year and will see its gross container volumes surge by 10%.

2017 was another record year for Emirates, with the airline flying over 59 million passengers on 191k flights and carrying 2.5 million tonnes of freight, travelling a total of a staggering 886 million km. It also served 63 million meals on flights out of Dubai and moved over 35 million pieces of luggage. Its current fleet of 269 aircraft now flies to 156 destinations; it also has a further 243 planes on order.

Dubai International Airport passenger traffic touched nearly 7 million in November – a 5.6% increase, year on year – to bring its YTD total to 80.4 million, 5.8% higher than in 2016.

After acquiring Dublin-based lessor AWAS last August, Dubai Aerospace Enterprise now has 383 aircraft in its US$ 14 billion portfolio, making it one of largest global aircraft lessors. Last June, the government-controlled company issued a US$ 2.3 billion benchmark bond in the US.

Following this week’s Cabinet Decision No. (59) of 2017 on Designated Zones, the following Dubai free zones have been added – JAFZA, Dubai Cars and Automotive Zone (DUCAMZ), Dubai Textile City, Al Quoz Free Zone area, Al Qusais Free Zone area, Dubai Aviation City and DAFZA.

Abraaj Capital is reportedly planning to offer stakes in its healthcare/hospital portfolio in either the New York or London stock exchange. Hermes has been appointed as the IPO’s book runner.

There are reports that Dubai Investments is targeting to acquire Union Properties’ 50% stake in Emirates District Cooling (Emicool), so as to take up full ownership of the district cooling entity. If that were to happen, it is highly likely that the company would be in line for an IPO. No financial details have been made available but it is expected that a sale could be agreed by early next week. Meanwhile the developer has bought a “strategic” 5.68% stake in Egypt’s Palm Hills Development for US$ 3.6 million.

Troubled Dubai contractor, Drake & Scull International, is hoping to finalise its US$ 272 million restructuring programme this year and will soon start discussions with its bondholders, holding US$ 119 million of debt. In Q4, it had already agreed with nine of its main lenders to refinance US$ 153 million of corporate debt over a longer repayment period. In Q3, the company posted an US$ 87 million loss.

December’s Emirates NBD’s PMI rose 0.7, month on month, to 57.7, recording its highest level in nearly three years – a welcome indicator to show that the country’s non-oil private sector is on the up. The data points to marked improvements in export growth, new orders and production. However, over the year both wage growth and employment have been sluggish.

A senior Ministry official estimates that the country’s economy will grow by 3.9% this year – slightly higher than the IMF’s figure of 3.4% October forecast – and up on 2016’s 3.0% rise. The improvement comes on the back of higher oil revenues, global growth and the UAE’s concerted efforts to diversify its revenue stream away from oil dependency.

Amlak Finance, via its Amlak Nasr City for Real Estate Investment unit, has signed an agreement with Marseilia Group for a mixed-use development in Nasr City District, Cairo. It will include not only the “usual” residential units, shopping mall and hotel but also dedicated areas for social activities. The Dubai-based real estate financier is also targeting 10k job opportunities for Egyptian youths.

As part of its ongoing expansion strategy, NMC Health has bought the remaining shares it does not own in Dubai (49% in Fakih IVF facility for US$ 205 million) and in Saudi Arabia (30% in As Salama hospital). Last month, the London-listed healthcare company indicated plans to spend US$ 800 million in the region.

Naeem Holding, listed on the Egyptian Exchange (EGX), now has a dual listing on the Dubai Financial Market up to a limit of 33.3% of its US$ 218.5 million capital.

The DFM opened on Sunday (07 January), at 3464 and nudged 31 points higher (0.9%) by Thursday, 11 January, to close at 3495. Emaar Properties was down US$ 0.06 at US$ 1.96, with Arabtec up US$ 0.08 at US$ 0.75.  Volumes were lower at 180 million shares traded on Thursday, valued at US$ 65 million (compared to 389 million shares worth US$ 161 million the previous Thursday – 04 January).

