Turn, Turn, Turn!

Posted on November 13, 2016 by howesdubai

dubai-canal-waterfallOn Wednesday, HH Sheikh Mohammed bin Rashid Al Maktoum opened a satellite manufacturing facility at Dubai’s MBR Space Centre. He also approved the final designs for the country’s Mars Hope probe, slated for launch in 2020, as well as installing the first part of KhalifaSat, ready for liftoff in 2018.

Where else in the world would this happen? Only three years after its unveiling in October 2013, the US$ 545 million Dubai Water Canal is set to open this month. The 3.2 km and 6 mt deep waterway, stretching from the Business Bay Canal to the Arabian Gulf, will now feature a waterfall on the SZR bridge. Utilising 80 pumps, the feature will automatically switch off when boats approach.

The US$ 128 million Azizi Aliyah development in Healthcare City should be completed in 2018. Encompassing an area of 482k sq ft, the fully serviced residences will include at total of 346 units, ranging from studio to 2-bedroom.

In line with the economic slowdown, Dubai Land Department forecasts an 8.6% fall (to US$ 66.5 billion) in realty transactions this year. However, Director General, Sultan Bin Mejren, expects an upturn in 2017, as the impact of new projects start to take effect.

Construction of a new AccorHotels development will commence in Q1 2017. The 266-key Novotel Downtown Dubai, in association with Acropole Holdings Limited, will be ready in time for Expo 2020.

Seven Tides will open their first international property – Dukes Collection on Dubai’s Palm Jumeirah – by the end of the year. The development will incorporate a 279-key hotel and 227 furnished hotel apartments.

Lulu Group is planning to spend US$ 545 million to build three malls in the country, one of which will be located in Silicon Oasis. Avenues Mall, covering an area of 82.5k sq mt, is scheduled for completion in Q1 2018. This week Majid Al Futtaim also announced plans for ten new UAE stores – all to open next year.

Following the award of infrastructure works at its Akoya Oxygen project earlier in the year, China State Construction Engineering Corporation has won another Damac project – the US$ 151 million Paramount Residences at the Paramount Tower Hotel and Residences in Dubai. The state-owned company will be the main work contractor for 27 floors that include the project’s luxury residences.

The JV between Emaar Properties and Dubai World Trade Centre, has appointed UK’s Laing O’Rourke, as their preferred bidder for a major Dubai South project. The development, part of Expo 2020, will comprise two hotels and a 21.6ha shopping mall.

In order to finance its two international airports, the Dubai government is looking at an initial US$ 3 billion funding programme. Three state entities – Department of Finance, Dubai Aviation City Corporation and Investment Corporation of Dubai – will be used as investment vehicles to raise money from various sources. It has been announced that Emirates will move its operations to Al Maktoum International by 2025.

After a slight drop in fuel prices for October, the Ministry of Energy has announced an increase in all grades for this month, with Special Unleaded 95 up 5.3% to US$ 0.488 per litre.

The federal cabinet approved the country’s US$ 13.3 billion 2017 annual and 5-year US$ 67.5 billion budgets this week. The government affairs sector, covering a myriad of activities, accounted for US$ 5.6 billion of the budget. Other big-ticket items included general and higher education (US$ 2.8 billion), health care (US$ 1.1 billion) and pensions (US$ 1.1 billion).

The federal budget represents about 14% of the total UAE public spend, with the balance emanating from the seven individual emirates’ budgets. The IMF estimates that the country’s consolidated fiscal deficit this year will be 3.86% of GDP.

Dubai Investments, of which the Investment Corp of Dubai has an 11.5% stake, posted a 39.5% hike in Q3 profits to US$ 91 million, driven by a surge in rental income – up 21.0% to US$ 178 million; its assets have grown by 5.2% to US$ 4.4 billion.

The Dubai Gold and Commodities Exchange (DGCX) will soon list Shanghai Gold Futures, thus making Dubai the first ever overseas location for the yuan-denominated gold future product. This is another example of the increasing economic cooperation between the two nations.

The Abraaj Group has agreed to sell its 66.4% share in K-Electric to Shanghai Electric Power Co for a reported US$ 1.77 billion. The Dubai-based company acquired its stake in Pakistan’s largest electric company in 2009.

Emirates Reit has become the largest global real estate investment trust, as its portfolio value surged 13% to top US$ 742 million at 30 September, whilst its rental income jumped 19.7% to US$ 11.4 million. The upturn in rental income is a result of the opening of the new Jebel Ali School and leasing of the Index Tower offices. However, YTD profit has fallen 24.0% to US$ 35 million.

Aramex posted a 3.2% decline in Q3 profit to US$ 20 million but 16.0% higher, at US$ 80 million, for the nine months ending 30 September. Quarterly and YTD revenue figures were both on the upside at US$ 286 million and US$ 755 million respectively. Recently, a company headed by Emaar chairman, Mohammed Alabbar, acquired a 16.45% stake in the 34-year old entity which is now actively looking to expand its e-commerce business.

Du posted its 8th straight quarterly fall – this time a 6.7% drop to US$ 125 million – on a 3.0% hike in revenue to US$ 831 million. Its Q3 royalty expense has risen by 11.6% to US$ 147 million; the royalty is based on 15% of its regulated revenue (which does not for example include the sale of handsets) and 30% of its regulated profit.

The DFM opened Sunday at 3318 and shed 20 points to close on 3298 by Thursday (03 November 2016). Volumes, on the last day of trading, were marginally higher at 259 million shares, valued at US$ 85 million, (cf 210 million shares for US$ 76 million, the previous Thursday). The bourse was down 4.1% for the month of October, closing 142 points lower at 3332 but still up YTD by 5.7%, from its year opening balance of 3151.

Over the week ending 03 November, bellwether stocks, Emaar Properties lost US$ 0.03 to US$ 1.84, whilst Arabtec gained US$ 0.01 to US$ 0.36. Both stocks were down on the month but still higher than their 01 January opening price. The property developer opened the year at US$ 1.51 and closed ten months later, 25.4% higher, at US$ 1.90; October saw the stock weaken 1.8% from its month opening of US$ 1.93. Meanwhile Arabtec opened the year on US$ 0.34 and YTD is 6.4% higher at US$ 0.36; however, it lost 9.5% in October as it opened the month on US$ 0.40.

Brent crude tanked, losing 8.2% (US$ 4.12) to close on US$ 46.35; meanwhile gold headed in the other direction, up 2.6%, or US$ 33, to close on US$ 1,303 at Thursday’s (03 November 2016) close. The yellow metal is up 20.1% (or US$ 213) YTD, closing October at US$ 1,273 but 3.5% lower on the month from its October opening of US$ 1,319. Brent is more than a third higher YTD and marginally up for the month – 33.7% (US$ 12.21) higher for the ten months and US$ 0.60 as it closes October on US$ 48.61.

OPEC is having problems with attempts to cut output by 1 million bpd to 32.5 million. Several members – Iran, Iraq, Libya and Nigeria – continue to make overtures for exemptions so as to increase their production quotas.

Two oil giants posted mixed Q3 results. BP announced a 48.2% fall in Q3 profit to US$ 933 million, whereas rival Royal Dutch Shell reported an 18.9% jump in profits to US$ 2.8 billion. Low oil prices and a “weaker price and margin environment” were the drag factors attributable to BP’s disappointing returns.

Rio Tinto has divested its 47% stake in Guinea’s Simandou iron ore project to its current partner, Chinalco, for a reported US$ 1.2 billion. The Chinese miner, already with a 41% shareholding, will now be responsible for developing the world’s biggest untapped deposit of iron ore.

Although passenger numbers were up 2.5% to 13.2 million, Qantas reported a US$ 3.0% fall in quarterly revenue to US$ 3.0 billion because of an increase in international competition and a decrease in domestic demand.

Although rental yields are at record lows, major Australian markets saw an average 0.5% hike in house prices in October – and 7.5% higher than the same month in 2015. The Sydney and Melbourne bubbles continue – up over the past 12 months by 10.6% and 9.1% respectively. Darwin and Perth home values headed southwards – by 3.8% and 3.7%.

Amazon.com posted favourable Q3 results, as both revenue, up 29.0% to US$ 32.7 billion, and profit – by 31.9% to US$ 252 million – recorded impressive improvements. (Coincidentally, there are reports that the world’s biggest e-commerce retailer may be interested in acquiring 30% in Dubai-based Souq.com that could cost them at least US$ 360 million).

Despite mega Q3 results that saw revenue up 55.6% to US$ 7.0 billion, and profit by 166% to US$ 2.4 billion, shares in Facebook sank 8% on Wednesday to US$ 117. The social network, with 1.8 billion monthly users, has warned that revenue growth next year would be slower and that there will be more money spent on new engineering staff and data centres.

Two of Japan’s largest electronic companies have cut their annual profit forecasts. Because of the sale of its battery business to Murata Manufacturing, Sony has slashed 10% of this figure to US$ 2.6 billion (with an expected impairment charge of US$ 367 million).

Citing the same macro problems – a strong yen and weaker earnings – that face Sony, Panasonic has also lowered its profit forecast for the year ending 31 March 2017, by 17.2% to US$ 1.2 billion, as well cutting its sales estimate by 5.3%. (Tesla Motors confirmed its obligation of a US$ 1.7 billion payment to Panasonic for electric car batteries made in their Nevada factory. In 2014, the Japanese electronics firm agreed to a partnership that saw it invest in equipment and machinery).

According to a KPMG study, EU banks still have a worrying US$ 1.2 trillion in non-performing loans on their books, as the total value of European toxic loans has increased from 1.5%, in 2008, to around 5% of total lending.

A BBC investigation seems to implicate Rolls Royce in a corruption scandal covering secret payments of US$ 12 million to an unregistered Indian agent. The probe relates to a US$ 490 million deal for Hawk aircraft with RR engines.

Having made provisions of US$ 517 million for litigation costs, RBS posted a US$ 570 million Q3 loss. The bank, still 73% government-owned, following its 2008 US$ 30 billion bailout, had made a US$ 1.1 billion surplus over the same period last year.