By Thursday, Brent Crude traded US$ 3.29 (1.7%) higher at US$ 69.26, with gold heading the same direction – up US$ 1 to US$ 1,322 by 11 January 2018.

It is reported that Aston Martin may go public, with estimates of a US$ 6.8 billion IPO. If that happened, the Kuwait-backed car company, which delivered 5k vehicles in 2017, whilst raking in nearly US$ 1.2 billion in revenue and expected profit of nearly US$ 250 million, could be valued at about the same as Italian rival, Ferrari, which has a stock market value of US$ 21.4 billion.

Even though Samsung Electronics – the jewel in the beleaguered South Korean’s company’s crown – posted record Q4 profits of US$ 14.1 billion, its share value has fallen over 10% since its November high. The 64% improvement in the bottom line figure disappointed analysts’ forecasts of US$ 14.8 billion. The world’s biggest chip maker was also hurt by a stronger won and hampered by the corruption scandal within the Samsung Group, expanding Chinese competition and a slowdown in the chip boom.

The Saudi “purge” continues unabated with eleven princes facing trial after being arrested for protesting the end of state subsidies for their utility bills and claiming compensation for a relative convicted and subsequently executed for murder. This is just part of a push by the “new” regime to diversify the Kingdom from its oil-dependent economy which has already seen the November arrest of over 200 high profile Saudis and the introduction of austerity measures, one of which was the 127% hike in fuel prices earlier in the month.

Despite an impressive 45% hike in 2017 global sukuk issues to US$ 97.9 billion, S&P forecast a possible 28% dip this year. The ratings agency cites factors such as increased geopolitical risks and tighter liquidity for the expected decline.

Having underestimated both the last two years’ global growth levels, the World Bank expects a stronger 2018 with growth levels of 3.1%. In an upbeat assessment, it reckons that the recovery is broad-based and more positive than its June assessment, particularly with regard to the eurozone.

UK supermarkets had better than expected sales over the Christmas period as consumer spend was nearly US$ 1.4 billion higher at US$ 39.3 billion. Tesco was the biggest winner with a 3.1% hike in sales, whilst the other three majors – Asda, Morrisons and Sainsbury’s – trailed but still posted 2% gains. These four were dwarfed by the two newcomers – Aldi and Lidl – that both posted revenue increases near to 17%. Non-food stores fared badly which saw them record their worst fall since the GFC.

The eurozone is still struggling with low inflation levels recording a 0.1% December fall to 1.4% – still some way off the ECB’s 2.0% target. Core inflation – excluding energy, food, alcohol and tobacco – remained unchanged at 0.9%. On an annual basis, there was a marked decline in energy prices (from 4.7% to 3.0%).

China reported a 1.8% Decmber CPI increase, marginally up on the 1.7% November reading. Over the month, inflation was 0.3% higher and year on year producer prices were 4.9% to the good. Chinese authorities confirmed that 2017 growth was better than most analysts’ expectations, coming in at 6.9%. Furthermore the Central Bank reported a month on month US$ 20.7 billion increase in its reserves to US$ 3.14 trillion, up US$ 129 billion (0.9%) for the year, not only helped by the growth spurt but also the government strengthening its grip on outflows. This includes a US$ 50k cap on how much foreign currency a Chinese citizen can convert each year. The yuan benefitted from the weak dollar last year, climbing 6.8% higher (a little lower than the overall 8.5% decline against a basket of major currencies).

It seems that US authorities are reluctant to see local tech companies dealing directly with overseas interests particularly from China. Last week, a proposed US$ 1.2 billion sale of Moneygram to the digital payments arm of Alibaba was blocked. Now Huawei, the world’s number three smartphone brand behind Apple and Samsung, is having problems obtaining a US carrier to sell its Mate 10 Pro smartphone, with AR&T, with security concerns the main issue. Five years ago, a US Congressional committee recommended that Huawei (and ZTE) should be barred from any future US mergers and acquisitions.