With its new orders book growing for the first time since January, because of a boost in global demand, Japan’s October manufacturing PMI score of 51.4 surprised the market – up from the previous month’s 50.4.

In the same vein, China came in with a similar improvement, with their index up from 50.1 to 51.2, as new orders accelerated; employment also declined at its slowest rate in 17 months.

After seven years of negotiation and last minute hassles with the Belgian region of Wallonia, the landmark EU trade treaty with Canada was signed this week. Ceta (Comprehensive Economic and Trade Agreement) is set to remove 99% of all tariffs and see trade between the two parties expand by US$ 12 billion.

The Egyptian pound started the week at 18.25 to the US$ on the black market, whilst the official rate was under 9 to the greenback; by Wednesday it had fallen to 13. On Thursday, the Central Bank caved in to demands by the IMF and officially devalued the currency pegging the pound to a rate of 13 to the US$. The country now awaits the IMF’S loan for US$ 12 billion.

Apart from a 4-month hiatus, between December 2013 and March 2014, Australia’s monthly trade balance has been in deficit for the past five years. Although still in negative territory, September has seen an improvement from US$ 1.5 billion to US$ 1.3 billion, as commodity prices have moved higher and the country’s exports grew at their fastest rate in over three years.

US Q3 data saw the world’s largest economy expand 2.9% on an annualised rate, compared to 1.4% the previous quarter. The figures surprised the market and could act as a signal for a rate hike after the presidential election. Although consumer spending at 2.1% was well down on the Q2 annual rate of 4.3%, restocking of inventories by companies moved in the other direction, as did inflation.

Mark Carney and the Prime Minister have come to sort of uneasy compromise, as the Bank of England Governor has agreed to stay on an extra year, relinquishing the role in June 2019. This hopefully will see the Canadian helping Theresa May steer the country through an “orderly” Brexit process, although a High Court decision has ruled she needs MPs’ approval before starting negotiations to leave the EU.

The Bank of England has yet again changed its forecasts, including 2017 inflation almost trebling to 2.7%, from 1.0%, and economic growth (out by 75%) at 1.4% – up from their earlier 0.8% estimate. The same institution warned of major problems if the country voted for Brexit and now it has to eat humble pie, as growth forecasts head northwards. Undoubtedly, the central bank forecasting has been found wanting and not for the first time, it has been forced to Turn, Turn, Turn!

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Oh I Do Like To Be Beside The Seaside!

Posted on October 30, 2016 by howesdubai

blackpool-pierHH President Sheikh Khalifa bin Zayed al Nahyan has issued the long-awaited decree on bankruptcy – federal law number 9 of 2016; there were no details of when the legislation would come into force. The law, covering company restructuring for the first time in the country, will benefit smaller companies that previously had little recourse when their entities faced financial problems that often resulted in owners going to jail or fleeing the country.

One company that could have benefitted from the new law is the embattled tech entity, Pacific Controls; it is looking to sell its 5-year old data centre (that cost a reported US$ 85 million) to Etisalat, as it attempts a major US$ 381 million debt restructuring programme. It is trying to finalise an agreement with creditors which is not being helped by legal action from Emirates NBD.

It is reported that Turkish contractor, Gunal, will secure a 6-year US$ 218 million loan that will be utilised for the construction of a hotel and apartment complex in Business Bay.

The company that introduced Miracle Garden and Butterfly Garden to Dubai, Cityland Group, is planning to build a shopping mall adjacent to the Global Village. The US$ 300 million nature-based Cityland Mall, with six thematic pavilions and encompassing 1.1 million sq ft, will utilise a massive 200k sq ft green reserve as the centre’s core.

In a bid to boost the sector, Dubai Tourism has approved 1.8k residential units as holiday lets. Homeowners have to follow certain guidelines – including quality, health, safety, insurance etc – and are subject to regular official checks to ensure that high standards are maintained.

It has been confirmed that the 2008 plan to build Universal Studios in Dubailand has finally been scrapped.

Following a memorandum of understanding between Dubai Future Foundation and Autodesk, US$ 100 million will be made available for regional companies involved in the 3D printing sector. The US software corporation will be responsible for strategy, whilst the Foundation will find suitable applicants for the Autodesk’s Spark investment fund.

The latest innovation coming out of d3 is a proposal by COM Group (a unit of Dubai Holding) and Dubai Creative Clusters Authority to establish the Dubai Institute of Design and Innovation. The US$ 74 million facility, encompassing 100k sq ft, will accommodate up to 550 students and will open within two years.

The US$ 6 million Rolls Royce Boutique has joined the likes of Bentley, Ferrari and Lamborghini in opening an ultra-modern and luxurious showroom that highlights more than just the car models

Following the initial agreement in February, Adeptio has finally acquired 66.8% in Kuwait Food Company for US$ 2.4 billion from Al Khair National for Stocks and Real Estate. The Dubai-based consortium, headed by Mohammed Alabbar, will now offer to buy the remaining shares, valued at US$ 8.74 each, as required by the Capital Market Authority.

The Emaar chief has also confirmed that he will soon launch a regional app to compete with WhatsApp; this will form part of the strategy of his launch company, that will be tailored to the needs of millenials, as he introduces a series of digital and e-commerce sites. He is also set to form a JV with a Chinese contractor that can build a 30-storey building within a month!

Emaar has given Serco a 3-year extension to operate and maintain the Downtown Dubai Trolley System until 2019.

Troubled Gulf Navigation Holding has signed an agreement with China’s Wuchang Group to build six new chemical tankers to meet the increasing demand of shipping chemicals from the GCC.

Although 8.2% down on August, Dubai International‘s September passenger numbers, at 7.1 million, were 10.3% higher than in the same month last year. YTD traffic, at 62.9 million, is 7.2% up on the 9-month period in 2015. September cargo figures, at 205 tonnes, were 1.0% lower than last year but the YTD return of 1.891 million tonnes came in 2.1% higher.

Despite the sluggish global economy and a marked downturn in trade, DP World still saw a 2.2% growth (on a reported basis) in gross container volumes to 47.5 million TEUs (20’ equivalent units). However, UAE traffic was down 6.7% to 11.1 million TEUs, as a result of a fall in lower margin transshipment traffic.

Official data shows that there was a 3.3% rise in the country’s H1 non-oil direct trade which totalled US$ 150.8 billion. Raw gold was the leading import at US$ 15.1 billion, followed by diamonds (US$ 6.5 billion) and motor vehicles (US$ 5.9 billion). Gold was also the leading export followed by raw aluminium and precious stones jewellery – at US$ 7.7 billion, US$ 3.1 billion and US$ 2.6 billion respectively.

Meanwhile UAE’s total foreign assets, as at 30 September, were up 12.9% to US$ 82.2 billion along with current account balances and deposits with overseas banks – up 7.4% to US$ 34.6 billion.

The UAE’s Barakah nuclear energy plant project, jointly owned by Emirates Nuclear Energy Corp and Korea Electric Power Corporation, has finalised financing of US$ 24.4 billion for its first plant.

As expected, EIB’s shareholders have agreed to double the size of the bank’s shareholding to US$ 2.72 billion.

Although revenue was up 1.3% to US$ 488 million, CBD reported a 23.4% slide in Q3 profits to US$ 191 million, as impairment charges started to bite. However, total assets rose 7.5% to US$ 16.9 billion.

Mashreq posted a 24.8% slump in Q3 profits to US$ 113 million (compared to the same period in 2015) – the fifth straight quarter of reducing profits. The bank’s position was further exacerbated by an 82.0% hike in impairment charges of US$ 128 million on bad loans.

Meanwhile Mashreq’s long-term outlook has changed from stable to positive, with its long and short term local and foreign currency deposit ratings being maintained at Baa2 by Moody’s Investors Service. This serves to show that the credit agency believes that the bank – and the wider economy – will remain broadly resilient in the coming months.

Despite all the doom and gloom enveloping the banking sector, DIB returned a 7.5% hike in Q3 profits to US$ 820 million, compared to the same 2015 period.

Emirates Investment Bank, an independent private investment institution, chaired by Omar Abdullah Al Futtaim, posted a stellar Q3 with profits up more than sevenfold to US$ 3.5 million, although YTD returns were 13.6% lower at US$ 7.7 million. Total assets were up 36.7% higher at US$ 3.6 billion.

Although its revenue rose 3.0% to US$ 3.6 billion, Etisalat disappointed markets with a Q3 profit fall of 2.6% to US$ 518 million. The results included the sale of the telecom’s sale of its 92.3% share in Sudan’s Canar to the Bank of Khartoum for US$ 95 million.

Deyaar Development posted an impressive 85.1% surge in 9-months’ revenue to US$ 71 million, as YTD profit came in at US$ 46 million. Of that, property revenue jumped 161.2% to US$ 48 million, with a US$ 31 million bottom line. Its latest development in Al Barsha will see 299 hotel rooms and 109 serviced apartments added to Dubai’s expanding hospitality portfolio.

This week, Kuwait bank, Ahli United, listed a US$ 200 million sukuk on Nasdaq Dubai – its third on the bourse which now sees its total sharia bond listing at US$ 45.8 billion.

Having lost over 4% in value over the past three weeks, the DFM opened Sunday at 3340 and shed 22 points to close on 3318 by Thursday (27 October 2016). Volumes, on the last day of trading, more than halved to 210 million shares, valued at US$ 76 million, (cf 437 million shares for US$ 171 million, the previous Thursday). Bellwether stocks, Emaar Properties gained US$ 0.06 to US$ 1.87,whilst Arabtec lost US$ 0.02 to US$ 0.35.

Brent crude proceeded to lose its previous week’s gain of US$ 0.94, down US$ 0.95 to close on US$ 50.47; gold nudged up US$ 2 to close on US$ 1,270 at Thursday’s (27 October 2016) close.

Cyrus P Mistry has paid the price for his lackluster performance at Tata Sons, being replaced, after four years, as chairman by the man he superseded, 78-year old Ratan Tata. The US$ 100 billion Indian conglomerate has seen sales of its motor vehicles continue to disappoint the market, whilst its steel division, especially in the UK, struggles to compete with cheap Chinese competition. Founded in 1868, the company has interests in a wide variety of industries, with its 100+ companies spanning the globe; its latest annual revenue dipped 4.3% to US$ 103 billion.

Philips posted a Q3 1.0% increase in sales to US$ 6.4 billion, resulting in an 18.0% hike in profits to US$ 417 million. The Dutch company used to be the largest global manufacturer of lighting but now medical equipment is their prime revenue driver.

Two global carmakers, GM and Hyundai, posted differing Q3 results. Despite sales falling almost 4% in its home country, the Detroit company posted a record quarterly revenue of US$ 42.8 billion, whilst returning a massive 103.7% surge in profits to US$ 2.8 billion. Meanwhile the world’s 5th biggest automaker, Hyundai / Kia reported a 9.4% fall in profit to US$ 935 million. The South Korean company was hit by sporadic strikes, that resulted in lost sales of 140k units, equivalent to US$ 2.6 billion, and weak local demand.

Having recalled 3.4 million vehicles in July for problems with passenger and driver-side airbags, Toyota has issued recall notices for a further 5.8 million cars for similar reasons.

Time Warner looks set to be taken over by AT&T, in a massive US$ 85.4 billion deal that will see the telecom giant better utilising its network, with content from the likes of HBO, CNN and Warner Bros, whilst expanding its customer base of online viewers. If the authorities approve the tie-up, it should be finalised by the end of 2017.

Another merger will see a US$ 47 billion deal between British American Tobacco and Reynolds, with the former buying up the remaining 57.8% shares it does not already own; payment will be US$ 20 billion cash and the balance in shares, valuing the US company at US$ 56.50 per share.

Chinese conglomerate, HNA has paid Blackstone US$ 6.5 billion for part of its stake in Hilton, leaving the US private equity giant with a 21% shareholding. The 23-year old Chinese tourism company, with 2k hotels and 1.25k aircraft, employs 200k and has annual revenues in excess of US$ 30 billion. Earlier in the year, it acquired the Carlson Hotels, which owns the Radisson and Park Plaza brands.

Apple posted a 19.0% Q3 fall in profit to US$ 9.0 billion, mainly as a result of a disappointing 5.0% drop in iPhone sales (to 45.5 million units), with revenue down 8.9% to US$ 46.9 billion. Annual figures, to year-end 24 September, for the world’s largest company by value, saw decreases in revenue to US$ 215.6 billion and profit to US$ 45.7 billion.

Finnish telecom Nokia posted a quarterly loss of US$ 137 million on revenue of US$ 6.5 billion, compared to a profit of US$ 166 million on a US$ 3.3 billion turnover over the same period last year.

So far this year, the world’s largest oil rig builder has already cut its workforce by 26% to 23k. Singapore-based Keppel Corp has been badly hit by low energy prices, resulting in a major global slowdown in oil and gas exploration, and has seen its latest quarterly profit down 38% to US$ 161 million.

Despite revenue falling 7.5% to US$ 23.9 billion, Boeing’s Q3 profit jumped 34.1% to US$ 2.28 billion. The company expects to deliver 750 planes by year-end that would see its 2016 revenue hit US$ 95 billion. (This week, UPS placed a US$ 5.3 billion order for 14 747s, with an option for further 14).

As expected, Airbus posted disappointing Q3 numbers, as EBIT fell 20.6% to US$ 796 million because of production / delivery delays, scaling back on the A380 and a fall in helicopter sales. It is no surprise to note that its share value has fallen over 14% this year, with a current market value of around US$ 45 billion.

Earlier in the year, Bombardier retrenched 7k staff and now the Canadian plane and train maker is planning to cut a further 7.5k. The company will take a US$ 250 million restructuring charge on these job reductions, of which 67% will be in its rail division and the balance in aerospace.

Although providing a further US$ 1 billion towards its possible illegal role in PPI misselling, Lloyds still managed to post a Q3 profit of US$ 2.3 billion (compared to US$ 2.4 billion a year earlier) on income of US$ 5.2 billion. Shares in the bank, that was saved in a US$ 25.0 billion government bailout following the GFC, have fallen by almost 25% since the Brexit vote.

According to the British Bankers’ Association, smaller financial institutions are planning to exit the country this quarter, with larger banks making similar moves in early 2017. They all fear that if the UK were to lose its preferential access to the single market, then the London-based operations will be disallowed from carrying out business in the European mainland. However, there is every chance that the UK would consider cutting corporation tax to 10% if the 28-country bloc refused continental access to UK-based banks.

Having carried out the reforms, as required by eurozone officials, Greece will shortly receive a further US$ 3.0 billion, as part of its third bailout by the troika. 40% of the funds will be used for debt servicing and the balance for clearing long-standing arrears. Further to its latest US$ 92 billion bailout, agreed last year, the Prime Minister Alexis Tsipras’ government had already received two earlier payouts totalling US$ 258 billion.

A welcome boost for the UK economy was Nissan’s decision to build its two new models in Sunderland, thus securing 7k direct and 28k indirect jobs in the supply chain. Whether a sweetheart deal has been done with the May government remains to be seen.

The UK government has approved Heathrow’s plan to build a third 3.5km runway at a cost of US$ 21.5 billion. Thanks to a mix of bureaucracy and politicking, it has taken 50 years since the Roskill Commission was established to look at expanding the airport. Even now, it will take five years before construction could commence and then a further five years before it comes into use. Some people could learn from studying what happens in Dubai!

A Royal Caribbean study by Dr David Holmes has concluded that Dubai has the world’s best shoreline, beating Blackpool to second place followed by Gulf of Mexico, Inchydoney, (Ireland), Twelve Apostles – Australia and Cape Town. Now that Dubai has a bigger tower, a better tramway, newer theme parks and more visitors than its English counterpart, the only thing that Blackpool has that cannot be found here is an amusement pier – they have three! Oh I Do Like To Be By The Seaside!

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Mr Tambourine Man!

Posted on October 24, 2016 by howesdubai

bob-dylanYet another property report and this time slightly more bearish as Phidar Advisory indicate that, because of slow demand growth, prices and rents could continue to decline for the next 12 months. The study estimates that in Q3, apartment rentals and sale prices fell by 3.4% and 4.1% respectively, with villas also down 1.8% and 4.8%. The only agreement between this and other recent reports is the reasons for the slowdown – low oil prices, strong greenback and weak demand.

Dubai Properties has announced that the 12 km Marasi Business Bay promenade will open next month, at the same time as the US$ 272 million Dubai Water Canal. This is phase 1 of the project, to be completed within 6 years, following which the area will be full of waterfront restaurants and outlets, along with a new marina.

With the soft opening this week of The Westin Dubai in Al Habtoor City, Dubai saw its hotel portfolio reach 100k rooms. This figure is expected to grow by a further 34%, within two years, to 134k, with occupied room nights reaching 35.9 million by then.

The latest Core Savills report indicates that office rents have bottomed out after a year that saw rents dip up to 20%. The top performing office clusters are d3 and Barsha Heights, along with a JLT recovery. A recent revival from SMEs sees a renewed interest in smaller offices of up to 2k sq ft.

Emirates Leisure Retail has won a F&B partnership contract with Singapore’s Changi Airport Group to run three outlets – Hudsons Coffee, Pret a Manger and Wolfgang Puck – in Terminal 3. The Emirates business unit already operates over 260 outlets in 75 global airports.

In line with other international carriers, Emirates has curtailed some of its Nigerian flights, as the country’s economy nosedives and its currency heads south; the official naira rate is 304 to the US$ whilst on the black market it is nearly 50% higher at 450. The problem for airlines are threefold – lower loads, fuel bills in US$ and passenger fares in naira. Similar problems will be prevalent in other African destinations so it could be just a matter of time before flights are pulled, with a negative impact on Emirates’ performance indicators.

DP World has injected a further US$ 50 million (bringing its total investment to US$ 160 million) in Hyperloop One, ahead of its Q1 2017 system testing. The US-based company is developing a futuristic transport network that utilises magnets to levitate pods, within a vacuum tube, resulting in people and cargo moving at speeds of 750 mph. Initially such a system would see containers being moved from Jebel Ali port to a new inland container depot in Dubai.

DP World and the Ukrainian government have signed an MoU to develop that country’s ports and logistics infrastructure, as well as a letter of intent to develop the port of Odessa’s tug and pilot boat services.

The UAE National Bureau of Statistics reported that the country’s August inflation rate dropped on an annual basis to 0.6% (month on month from 1.8% and year on year from 4.9%). Although housing/utility expenses (accounting for 39% of the “basket”) and foodstuff (14%) were both up by 2.7% and 1.7% respectively, the dramatic 12.1% fall in transport was the main factor behind the reduction.

The 5-day and 36th edition of Gitex Technology Week started on Sunday (16 October), with the mega event expected to draw in over 100k visitors, from 150 countries, and 4k exhibitors. A highlight of this year’s exhibition will be the hosting of the largest regional start-up event, involving 400 nascent tech companies from 60 countries. Smart Dubai will also be showcasing the latest technology that displays all the attributes of a Smart City that Dubai is rapidly becoming.

The impact of information and communications technology can be gleaned from the fact that 2015’s MEA growth was 5.1% and this year the total sector spend will top US$ 111 billion.

ENOC has decided to self-fund its US$ 1 billion Jebel Ali refinery expansion that will see daily production up 50% to 70k bpd by 2019. The state-owned company, which raised a 9-year US$ 1.5 billion loan last year, has already awarded the construction contract to Technip.

It is reported that the UAE government is planning a 10-year, 2.25% US$ 1 billion loan to Serbia, so that the troubled Balkan country can refinance existing debts, as well as to help with its 2.5% budget deficit.

Nakheel silenced some doomsayers this week announcing a 22.0% jump in Q3 profits to US$ 260 million and YTD by 8.3% to US$ 1.1 billion. The developer already has 2.3k units in various stages of work in progress and has invested US$ 10.9 billion in new developments, covering various hospitality, residential and retail projects.

Although revenue surged 95% to US$ 89 million, Saudi company, Emaar the Economic City, 33% owned by Emaar Properties, posted a Q3 US$ 22 million loss (compared to a US$ 2 million profit in the same period in 2015). Last month, the developer secured finance of US$ 720 million for the second phase of the King Abdullah Economic City – a project first mooted in 2005.