Once again some UK economic data continues to confound critics as latest figures see the monthly industrial output growth double to 0.4% – its eighth straight month of expansion – and manufacturing output posting a similar increase, up from 0.3% a month earlier. On an annual basis, growth is at 2.5% and 3.5% respectively. The FTSE 100 closed Thursday at a record high 7764, whilst sterling edged inexorably higher to close at 1.372 to the US$. Even those pundits who forecast that the UK economy, along with the pound, would fall off a cliff in 2017 should now have Reasons To Be Cheerful!

Posted in Finance | Tagged , , , , , , , , , , , | Leave a comment

Something Just Like This

VAT kicked off in the UAE – and Saudi Arabia – on Monday, with a standard 5% rate. The country’s coffers are expected to be boosted by US$ 3.3 billion in the first year of operations. Most goods and services will be affected although education, residential rents, medical treatment and public transport will be zero-rated. According to the UAE Finance Ministry, receipts from VAT will be used “for infrastructure development, upgrading public services and boosting the country’s economic competitiveness.” The other four GCC states are expected to introduce VAT by early 2019 at the latest.

With the introduction of VAT – and the estimated 2% additional hike in the inflation rate – many, including the Hay Group, expect real wages to fall as the 4.1% hike in remuneration will be lower than the forecast 4.6% inflation level. In the current environment, a 4.1% pay increase in 2018 looks highly improbable so consumer spending will have to be pulled in, to the detriment of the local economy.

At the start of the year, industry experts always seem to come out with dire warnings that the next twelve months will see an over-abundant realty supply chain. However, such high numbers never materialise and are often 50% lower than expectations by year end.

According to latest Bayut.com statistics, Dubai International City recorded the largest fall in rents last year – at 16% – to US$ 11.4k for a 1 B/R apartment. Over the year, the only type and location that posted an increase in rent were studio apartments in Mirdiff. However, as sale prices nudged lower, yields for both villas – 5% – and apartments – 7% – remained largely unchanged. Overall prices were down in 2017, although there were bright spots that posted marginal increases – 2 B/R in JLT, 1 B/R on the Palm and studios in Dubai Sports City and Silicon Oasis.

Omniyat has signed a US$ 136 million deal with Ajman Bank to help finance a luxury development – comprising a 5-star hotel, residences and retail outlets – located in the Marasi development on Dubai Canal and slated for a 2020 completion date. The Dubai developer is in a cooperative partnership with Jenina Real Estate and Saudi’s Rashed Al Rashed Group. Further details will be released this quarter and will involve a world famous hospitality brand. Omniyat also announced that The Langham Downtown Dubai will open in Q3 2020. The project, located on the banks of the Dubai Canal, will house 167 rooms and 239 residences.

Bin Ladin Contracting Group LLC Dubai has won a US$ 105 million JV contract (between Nakheel and Spain’s RIU Hotels & Resorts) to construct an 800-key hotel resort and water park on Deira Islands. Completion will be by 2020. This contract sees the total project spend on infrastructure and construction work nearing US$ 2.2 billion.

Amlak Finance has completed its US$ 38 million development of 54 3/4 B/R villas in Mirdiff.

DEWA is confident of completing its massive Jebel Ali M-Station electricity and water desalination expansion project by Q3 which will cost US$ 3.1 billion. On completion, its electricity capacity will increase by 32% to 2.9k MW, whilst the station will be able to produce 149 million imperial gallons of desalinated water per day. The whole DEWA capacity is currently 10.2k MW and 470 MIGD.

This week saw somewhat of a record with four cruise ships docking at Port Rashid on the same day – for the first time ever. On board were 25.3k souls of which 21.4k were tourists. It was a good start to the cruise season, which goes on until October, during which time Dubai hopes to attract over 700k visitors, following a 15% hike in numbers last year to 650k.

Following two years of falling turnover, Dubai Duty Free posted a 5.6% increase in 2017 revenue to US$ 1.92 billion, as December, with a new monthly sales record of US$ 218 million, aided by a three-day 25% discount during the company’s 34th anniversary celebrations. As in the past, perfumes (US$ 300 million), liquor (US$ 297 million) and tobacco (US$ 188 million) accounted for 40.8% of total sales.

Last Sunday, not only were the shops jammed to capacity because of the introduction of VAT, the following day, but the RTA posted record passenger numbers totalling 1.806 million. On New Year’s Eve, the three transport options Metro/Trams, taxis and buses had passenger numbers of 870k, 546k and 390k.

Although 525 deaths were recorded on the country’s roads last year, it was 25.6% down on the 2016 figure, whilst the number of fatalities per 100k people also fell to 4.4. It is noted that speeding continues to be the main culprit accounting for 43.8% of road deaths. However, the number of issued fines for speeding over 70 km and 60 km fell by 38.8% to 56.6k and 22.7% to 100.3k respectively. There is no doubt that any reductions in accidents would save money in many ways and boost the Dubai economy no end.

The assets of UAE banks in November totalled US$ 732 billion, with conventional banks accounting for US$ 585 billion (79.9%) of the total and Islamic financial institutions the balance; there was a US$ 12.9 billion month on month increase. There were also rises in both credit value and banks’ deposits to US$ 434.6 billion and US$ 392.9 billion respectively.

On 30 December, Al Futtaim finally completed purchase of the Marks & Spencer franchise and retail business (comprising 27 outlets) in Hong Kong and Macau. The Dubai-based retailer, which has been in partnership with the UK company since 1998, now has 72 M&S stores in Asia and the Middle East.

Gulf Islamic Investments has acquired two German grade A logistics centres for Amazon at a cost of US$ 144 million. The UAE-based firm has now spent over US$ 500 million on similar assets in the European market and plans further additions of high quality commercial realty, focusing on Germany and the UK.

It is reported that majority owner, the Varkey Group, has sold to Malaysia’s Khazanah Nasional Berhad a 3% stake in GEMS Education for an undisclosed fee. The global sovereign wealth fund, with a consortium including Bahrain’s SWF, already had an indirect interest in the education provider through Dubai-based private equity firm, Fajr Capital. GEMS’ latest financials (for the year ending 31 August) indicated an EBITDA of US$ 261 million on the back of a US$ 926 million revenue stream.

Gulf Navigation Holding, with year-end assets 12% higher at US$ 32 million, is to increase its capital base by US$ 122 million to reach US$ 272 million. The IPO is expected in Q1 with the money raised being used to support ambitious expansion plans, including the addition of twenty new vessels by 2020.

The DFM opened on Tuesday (02 January), at 3370 and started the year in bullish mood rising 94 points (2.8%) by Thursday, 04 January, to close at 3464. Emaar Properties was US$ 0.13 higher at US$ 2.02, with Arabtec up US$ 0.02 at US$ 0.67.  Volumes were lower at 389 million shares traded on Thursday, valued at US$ 161 million (compared to 572 million shares traded at US$ 206 million the previous Thursday – 28 December).

By Thursday, Brent Crude traded US$ 3.29 (5.1%) higher at US$ 68.07, with gold heading the same direction – up 4.0% from US$ 1,270 to US$ 1,321 by 04 January 2018. For the past year, black gold soared by US$ 9.80 (17.25%) from US$ 56.82 to US$ 66.62, whilst the yellow metal jumped US$ 154 (13.38%) from US$ 1,151 to US$ 1,305.

Following a class action suit in the US, Petrobas has been landed with a US$ 3.0 billion fine by authorities. The Brazilian state oil company suffered from a corruption scandal, with bribes being paid to officials and politicians by outside contractors to curry favour. Former chief executives, Maria das Gracas Foster and Jose Sergio Gabrielli, were caught up in the far-reaching scandal. The oil giant claimed to be a victim of a kickback scheme which had already cost Petrobas an estimated US$ 1.8 billion.