With the Q3 reporting season just starting, banks will be a major drag factor as slow lending and sinking deposits, because of the oil price, will see their earnings (and profits) heading south. The tightness in margins became more noticeable in Q2 and this quarter will see even more squeeze in the system.

One of the first to report was Emirates NBD, posting a minor 0.5% fall in Q3 net income to US$ 453 million – its first reversal in earnings growth, after gains over the past 16 straight quarters. 55.6% owned by Investment Corp of Dubai, the country’s largest bank by assets reported an 8.0% increase in costs but saw its non-performing loans ratio fall again to 6.4% (a big improvement on the 14.3% rate of 2012). YTD, it posted a 9-month profit of US$ 1.47 billion – up 7.8%, year on year.

Meanwhile, Emirates Islamic Bank came in with a US$ 8 million quarterly loss compared to a US$ 24 million profit a year earlier, as YTD profits plunged 80.1% to US$ 29 million. Its main drag factor was the 68.0% jump in impairment charges to US$ 261 million.

The Central Bank delivered worrying news for the SMEs (and for the economy) that banks are becoming less willing to lend to small and start up entities, whilst businesses are less keen to tap into bank finance, with the uncertainty about the local and global economy. This comes at a time when there are reports that HSBC has become the latest to be closing local company accounts.

Having lost over 4% in value over the past two weeks, the DFM opened Sunday at 3335 and nudged 5 points higher to close on 3340 by Thursday (20 October 2016). Volumes, on the last day of trading, were markedly healthier at 437 million shares, valued at US$ 171 million, (cf 106 million shares for US$ 44 million, the previous Thursday). Bellwether stocks, Emaar Properties lost US$ 0.02 to US$ 1.81, with Arabtec also down US$ 0.01 to US$ 0.37.

Brent crude, having shed US$ 2.07 the previous week, recovered somewhat up US$ 0.94 to US$ 51.38; gold continued higher again by US$ 10 to US$ 1,268 at Thursday’s (20 October 2016) close.

Netflix surprised analysts by adding 3.2 million extra customers (4.0%) in Q3 to 83.3 million which resulted in revenue surging 31.0% to US$ 2.3 billion. Consequently, its share price jumped 20% on Monday to US$ 119.

Yahoo, which is in US$ 4.8 billion takeover discussions by Verizon, posted a doubling of quarterly profits to US$ 163 million, as Q3 revenue rose 8.3% to US$ 1.3 billion.

If the proposed merger between two of Australia’s biggest bookmakers, Tabcorp and Tatts Group, receives regulatory approval, the new entity will be worth US$ 7.1 billion. Gambling is big business, with the lucky country home to many unlucky punters – it is estimated that the country has the highest global gambling loss per head at US$ 1.13k.

On Monday, shares in Australia’s Crown Resorts dipped 11.8% to US$ 8.60 on news that Chinese authorities had detained 18 employees, following the government crackdown on corruption. The James Packer operation has three casinos in Macau – Altira, City of Dreams and Studio City – and seems to have fallen foul of the law by being involved in gambling crimes. Perhaps this will see Crown forming two entities – one covering domestic assets in Australia and the other international.

Japan’s second largest carmaker Nissan has paid a reported US$ 1.5 billion for a 34% stake in rival company Mitsubishi, thus becoming its biggest shareholder. It is ironic that Nissan uncovered the fuel efficiency scandal that has led to all the problems and commercial fallout for its new partner, whose shares have jumped 11% over the past two days, despite forecasting a US$ 2.3 billion loss for its March 2017 year-end.

Goldman Sachs returned a 57.9% surge in Q3 profit to US$ 2.1 billion, driven by improved trading performance in bonds, commodities and currencies. The US investment bank has slashed costs by US$ 700 million, whilst 1.9k staff (5.2%) have been retrenched. Unsurprisingly for a bank, payroll and bonuses have climbed 36.0% to US$ 3.2 billion!

For the fiscal year ending 30 September 2016, the US budget deficit has surged nearly 34% to US$ 587 billion, out of the total spend of US$ 3.85 trillion. This is better than the US$ 1 trillion 2009-2013 annual shortfalls but since then the deficit had been falling. Because of sluggish growth, the key indicator – debt to gross economic product – jumped 0.7% to 3.2%, indicating that public debt is becoming more of a problem just ahead of next month’s presidential election.

To date, the UK’s Big 4 – Barclays, HSBC, Lloyds and RBS – have set aside US$ 36.8 billion as compensation for their customers affected by PPI misselling. It seems likely that these banks will have to find a further US$ 2.5 billion to top up this provision that could be reflected in Q3 results.

In order to avail of a 3-year US$ 12 billion IMF loan, Egypt has had to source US$ 6 billion and has so far secured funding of US$ 3.6 billion from other sources. The country has many problems with its budget, including the fact that 31.4% of it goes to debt servicing and its wages bill has almost trebled to 24.7% of its total spend. Egypt has never fully recovered from its 2011 uprising and a slowdown in tourist numbers which has seen its currency weakening – the official rate is 8.8 pounds to the US$ whilst black market rates are almost double. Its foreign reserves currently stand at US$ 19.6 billion, compared to US$ 36 billion five years ago.

Saudi Arabia’s biggest ever bond deal, US$ 16.5 billion, (and the largest ever for an emerging economy) was over 4 times oversubscribed, with a book total of US$ 67 billion.

An indicator that China’s economy is returning to normality is the Q3 annualised growth of 6.7% – on par with the returns for the first two quarters of 2016. The world’s second largest economy has however seen worrying surges in an overheating property sector, with YTD sales increasing by 27.0%; this despite official attempts to cut back, so as to minimise the possibility the bursting of a real estate bubble.

Just to show how intransigent and bureaucratic the EU has become, it seems that a part of Belgium, Wallonia, can threaten the bloc’s 28-country trade treaty – Ceta – with Canada. Seven years of negotiations down the commercial drain!

Once again, ECB President, Mario Draghi, has failed to calm markets by delaying to address what will happen to the monthly US$ 87 billion QE programme after March 2017. He indicated that the euro area growth would remain subdued, not helped by the snail pace of much needed structural reforms and the sluggish global economy. Latest indicators show that growth is slowing (down 0.2% to 0.3% in Q3), with inflation up to 0.4% (still some way off the 2.0% target).

The CPI inflation has risen at its highest rate in two years – and this upward trend should continue when the full effect of the pound’s devaluation takes hold. Although September’s UK inflation rate of 1.0% surprised the market (0.6% in August), it is still only half of the official 2.0% target. Although some of the effects of the Brexit vote and the subsequent weakening of sterling are now making an impact, other drivers included higher clothing and transport costs. If the pound remains at its current low level, there is every chance that the 2.0% target will be reached by Q2 next year. Meanwhile, the average price of a UK house has risen 8.4% over the past twelve months to US$ 267k – and US$ 596k in London.

One sector that is benefitting from the falling currency is luxury goods, with a recent Deloitte report indicating that the UK has now become the world’s cheapest luxury market. A good example is Burberry reporting a 30% hike in UK sales for the quarter ending 30 September; tourists, especially from China and the US, are taking full advantage of sterling falling off the cliff.

A vocal Remain supporter, and now the UK Chancellor, Philip Hammond, has agreed that their “Project Fear” campaign had used assumptions that have now been proved invalid. The opportunistic politician has also questioned the validity of the government’s “immediate economic impact” study. It is argued that the models drawn up in May were not wrong at the time but as circumstances changed, the economy did not bomb as he – and many of the establishment (including the US president, the IMF head, former prime ministers and seemingly everyone except the Pope) – had strongly argued. It is somewhat ironic, or a sign of changing times, that anti-establishment Bob Dylan has been awarded the Nobel Prize for literature. Let me forget about today until tomorrow. Hey Mr Tambourine Man!

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Mysterious Ways!

Posted on October 19, 2016 by howesdubai

shkmohammed-dubai-creekOn Monday, HH Sheikh Mohammed bin Rashid Al Maktoum launched construction work on The Tower at Dubai Creek. The 928 mt observation tower will be located at the heart of Dubai Creek Harbour and is expected to be ready in time for Expo 2020.

According to a Cavendish Maxwell report, Dubai Q3 apartment prices fell 1.3% – equivalent to 3.0% on an annual basis and 12.0% over the past two years. It is probably the first recent study that has not pointed to Brexit as being a drag factor – citing government regulations, the strong greenback, the weakening rouble, oil prices, increased supply and regional uncertainty as factors for the price slump.

The majority of the 5.6k units (81% of which were apartments) completed in Q3 were to be found in Dubailand, Silicon Oasis and JVT. Although there are 26.5 units scheduled for completion this quarter, it is obvious that many will be held over to keep a hold on the supply pipeline. This is slightly different to a JLL report that estimated that 5.4k units (of which 63% were apartments) were completed – its highest level since Q4 2012. Furthermore the consultancy reckoned that 11k units were expected to enter the market in Q4. (It will be interesting to see what other figures consultancies come up with in the coming weeks).

On the office side, JLL estimated that the total stock in Dubai has now reached 8.6 million sq mt, as 51k sq mt came on stream in Q3; a further 152k sq mt is expected to be added in Q4. Overall, the general trend is a move towards smaller offices.

Dubai Properties will soon be releasing its “cluster homes” project, Villanova, in Dubailand. The Mediterranean–inspired development is yet another targeting the burgeoning affordable housing segment.

Azizi Developments launched its latest offering in Al Furjan – the US$ 117 million Azizi Plaza. Encompassing 60k sq ft, it will house 434 apartments and have a total retail area of 9.4k sq ft; completion will be within two years.

Work will start on Dubai’s first all studio-residential tower before year-end, with an expected completion by Q4 2018. Developed by Tiger Properties, Al Jawhara Residences will house 532 units and be located in JVT.

Damac became the first developer to release a property project in Dubai South – as it handed over Damac Maison de Ville Tenora hotel apartments. The last units go on sale this week, with prices at US$ 160k. Its sister development – Damac Maison de Ville Celestia – will be completed in 2018.

The company has also released units (studio and 1-2 bedroom apartments) in its Maison Privé 1k hotel apartments development, located in the Burj Khalifa area. Starting prices will be US$ 257k.

Dubai Municipality, following which there will be a detailed plan and design for Aladdin City, has approved a one-year study by Meinhardt Group. Initial plans for the project, to be located on Dubai Creek, indicated three commercial and hotel towers with A/C bridges, in the form of dragons and snakes, connecting the towers. Whether the development will go ahead will become clearer late next year. The municipality also confirmed that plans for its massive US$ 8.2 billion smart city project, Desert Rose, are at a detailed stage, with phase 1 on track for completion by 2020.

It was no surprise to see Hamptons International, a wholly owned subsidiary of Emaar Properties, being appointed the exclusive sales and marketing agent of The Address Residences Jumeirah Resort & Spa. The twin tower development, each with 74 storeys, will house residential apartments for sale, as well as 182 rooms and suites, fully serviced by Emaar’s flagship hospitality brand, The Address.

Wednesday saw the official opening of Nakheel’s US$ 25 million International City Pavilion, complete with 24 retail outlets. This is the third of the developer’s neighbourhood centres following two at Jumeirah Park and Discovery Gardens, with four more in the pipeline.

Building work on phase 2 of the US$ 272 million Dubai Design District (d3) has started and will include showrooms, studios and workshops, as well as places for events. Designed by Foster & Partners, the 93k sq mt development should be completed by 2019.

Airbnb.com is yet a further distraction for the local hospitality sector, which has seen profitability levels falling because of the strong currency, a global slowdown and regional troubles. Research indicates that there are 4.2k active short-term lets using the site in Dubai which is bound to impact on hotels’ future revenue streams.

Dubai Holding is planning to develop a SmartCity project in South Korea – its third overseas project, following the launches of SmartCity Malta and SmartCity Kerala. Based on the success of the original 1999 Dubai Internet City, Dubai will provide consulting and guidance for the urban development that will cover an area of 51 million sq ft.

5-year old Theluxurycloset.com has received its second round of funding, totalling US$ 8 million, from venture capitalist firm, Wamda Capital. The Dubai-based e-commerce firm is a leader in trading second hand luxury goods at discounted prices and will use the injected finance to expand regional operations; it already has 300k members.

Dubai’s H1 non-oil trade totalled US$ 176.3 billion (H1 2015 – US$ 177.6 billion and year 2015 – US$ 349.6 billion). Of that total, imports accounted for US$ 109.3 billion, re-exports – US$ 46.9 billion – and exports, US$ 20.1 billion. The three most valuable traded items – phones (US$ 22.9 billion), gold (US$ 20.4 billion) and diamonds (US$ 13.9 billion) – accounted for 32.4% of all trade. The three leading trading partners were China, India and USA with values of US$ 21.5 billion, US$ 13.1 billion and US$ 11.7 billion respectively.

The latest study from AT Kearney serves to confirm the increased tightness in the retail sector, as a result of lower consumer spend because of depressed oil prices, along with a marked fall in tourist numbers, especially from Russia and China. The UAE is ranked 7th in the consultancy’sGlobal Retail Development Index 2016, as year on year growth fell from 8% to 6%, with a per capita spend of US$ 7.2k.

As mobile banking and digitisation start to become an every day reality, Emirates NBD is leading local banks in implementing blockchain technology for a raft of banking and payment services, including international remittances and open account trade finance. It has recently tied up with India’s ICICI Bank Limited in a successful trial run.

Emirates NBD’s PMI fell six points to 55.1 in September but Q3 growth was positive, driven by expansion in tourism and travel bookings. Although margins continue to tighten and rate of employment remains flat, sales figures were up, as consumer confidence nudged higher.

Further to this February’s agreement by all six GCC members to introduce 5% VAT, there has still been no announcement of official procedures and there is a chance that the UAE may initially go it alone. There are estimates that the tax revenue generated could be as high as US$ 3.3 billion in the first year which is due to end 31 December 2018. (How much it will cost to implement is another matter).

In the first nine months of the year, the Department of Economic Development has confiscated 223k fake mobile phones, along with over 12.5 million accessories, said to be worth US$ 89 million.

This week, the Hong Kong branch of China Construction Bank – with a US$ 600 million listing – became the 4th Chinese bank to issue a bond on Nasdaq Dubai since 2014. Conventional bonds on the local bourse now total US$ 11.4 billion.

Dubai’s Department of Economic Development is actively pursuing the establishment of a Shariah-compliant institution focussing on international trade and commodity financing. There are on-going discussions with the Central Bank relating to their approval for an Islamic wholesale banking licence for Emirates Trade Bank which will support Dubai’s aim to become a major centre for Islamic finance and to double the country’s trade flows to US$ 381.5 billion within four years.

EIB’s board has approved plans for a US$ 409 million rights issue to boost the bank’s capital by 38.5% to US$ 1.5 billion. As the bank has grown, it has seen its reserve cushion soften and although its Tier 1 capital equivalent of just under 12% is well within the Central Bank’s 8% guidance level, it is under the sector’s 16.8% average. Indeed it is a necessary step if EIB continues to expand at the same rate it did in 2015, when its balance sheet grew 24%.

Having shed 3.5% in value a week earlier, the DFM opened Sunday at 3354 and lost a further 0.6% (19 points) to close on 3335 by Thursday (13 October 2016). Volumes, on the last day of trading, were down to the ridiculously low level of 106 million shares, valued at US$ 44 million, (cf 200 million shares for US$ 88 million, the previous Thursday). Bellwether stocks, Emaar Properties lost US$ 0.05 to US$ 1.83, with Arabtec flat at US$ 0.38.

Having surged US$ 6.19 over the past two week, Brent crude headed south, down US$ 2.07 to US$ 50.44; gold steadied, having shed $ 75 the previous week – up US$ 7 to US$ 1,258 at Thursday’s (13 October 2016) close.

According to its Chief Executive, Amin Nasser, Saudi Aramco is planning to spend US$ 300 billion in oil and gas projects over the next decade. The petroleum giant is still on track to have the largest ever public listing in 2018 as it expects an improvement in oil prices and market conditions by then.

Having been successful in a tender process, BP plans to spend over US$ 1 billion, on drilling two exploration wells in the Australian Bight, have been shelved. The South Australian government is not pleased with the decision with BP now indicating that they are only interested in pursuing “opportunities if they are competitive and aligned to our strategic goals”.

Toyota, which makes 10.0 million cars a year, and Suzuki – 2.8 million units – are in discussions on the possibility of a technological partnership to keep up with overseas competitors. The eight Japanese carmakers are lagging behind in R&D for advanced and future technologies in the sector and so are in an era of consolidation.

Inevitably, Samsung has finally pulled its Galaxy Note 7 Smartphone from the market, with buyers entitled to a full refund. Accordingly, the South Korean conglomerate has cut its Q3 revenue and profit guidance by 4.1% to US$ 42.1 billion and 33.3% to US$ 4.7 billion respectively. This whole fiasco could cost US$ 17 billion (equivalent to 19 million units) in lost sales. On Thursday, its share price stood at US$ 678 – down 11.1% in the week.

It was no surprise that shares in the world’s biggest maker of mobile network equipment Ericsson, slumped 16.7% on Tuesday morning after the Swedish company warned that Q3 profits would be down by 94% to US$ 35 million, as turnover dipped 14.0% to US$ 5.3 billion. The main driver was that competition was having a negative impact on demand.

William Hill, the FTSE 250 betting company is in merger negotiations with Amaya, owners of poker websites, Full Tilt and PokerStars, in an all equity deal, worth US$ 5.6 billion. Two months ago, 888 Holdings and Rank called off discussions with the UK company in a proposed US$ 3.8 billion arrangement.

In a major blow to Airbus, Qatar Airways has placed a massive US$ 11.7 billion order with rival aircraft maker, Boeing. This sale is for 30 787-9 Dreamliners and 10 777-300ERs, with an option to purchase 60 737 MAX 8s for US$ 6.9 billion. It has not been a good week for Airbus as Poland has scrapped a US$ 3.5 billion helicopter sale with chief executive Tom Enders moaning that his company has “been misled for months” by the government and “will of course seek remedies”.

No need to spare a thought for the disgraced chief executive of Wells Fargo, John Stumpf, who resigned this week, having taken home US$ 19.3 million last year as his remuneration. However the shenanigans that saw the bank open 2 million accounts without customers’ permission, and now accused of “widespread illegal practice”, have seen 5.2k staff retrenched in response to the scandal.

An S&P report highlights the debt problem faced by Chinese banks, as the nation’s debt is now at 250% of its GDP. It estimates that the financial institutions will have to find US$ 1.7 trillion to cover a hike in bad loans and the situation is unlikely to improve in the short term.

A worrying trend saw September global food prices rise by a staggering 2.9% month on month (and 10.0% year on year) driven by a surge in sugar prices – 6.7% for the month. The Food and Agriculture Organisation’s food index stood at 170.9 – its highest level in 18 months.

September saw the US economy create a disappointing 156k jobs, well down on the 2016 monthly average of 180k and 2015’s number of 229k, with the unemployment level nudging one notch higher to 5.0%. However, the 08 November presidential election rather than this data, will decide whether the Fed push the rate button.

Having only paid US$ 5k UK tax in 2014, Facebook managed to up their game and forked out US$ 5.2 million to HMRC last year, with a profit of US$ 25 million on a turnover of US$ 263 million; further bad news is that the firm has a tax credit of US$ 14 million to offset against future tax payments. In March, the company, that made global profits of US$ 3.7 billion on revenue of US$ 18 billion, announced that it would no longer route advertising sales through Ireland. Post Brexit UK could do with the extra Facebook tax revenue this change will inevitably bring next year.

In just two minutes early last Friday morning, sterling fell nearly 10% from US$ 1.26 to US$ 1.14, in what is known as a “flash crash”, to recover somewhat to US$ 1.24 within 30 minutes. What actually happened will probably never be known – but three likely suspects would be an “algo” trader, a fat finger or Francois Hollande. The first is when a computer carries out trade automatically, the second is when a human inputs the wrong data and the third is when a French politician talks up a “hard” Brexit. As of Thursday the currency was trading at 1.225 to the US$.