Despite the Trump tax cuts, BP expects to take a US$ 1.5 billion hit, as the petro giant will have to revalue some of its US deferred tax assets and liabilities. Several other companies will be caught under  the same net and will have to pay out more tax in the short-term, whilst international entities will be levied a 15.5% tax on repatriated overseas earnings.

Wixen Music Publishing Inc is the latest music publisher to sue Spotify (for US$ 1.6 billion) for alleged copyright violations, including works by Neil Young, Tom Petty and The Doors. Nevertheless, it seems that Spotify is planning an IPO on the New York Stock Exchange as early as March. The music streaming company, founded in Sweden and with more than 140 million users and a 30 million-song catalogue, sowed the seeds for the share issue in 2016 with a US$ 1 billion agreement with various private equity firms. (Interestingly, UK music fans streamed 68.1 billion songs last year, equating to over 1k per person and 36.4% up on 2016).

It is a surprise to see five English football clubs ranked in the top nine in the world, with the biggest economic growth potential. The Soccerex Football Finance 100 is based on different factors including potential owner investment, net debt, bank balance, value of players and ground/training facilities. The five EPL clubs are Manchester City (1), Arsenal (2), Tottenham Hotspur (5), Manchester United (7) and Chelsea (9).

BA’s owner, IAG, has paid US$ 24 million for the assets of the bankrupt Niki, founded by former motor racing world champion, Niki Lauda. It will buy 15 of the 20 Austrian airline’s planes and take over its slots at Munich, Vienna and Zurich, as well as reemploy 75% of the 1k personnel. The Anglo-Spanish group, which will incorporate Niki with its recently launched budget airline Vueling, also owns Aer Lingus and Iberia. Unlike a lot of airlines, it also expects a 20% surge in operating profits to US$ 3.6 billion this year.

After a truly miserable 2017, during which it issued three negative profit warnings, Carillion starts the year facing an investigation by the Financial Conduct Authority, concerning the “timeliness and content” of some past announcements it had made. The infrastructure company, which employs 40k staff, has been in so much trouble that its share value sank by more than 90% last year.

There were mixed results over the festive season for UK retailers, with the most disappointed having to be Debenhams. It has issued a profits warning, that saw its share value plummet by over 21%, after 17 weeks of like-for-like sales to 30 December were 2.6% lower, year on year. It now expects annual profits in the region of US$ 82 million against market expectations of US$ 113 million. However, it did report that Christmas on-line sales were up 15.1%.

On the other hand, Next, even surprised its own management, by posting a 1.5% rise in full-price sales (as opposed to an earlier forecast of negative 0.3%) over the festive season, helped by the colder than normal weather conditions; its shares rose 6.7% in Wednesday trading. Although store sales fell 6.1% in the eight-week period to 24 December, on-line trading jumped 13.6%, so it upped its annual profit estimate to almost US$ 1 billion.

The Co-op is to invest US$ 216 million to add 100 new food stores this year that will offer 1.8k new employment opportunities; 20% of the outlets will be opened in London. The retailer is planning to buy Nisa Retail, subject to Competition and Markets Authority approval, and has recently signed an agreement with the Costcutter Group to become its exclusive wholesale supplier for its 2.2k outlets.

Citigroup is planning to depart from a 2004 pact – along with Morgan Stanley and UBS Group – which allowed their financial advisers to change companies without the threat of being sued. The agreement signed by 1.7k firms is now set to unravel as, according to Morgan Stanley, the Protocol for Broker Recruiting had become full of “opportunities for gamesmanship and loopholes”.

Hyundai/Kia had a disappointing 2017, with sales of 7.25 million vehicles – one million down on company forecasts and the third year in a row that targets have been missed. Despite the shortfall, the South Korean company is still the fifth largest in the world although it is losing traction in the US market where sales dipped by 11%, whereas total sales elsewhere were only 7% off.

Not surprisingly, US authorities have stepped in to stop the US$ 1.2 billion sale of Moneygram to China’s Ant Financial – the digital payments firm for Jack Ma’s Alibaba.