It is reported that David Cameron has agreed to speak at a private event for Bain Capital, an equity firm that bought a NHS unit when he was the UK Prime Minister. It is unclear if this is a one-off arrangement or not and what, if any, remuneration he will receive. He follows in the tracks of his two predecessors, Gordon Brown and Tony Blair, who have apparently made more money than the US$ 176k the prime ministerial role pays. However, it does beg the question of conflicts of interest and cronyism.

With the banks’ past history in rigging rates, in a sector that turns over a massive US$ 5.3 trillion daily, some sort of collusion cannot be ruled out. Banks have already forked out more than US$ 7.4 billion in fines imposed by the US Department of Justice and Commodity Futures Trading Commission, whilst the UK’s Financial Conduct Authority also collected US$ 1.7 billion in penalties. Financial institutions have worked, still work and will continue to work in shady and Mysterious Ways!

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Eve Of Destruction!

Posted on October 12, 2016 by howesdubai

new-london-busThe RTA confirmed that the US$ 545 million Dubai Water Canal will officially open on schedule next month. Final touches, including refilling the canal with seawater, along with completing the walkways and pedestrian bridges, are being made. There are also four hotels, a shopping mall, 450 outlets and luxury housing planned around the waterway.

Select’s 14th project in Dubai Marina, located close to Bluewaters Island, was launched this week. The 31-storey building, costing US$ 123 million, will house studios, 1-bedroom and 2-bedroom apartments, with prices starting at US$ 156k, US$ 245k and US$ 354k respectively.

The latest launch from Damac is Akoya Selfie – a 3-bedroom villa project, with prices starting at US$ 327k. Located in a golf community, it will form part of the company’s Akoya Oxygen master development.

As intimated in an earlier blog, August hotel occupancy rates for UAE hotels – up 2.1% to 73.4% – provided the only good news for the industry. In contrast, all other indicators headed south, including average daily room rates down 8.8% to US$ 126 and revenue per available room by 6.8% to US$ 93.

Rolaco Group has signed a management agreement with Intercontinental Hotels Group to open a 402-key Holiday Inn in Dubai Science Park. The hotel will open in 2019 and will then bring the number of Dubai hotels, under the IHG umbrella, to 30 – 19 of which are already open.

Al Habtoor Motors has signed a partnership deal with Wrightbus International which will soon see the New London Routemaster on Dubai’s highways.

Gitex Shopper started on Saturday and the World Trade Centre Halls will busy for a week, as major high street retailers offer a multitude of bundle deals and discounts to make up for a sluggish 2016.

As part of Dubai’s strategy to increase the number of medical tourists to 500k by 2020, the Dubai Health Authority has announced the building of the 1k-bed Rashid Medical Complex. The 10-storey building will house 250 wards, out-patient clinics and a 5-star hotel.

Global Student Accommodation has teamed up with Singapore-based SIG to acquire a US$ 900 million UK student property portfolio from Oaktree Capital Management. The deal for the Dubai-based student accommodation provider includes the acquisition of nine properties, with 7.15k beds, and a further five (3.63k beds) in the pipeline. The company also bought The Student Housing Company and will use this brand for all its UK student accommodation halls.

With August passenger traffic up 6.1% to 7.7 million (a new monthly record), Dubai International has already welcomed 52.3 million this year – and is well on the way to surpass last year’s total of 78.0 million. Aircraft movements, at 33.8k, were 2.7% lower but YTD is up by 2.9% to 276.2k. As expected, monthly cargo was down by 3.1% to 207.4 tonnes but still 2.4% higher at 1.68 million tonnes YTD.

August air cargo demand in the Middle East fell 1.8% year on year its slowest pace in over seven years, as capacity rose by 6.9%. Sluggish global growth is seen as the main drag factor as trade opportunities weaken and local airlines are meeting increased competition from European airlines on Europe-Asia routes.

Work has started on the DP World Solar Programme that involves the installation of 88k solar panels on all its Dubai buildings. By the end of next year, it is expected that phase 1 will provide clean energy for 3k residences and on completion will save 22k tonnes of carbon and supply 40% of JAFZA’s energy requirements.

Aramex and Australia Post have formed a JV e-commerce company, with the Dubai-based logistics firm owning 60% of the Singapore-located entity, Australia Post’s Star Track International; acquisition costs were US$ 48 million.

As part of its July US$ 3 billion bond programme, MAF Holding listed a US$ 300 million bond tap on Nasdaq Dubai. The funds will be used for expansion purposes in the group’s different sectors including malls, retail, leisure and residential.

Drake & Scull is trying to reach an amicable settlement to its long-standing 9-year, US$ 53 million dispute with Lamar Investment and Real Estate in Saudi Arabia. The Dubai contractor has a 20% direct and 10% indirect stakes in the Lamar Towers project.

The DFM opened the week at 3474 and shed 3.5% (80 points) to close on 3354 by Thursday (06 October 2016). Volumes, on the last day of trading, were down to 200 million shares, valued at US$ 88 million, (cf 310 million shares for US$ 119 million, the previous Thursday). Bellwether stocks, Emaar Properties lost US$ 0.05 to US$ 1.88, with Arabtec also down by US$ 0.02 at US$ 0.38.

Having climbed US$ 2.92 last week, Brent crude continued heading north, climbing US$ 3.27 to US$ 52.51; gold tanked, sinking US$ 75 to US$ 1,251 at Thursday’s (06 October 2016) close.

Apple Inc has lost a major battle in which a Texan court has ordered it to pay VirnetX Holding Corp US$ 302 million for using its patented internet security technology, without approval. This is the second case between the two companies, with the same court finding in favour of Apple in a US$ 626 million August 2015 hearing.

Following reports that Disney and Alphabet were not going to bid for Twitter, a 10-year old company that has never turned in a profit, its shares fell nearly 19% in early Thursday trading. The online social networking service’s shares were trading at just over US$ 20, giving it a market value of US$ 14.3 billion.

This week’s US$ 6 billion asset management merger between the US Janus Capital and UK’s Henderson Global Investors will see the new entity managing US$ 320 billion in assets. The all share deal will also result in a cost cutting exercise and improvement in the companies’ overall global presence.

A 4-month Indian tax amnesty, which ended last month, saw 64.3k people declare US$ 9.5 billion in undeclared assets and income. The Modi government approached 700k suspected tax evaders earlier in the year, advising them that if they came clean and paid a penalty no further action would be taken by the authorities. Unfortunately, this represents a fraction of the total of “black” money, locked in overseas tax havens, thought to be at least US$ 500 billion.

Despite the marked slowdown in the global economy, Macau has bucked the trend and reported September gambling revenue of US$ 2.3 billion, up 7.4% – its second consecutive month of growth, following two years of decline.

Latest PMI figures from China indicate a firming in the manufacturing sector, with a September reading of 50.4 whilst new export orders saw a month on month rise of 0.4 to 50.1. The good news is that the economy is growing but this has to be tempered with the fact that there is too much industrial overcapacity, its debt levels are far too high, a property bubble will inevitably burst and the authorities still have no idea how to cope with the burgeoning shadow banking sector.

US construction data for August proved disappointing reading with a surprising month on month spending deficit of 0.7%; both private and public construction expenditure fell – by 0.3% and 2.0% respectively.

As its August imports (1.2% higher at US$ 228.6 billion) rose more than its exports (0.8% higher at US$ 187.9 billion), the US trade deficit widened by US$ 1.2 billion to US$ 40.7 billion; market expectations pointed to a narrowing of the gap to US$ 39.0 billion. Despite this hiccough, GDP growth is expected to reach 2.5%.

The September UK Markit manufacturing PMI indicates a rise from 53.4 to 55.4 – the biggest monthly jump and highest reading in over two years. The expansion was most noticeable in output and new orders and will make a positive impact on Q3 GDP, as well dampening hopes of a rate rise this year. Following PM May’s assertion that she would trigger Article 50 by next March (and the almost inevitable ‘hard’ Brexit), sterling has sunk to its lowest level in over 30 years, trading on Thursday at US$ 1.261, whilst the FTSE 100 surged above the 7000 level.

Meanwhile, the 19-country eurozone continues to struggle with the latest PMI for manufacturing and services sliding 3 notches to 52.6. Sluggish growth, near zero inflation levels and political uncertainty among the big players – Germany, France, Spain and Italy – has not helped consumer confidence. The end result is that the bloc will be lucky to see GDP expansion of more than 1.5% this year and even less in 2017.

YTD Q3
% %   Unit 30 Sep 16 30 Jun 16 31 Mar 16 31 Dec 15 30 Sep 15 30 Jun 15 31 Dec 14
24.43% 22.13% Gold US$ oz 1,319 1,080 1,242 1,060 1,114 1,174 1,186
29.79% 17.31% Iron Ore US$ lb 61 52 55 47 57 62 73
32.01% -1.33% Oil – Brent US$ Bar 48.05 48.70 37.52 36.40 48.70 63.05 57.33
21.77% 25.83% Coffee US$ lb 151 120 128 124 121 131 161
6.25% 21.43% Cotton US$ lb 68 56 58 64 60 68 62
39.29% 32.12% Silver US$ oz 19.25 14.57 15.45 13.82 14.57 15.68 15.77
2.80% -7.56% Copper US$ lb 2.20 2.38 2.18 2.14 2.38 2.62 2.88
4.94% 2.82% AUD US$ 0.77 0.74 0.77 0.73 0.70 0.77 0.82
-12.13% -2.11% GBP US$ 1.30 1.33 1.44 1.48 1.51 1.57 1.56
3.40% 1.44% Euro US$ 1.12 1.11 1.14 1.09 1.12 1.12 1.21
27.20% 12.77% Rouble US$ 0.02 0.01 0.01 0.01 0.01 0.02 0.01
10.53% 18.95% FTSE 100 6,899 5,800 6,175 6,242 6,061 6,521 6548
-12.81% 1.34% CS1300 3,253 3,210 3,214 3,731 3,195 4,409 3532
6.07% 9.49% S&P 500 2,168 1,980 2,060 2,044 1,887 2,063 2091
10.25% 2.18% DFMI 3,474 3,400 3,356 3,151 3,593 4,087 3774
1.70% 48.77% ASX All Ord 5,436 3,654 5,083 5,345 5,021 5,451 5415

From the above table, there has been YTD growth in all 16 indicators except for sterling and the CSI300. Commodites have performed spectacularly – probably indicating that the worse is behind us. Interestingly, most of the growth has occurred in Q3, except for Brent and copper which both headed south, whilst all other commodities showed impressive growth levels. Maybe after all, we are not on the Eve of Destruction!

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Should Have Known Better!

Posted on October 4, 2016 by howesdubai

sam-allardyceA decree by HH Sheikh Mohammed bin Rashid Al Maktoum has seen the formation of the board of the Emirates Global Centre for Accreditation. This is part of the government’s strategy to ensure Dubai’s position as an important driver in the global Islamic economy.

Yet another launch this week – SRG Holding’s US$ 191 million Marquise Square in Business Bay. 62% of the 384 apartments will be studios (selling at US$ 244k), with completion expected by Q4 2018. Dubai Properties will make 18 new buildings, currently 90% complete, in its Dubailand’s Remraam project available for lease The developer has already handed over 60 buildings and expects the remaining 1.44k units to be ready within 12 months.

Emaar Hospitality is planning to open a mixed-use hotel/serviced apartments property in JBR. The 290 mt high Address Jumeirah Resort + Spa will include a 182-key hotel, as well as serviced apartments and residential units which will go on sale shortly.

Starwood Hotels & Resorts Worldwide has signed an agreement with La Vender Real Estate to open a new Element hotel, expected to become the brand’s 4th in the fast-evolving Dubai market.

A CBRE report indicates that Dubai’s average warehouse rentals, over the past year, have remained largely flat, as consumer confidence, in the era of low oil prices, remains fragile. The study notes that although demand has remained steady, there is a lack of high quality warehousing in the emirate, as prices for class 1 industrial assets falling 15% over the past year.

Already owning two large Budapest hotels – The Ritz-Carlton and The InterContinental – the Al Habtoor Group is venturing into commercial property in the Hungarian capital. The Dubai-based conglomerate has acquired two office buildings in Dorottya Udvar and Deák.

Having sold over US$ 545 million of property this year, Dubai-based Tamleek Real Estate Co is planning to increase its current staff levels by 150% to 400 by year-end. The realtor mainly deals at the luxury end of the market.

Following the September opening of Jebel Ali School, its third local educational investment, Emirates Reit is to build the British Columbia Canadian School in DIP, in an 8-year sale and leaseback arrangement. Built on a 25k sq mt plot, with a 27.3 sq mt built up area, development costs will be in the region of US$ 24 million. The Dubai based real estate investment trust has allocated 25.5% of its portfolio, equivalent to US$ 193 million, to the burgeoning educational sector; it is estimated by some that Dubai will require 53 new schools over the next five years.

Further to the latest MasterCard Global Destinations Cities Index, Dubai, with 15.3 million overnight visitors, ranks 5th in the world; Bangkok and London take the first two places. However, the emirate won top spot – out of 132 cities – for visitor spending, which topped US$ 31.3 billion, way ahead of second place London’s US$ 19.8 billion.

Petrol prices have been set for October, with a litre of Special 95 up by 3.66% to US$ 0.463.

The federal Ministry for Infrastructure Development has announced that the deadline for the GCC rail network has been pushed back three years to 2021.

Dubai Airport will soon boast another world record – this time being credited with 47 A-380 gates, the highest number of any global airport. The upgrade is expected to take two years to completion and will help the facility in its target of handling 118 million passengers within the next five years.

The 4-year old Careem is in discussions with investors for further fundraising, as it targets 2018 as the latest date it expects to make its first profit. The Dubai-based company, with 90k drivers operating in 32 MENA cities, has 4 million users and is bigger than its global rival Uber in some places. (Coincidentally, this week, Uber launched its meal delivery service in Dubai).

The UAE has gained one place to 16th in the latest World Economic Forum’s Global Competitiveness Report. Switzerland, Singapore and the US are ranked as the top three countries, whilst nations such as Australia (22), India (39) and South Africa (42) are in the UAE’s slipstream. (Yemen, Mauritania and Chad remain at the bottom of the 138-country table).

Abraaj Group has bought a significant minority shareholding in the Mexican footwear retailer, Capa de Ozono. The 25-year old company has 207 stores, 300 wholesale clients and is active in the regional online retail sector.

Locally listed Gulf General Investment Co is hoping to restructure its 6-year 2012 US$ 769 million debt facility as it faces liquidity problems resulting from slowing oil prices and lower asset values. The group is looking at extending the loan from its original 2018 deadline and restructuring pending payments of US$ 208 million due this year and others due over the next two years.

The DFM opened the week at 3482 and dipped 8 points to close on 3474 by Thursday (29 September 2016). Volumes, on the last day of trading, were marginally higher at 310 million shares, valued at US$ 119 million, (cf 267 million shares for US$ 105 million, the previous Thursday). Bellwether stocks, Emaar Properties lost US$ 0.02 to US$ 1.93, with Arabtec also marginally down by US$ 0.01 at US$ 0.40.

Having lost US$ 3.67 over the past fortnight, Brent crude bounced back, climbing US$ 2.92 to US$ 49.24; gold moved in the other direction, US$ 19 lower at US$ 1,326 at Thursday’s (29 September 2016) close.

As widely expected, OPEC members agreed to cut total production by up to 700k bpd (to about 33 million bpd) whilst still allowing Iran to increase its share to pre sanction levels of about 3.6 million barrels. The agreement sees the bloc’s first oil cut since the GFC and is an attempt to boost the depressed price by curbing oil production. How long this will last remains to be seen but the market’s volatility is set to continue.

Having already bought back US$ 4.5 billion of its debt so far this year, Rio Tinto is planning a further US$ 3.9 billion purchase of its US$ bonds. The Australian miner lost US$ 866 million last year and is keen to cut costs.

First it was explosions of its Note 7 smartphones, now Samsung has been hit with reports from Australia and the US of exploding washing machines. The South Korean conglomerate has confirmed that it is in discussions with US consumer watchdogs following a lawsuit claiming that the manufacturer had known of the problems for years.

Deutsche Post DHL has continued its recent expansion drive by acquiring UK Mail, with its 25k customers and 50 sites, for US$ 318 million (equivalent to US$ 5.76 per share).

A recent UBS report confirmed what many analysts already knew – that realty prices in Vancouver, London, Stockholm and Sydney indicate that these cities are at great risk of a property bubble and a subsequent price collapse.

The WTO has finally faced a reality check, as it cuts its April global trade forecast of 2.8% to 1.7% for this year – its lowest growth since the GFC. For the first time this century, trade growth will lag behind GDP; recent averages have seen trade growing 1.5 times quicker but this year the trend will be reversed as growth will only be 80% that of economic expansion. The main drivers behind this apparent anomaly are increased national protectionism, a backlash against globalisation and lack of international trade deals.

RBS has agreed to pay US$ 1.1 billion to settle with the National Credit Union Administration Board over its misselling of toxic mortgage securities prior to the GFC. The bank’s current provision for outstanding claims (including US Department of Justice and the Federal Housing Finance Agency) totals US$ 3.8 billion: however, after last week’s ruling that saw the DoJ fine Deutsche Bank US$ 14 billion for the same misselling offence, this figure may not be enough to cover all claims.

Germany’s biggest lender, having already lost over 50% of its share value this year alone, saw a further 10% wiped off in the first two days of this week’s trading. The country’s second largest lender Commerzbank, 15% owned by the government, is planning to slash 19% of its current workforce (9.6k jobs) and cancel dividend payments for the first time ever in a bid to cut costs and improve profitability.

The former head of the IMF from 2004 – 2007, Rodrigo Rato, has joined 64 other Spanish bankers on trial for running an alleged credit card racket at Bankia bank, which was bailed out by the Spanish government in 2012. Some 200k small investors suffered losses at the time, as the defendants used credit cards over a decade for “unofficial” purposes.

His successor at the IMF Dominique Strauss-Kahn left the world body in 2011 under a cloud whilst the latest incumbent, Christine Lagarde, is due in court in December. She is on trial, accused of “negligence” over a US$ 315 million state award in damages made to Bernard Tapie when she was the French Finance Minister.

Graft and greed can be found in all walks of life but social media has made life easier for investigative reporters to uncover financial scandals and more difficult for perpetrators to conceal their misdemeanours. It appears that the latest to fall foul is Sam Allardyce, the England football manager, who Should Have Known Better!

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Can’t Get Enough!

Posted on September 27, 2016 by howesdubai

mclaren-carBeing Dubai, it was no surprise to see two property reports, with different conclusions, this week. Knights Frank had a slightly positive summary that the sector is heading for a soft landing, with prices remaining flat in Q4 followed by a likely increase in 2017. However, EFG Hermes is slightly more bearish predicting a 5% decline in the coming months before stabilising later in 2017. What is interesting is that the respected Egyptian investment bank expects 33.5k units handed over before 2019 (despite an estimated pipeline of 74.2k before the end of 2018). If the emirate continues to grow at its current 6% level, Dubai’s population will have increased by 500k; this begs the question – where will the newcomers live?

The Abu Dhabi developer, Bloom Properties, announced that it has already sold 75% of its mixed-use project in JVC. The twin towers, with 686 apartments, will be linked internally by four podium levels. Prices start at US$ 98k, with completion date by Q1 2019.

Wednesday saw the launch of the US$ 68 million Azizi Shaista Residence project. Located in Al Furjan, the 12-storey tower, housing 284 units, will be completed by 2018.

Originally launched in 2014, on a 1.3 million sq ft site, Union Properties’ five-tower Vertx Motor City project is expected to finally break ground within nine months. The developer forecasts the final cost to be in the region of US$ 327 million; no completion date has been given. Meanwhile UP’s other major developments, the 269-unit Oia Residences, costing US$ 123 million, is about 30% complete, whilst the 210-villa US$ 185 million Green Community West project is 40% finished.