China ended the year with positive news on the manufacturing and production fronts. The December Caixin PMI rose 0.7 to 51.5, indicating that the manufacturing sector is performing well, mainly because of robust output and new orders. To the outsider, it seems that the Chinese economy performed a lot better than many expected in 2017.

There is no doubt the importance that housing, the country’s largest asset valued at US$ 5.3 trillion, has to the Australian psyche, with home loans of US$ 1.3 trillion representing 60% of its banks’ total assets. However, after five years of solid growth – with Sydney and Melbourne increases of 75% and 59% – prices are starting to dip. How far they fall in 2018 remains to be seen but at least a 5% drop is on the cards.

The Institute for Supply Management December PMI jumped 1.5 to 59.7, reflecting the strength of its manufacturing sector as well as the improving US economy. Driven by marked improvements – in new orders (up 5.4 to 69.4) and production (1.9 higher at 65.8) – the index surprised analysts who had forecast a fall of 0.3 to 58.1. Early next week, the release of the non-manufacturing index is expected to see the service sector nudge higher as well. Other data shows that the pace of price growth is moving, with the December prices index surging 3.5 to 69.0, with employment expansion remaining firm.

Blog Oz                  
30 June 30 June     Unit %age 2017 31 Dec 17 31 Dec 16 31 Dec 15 31 Dec 14 31 Dec 13
1,325 1,365 Gold US$ oz 13.38% 1,305 1,151 1,060 1,186 1,236
66.50 79 Iron Ore US$ lb -4.96% 71.28 75 47 73 135
68.60 35.00 Oil – Brent US$ bar 17.25% 66.62 56.82 36.40 57.33 102.50
120 127 Coffee US$ lb -5.11% 126.2 133 124 161 260
87 85 Cotton US$ lb 13.77% 78.5 69 64 62 86
17.50 20.00 Silver US$ oz 6.19% 16.99 16.00 13.82 15.77 20.15
3.40 3.50 Copper US$ lb 33.06% 3.30 2.48 2.14 2.88 3.37
0.77 0.80 AUD US$   8.33% 0.78 0.72 0.73 0.81 0.89
1.37 1.40 GBP US$   8.87% 1.35 1.24 1.48 1.53 1.64
1.19 1.25 Euro US$   14.29% 1.20 1.05 1.09 1.21 1.38
0.018 0.020 Rouble US$   6.25% 0.017 0.016 0.014 0.017 0.030
7,500 8,000 FTSE 100     7.64% 7,688 7,142 6,242 6,548 6,730
3,850 4,100 CS1300     21.78% 4,031 3,310 3,731 3,532 2,291
2,750 2,850 S&P 500     19.48% 2,674 2,238 2,044 2,091 1,831
3,600 3,250 DFMI     -4.56% 3,370 3,531 3,151 3,774 3,370
6,050 6,355 ASX     8.93% 6,171 5,665 5,345 5,415 5,352
1,200 45 Bitcoin US$   1210.72% 13,081 998 427 302 817

From the table above, it can be seen that all but three of the sixteen listed indicators moved in positive territory in 2017. The three negative results were iron ore, 4.96% lower at US$ 71.28, coffee 5.11% off at US$ 126.2 and the Dubai Financial Market dropping 4.56% to 3,370. There are two forecasters willing to pit their wits against the market and their H1 forecasts are on the left of the table.

Both gold and Brent defied many analysts’ expectations by showing double digit growth figures of 13.38% and 17.25% respectively (a year earlier the increases were 8.6% and 56.1%). Gold is likely to lose a little of its sheen this year, as global central banks target higher interest rates which makes the bond and interest rate markets more attractive to the detriment of gold; however, the weak dollar may dilute that effect somewhat, resulting in little change in its value.

Last year saw gold grow at double the pace of silver but 2018 promises to see the underperforming metal bounce back as the yellow metal trades largely unchanged over the next six months. Silver will benefit from shrinking supply and an improved demand growth environment and should nudge 3% higher.

Take any forecast on future oil prices with a pinch of salt to put on the egg of faces of many analysts who, twelve months ago, forecast 2017 prices at under US$ 40. Much will depend on whether the agreed quota cuts, and output levels of non-OPEC producers including the ever increasing number of shale operators, continue at current levels. If global growth comes in at even IMF estimates, that will have a positive impact on prices that could top US$ 70 by June. Furthermore prices will get a boost from the upcoming Aramco IPO but this will probably not ibe felt until Q3.

Although most commodity prices are expected to show moderate growth, there could be a downturn of fortunes for iron ore, as China grapples with over-supply issues and on-going closures of its old, polluting steel mills. With the likes of Brazil and other low cost producers ramping up supply, prices are expected to dip in H1 by as much as 8%, especially since Chinese demand slows.

Coffee is expected to continue its recent dip in prices and could well be 5% off come 30 June – although do not expect the price in the coffee shop to follow suit, as other on-costs head in the other direction.

Cotton was the pick of the crop in 2017 and it looks more of the same in 2018. Major problems in two of the world’s biggest growers, India and Pakistan, have cut back on the supply chain, with the resultant slack being taken up by the likes of the US; latest data shows that there is a 29% increase in year on year commitments for US cotton exports.

With copper prices moving upwards towards the end of the year, there is every chance that this will continue into the New Year on the back of increased Chinese demand. Furthermore as there are no new significant supply lines on the horizon, allied with a global reluctance to boost production, prices could be 3% higher by mid-year.

Over the recent past, the Australian dollar has strengthened to 0.78 against the US$, coming off lows of 0.74. Although the probability of improving global growth – and its direct impact on commodity prices – would benefit the “lucky” country, it is likely that any uptick in its currency is by and large already priced in the market.

The surge in most currencies – including the much maligned sterling – points to a dollar weakness – a possible Trump ruse to make US exports cheaper. Two big ifs will push sterling higher in H1. If the current 3.1% inflation rate were to fall and the sluggish wage growth improves, then the currency will continue its upward trajectory, and will once again amaze some analysts who were predicting dollar parity this time last year.

To the surprise of many, the euro had an impressive 2017 that witnessed a 14.29% jump to the greenback and 3% up on sterling. Whether it remains so buoyant in H1 is open to conjecture as it will face headwinds on several fronts including on-going problems with Greek debt, Catalonia and the Italian March election just to mention three. These could be offset if the ECB slows down its massive US$ 1.2 trillion stimulus package and Brexit negotiations do not hit an impasse.

The Russian rouble – in line with its economy – has been hit by sanctions and softer industrial output. Following negative growth in both 2015 and 2016, last year saw the world’s sixth largest economy return to positivity. The 1.7% expected growth last year is expected to continue on similar lines in 2018. That being the case – and oil prices continue at current levels – the rouble is expected to trade around the same level.

There is only one thing to say about the global bourses – avoid them like the plague especially now they are at record highs. The three “western” indicators have all shown double digit growth over the past two years (S&P 500 – 30.8%, FTSE 100 – 23.2% and ASX 200 – 15.4%) but will surely run out of steam. The volatile CSI 300 goes up and down year by year and looks certain for a major correction, after climbing 21.8% in 2017 (but only 8.0% over the past two years). Strangely, it is the DFMI that could see an early year rally and even if it climbed 8% to 3,640 (pre-Ramadan), it would still be 33.6% lower than four years earlier in May 2014, when it was trading at 5,088.

April Fool’s Day has come early with reports in the FT that the UK is interested in joining the Trans-Pacific Partnership – and the likes of Commonwealth countries Australia, Brunei, Canada, Malaysia, New Zealand and Singapore, along with Chile, Japan, Mexico, Peru and Vietnam. This is the same body from which President Trump withdrew the US and he did so for a reason – that he thought it was a ridiculous trade deal; Theresa May should take note and stay well clear of Something Just Like This!

Posted in Finance | Tagged , , , , , , , , , , , | Leave a comment