Meanwhile, Dubai Investments Real Estate Company will soon launch its Mirdif Hills project of 1.25k residential units, 128 serviced apartments, a 120-key hotel and a hospital, along with the usual outlets.

There is no doubt that more affordable projects are coming into their own, with the latest example being studio apartments in Dubai South, starting at US$ 76k. Located in The Pulse cluster, within the Residential District, sales will start later in the month, with a slated 2019 handover date.

GEMS becomes the second educational facility, following the University of South Wales, to sign an agreement to establish a presence in Dubai South. It will be located in one of 8 key areas – the Residential District – which will house two communities, The Villages and The Pulse.

Managed by Emirates NBD, Emirates Real Estate Fund has acquired Binghatti Terraces – a 10-storey residential building in Dubai Silicon Oasis; with 201 residential units and 5 retail outlets, annual rental income is US$ 4 million. No information was available on the sale price but the fund has already invested US$ 163 million in local realty over the past two years and has an asset portfolio of some US$ 410 million.

As an initial step to opening 45 outlets in the GCC, the 43-year old US brand, Smoothie King, has teamed up with Al Ghurair Retail to open its initial Gulf venture in the BurJuman Mall. This is the UAE family’s first foray into the food and beverage sector. The Al Ghurair Group operates in 20 countries and employs 70k in the region, with interests in a variety of sectors, including construction, realty and retail.

Emirates is set to introduce “minimal” seat selection charges for economy class passengers, booking Special and Saver fares, who wish to reserve seats 48 hours ahead of their flight. The fee is dependent on the flight’s duration and will range from US$ 14 – US$ 41 (children over 2 half price).

The RTA has reported that, in H1, there was a 4.6% increase to 70.7 million users on its 1.54k bus transport system.

Emirates National Oil Company has awarded an engineering procurement and construction contract to French company Technip, which will see a 50% expansion to its Jebel Ali refinery. The ENOC contract is valued at about US$ 1 billion and will increase capacity by 70k bpd to 210 bpd.

The former head of the Ras Al Khaimah Investment Authority, Khater Massaad, has been detained at Jeddah airport, under a RAK government arrest warrant. Last month, it was reported that talks between both parties in relation to “global embezzlement and mismanagement of US$1.5 billion” had broken down. Last October, Massaad, who ran RAKIA from 2007 to 2012, was tried in absentia and found guilty of corruption and fraud – claims which he has refuted.

Ratings agency S&P has forecast a slowdown for the local banking sector and expects 2016 regional growth to fall from 10% to 6%, and to dip slightly further in 2017, as the impact of low oil prices take effect. The subsequent lower liquidity will see profits fall, as government oil revenues deposited into the banking system move lower, and cost of funding shifts higher.

Troubled Gulf Navigation Holding has managed to cut its debt by 41.7% to US$ 21 million and expects to consolidate all its borrowing by year end. This will see its 6-year old dispute with disgruntled creditors come to somewhat of a happy ending and help the shipping company regain some lost investor and consumer confidence.

Dubai Aerospace Enterprise has acquired an 80% stake in Jordan Aircraft Maintenance from the Abraaj Group; no financial details were available.

Dubai’s inflation level nudged 0.38% higher, month on month, in August with an annual 2.50% rate. With YTD inflation at 2.40%, education and utilities continue to be the main drag factors – up 6.42% and 4.69% respectively.

It is reported that the emirate is discussing a US$ 2.5 billion loan (a US$ 1.4 billion European Export Credit facility and US$ 1.1 billion unsecured loan backed by the Dubai government). The funds will be used to finance the planned 15 km metro extension to the Expo 2020 site, to be built by an Alstom-managed consortium who were awarded the US$ 2.9 billion RTA contract in July.

With this week’s Emaar Properties’ US$ 750 million sukuk on Nasdaq Dubai, the value of the 14 new issues this year comes to US$ 10 billion, with a total sukuk value of US$ 45.5 billion now listed on the local bourse.

The DFM opened the week at 3482 and gained 32 points to close on 3514 by Thursday (22 September 2016). Volumes, on the last day of trading, were marginally higher at 267 million shares, valued at US$ 105 million, (cf 222 million shares for US$ 71 million, the previous Thursday). Bellwether stocks, Emaar Properties remained unchanged at US$ 1.95, with Arabtec also flat at US$ 0.41.

Having lost US$ 3.40 the previous week, Brent crude continued its downwards trend, with a marginal US$ 0.27 fall to US$ 46.32; gold moved in the other direction, US$ 27 higher to US$ 1,345 at Thursday’s (22 September 2016) close.

OPEC, supplier of about 40% of global oil, has seen its 14-members’ production levels creep above the 33 million bpd mark and may call a meeting in Algiers next week, following the International Energy Forum conference. In order to steady prices and stabilise supply, the cartel would be looking at ways to shave about 1 million bpd. Meanwhile, latest weekly figures show that the US crude stockpile fell by 6.2 million barrels to 505 million, as usage of 16.6 million bpd was 941k barrels higher than the 5-year average.

China dominates the global steel market and has seen its annual production expand 12-times since 1990 to over 822 million tonnes – this despite 2016’s demand expected to be only 672 million tonnes. In a bid to overhaul the sector and to cope with overproduction problems, two of the country’s largest steel companies, Baostel and Baowu Iron and Steel, are planning to merge to form China’s largest steel company that will produce 60 million tonnes; it will become the world’s second largest behind Luxembourg-based ArcelorMittal.

There was an interesting development this week with reports that Apple are considering a significant US$ 1.5 billion investment in UK luxury carmaker, McLaren. It does seem that the US tech giant is keen to enter this sector, having recently acquired a US$ 1 billion share in Didi Chuxing, the Chinese ride-sharing service.

Three years ago, Microsoft bought back US$ 40 billion of its own stock and now it is in the market again to do exactly the same; the process should be completed by the end of the year.

It seems that Deutsche Bank is not happy with being fined a massive US$ 14 billion by the US Department of Justice for its fraudulent role in mortgage-backed securities. Other major banks have already taken their punishment, including BoA (US$ 16.7 billion), JP Morgan Chase (US$ 13 billion), Goldman Sachs (US$ 5.1 billion) and Citigroup – US$ 7 billion, after being asked to pay US$ 12 billion; who is benefitting from receipt of these penalties? In Q2, the bank posted a 67% decline in profits and in July, one of its US operations failed a stress test by the Federal Reserve.

The other business sector going through a rough passage is the motor vehicle industry. Many cars have been subject of recalls, for a variety of reasons but faulty airbags being the predominant cause. Fiat Chrysler is the latest recalling 1.9 vehicles, following a reported three associated deaths. This comes three months after Toyota’s June recall of some 1.4 million vehicles for the same reason, with most other car manufacturers affected; these include Honda (1.7 million), Ford (2.0 million), Chevrolet (1.9 million) and Mercedes Benz (1.0 million). With the number of potentially faulty air bags now exceeding 100 million, it is little wonder to see their maker, Takata, up for sale.

Having already set aside US$ 18 billion to cover legal costs, over its emissions scandal, VW is now facing further claims, totalling US$ 9.1 billion, from 1.4k German investors. In the US, the German carmaker has already admitted guilt and paid US$ 10.2 billion to settle only some of the claims.

The UK car industry continues to confound analysts as 109k units were built in August – a 9.1% increase from a year earlier and the largest August number in 14 years. More importantly, exports continue to impress – 9.1% higher in the month and 13.3% YTD.

A recent report by Swiss-based Bank for International Settlements paints a worrying picture of the Chinese banking system. It estimates that the country’s Q1 credit-to-GDP gap of 30.1% is at record highs and far above the 10% mark, associated with banking risks. The possibility of a major financial crisis, within three years, is on the cards, if steps are not taken to ensure that bad loans and bond defaults are restricted by closely monitoring the ballooning borrowing in both the official and larger shadow banking sectors. (It has been estimated that banks there have written off more than US$ 300 billion in bad loans since 2013).

The City of Melbourne has leased its port for US$ 7.3 billion to the Lonsdale consortium for 50 years; this is a lot higher than initial estimates of US$ 5.2 billion. 10% of the receipts will be spent on infrastructure projects.

The value of Australia’s 9.7 million residences now tops US$ 4.5 trillion with the average price up 3.0% on the year to US$ 467k. Although house prices in mainland cities (except Perth and Darwin) have risen by 8% over the past year, the Reserve Bank of Australia appears to show little concern about a property bubble. At their recent meeting, which also pointed to no possibility of an imminent cut in rates, the RBA indicated that the housing market had actually weakened over the past 12 months. To the outsider, this seems a dangerous conclusion, as the sector is well past the frothing level, with home loans accounting for the bulk of local bank assets.

Controlling 75% of the market and with assets four times the size of the country’s economy, Australia’s Big 4 banks – ANZ, CBA, NAB and Westpac – and Macquarie find themselves in a potentially damaging legal case, with other major global players, in New York. They all have been accused of manipulating the BBSW (bank bill swap rate) benchmark between 2010-2012 and earning themselves millions of dollars in illicit profits. (Even Australia’s Securities and Investments Commission has started civil cases against three of the Australian banks for “unconscionable conduct and market manipulation” and rating agencies have cut their outlook on the country’s banking system to “negative”).

The OECD’s latest report provides grim reading for the UK economy, as it slashes 1% off its growth forecast, citing Brexit uncertainty – along with lost trade – and the dismal global economic environment. Its latest estimates point to a 1.8% growth this year, followed by a weaker 1.0% in 2017, compared to globally – 2.9% and 3.0% – its lowest annual growth rate since the GFC. Like the IMF, such reports should be taken with a pinch of salt.

The EU has fallen foul of the World Trade Organisation who has ruled that Airbus has been receiving billions of dollars in subsidies from the bloc. Rival Boeing has complained that these payments are illegal and have cost many US jobs and lost sales opportunities; now they expect to receive up to US$ 10 billion in annual retaliatory tariffs. Meanwhile, Airbus is expecting to appeal whilst awaiting the WTO’s decision on their similar complaint against Boeing.

The Bank of Japan continues to tinker with its largely unsuccessful stimulus programme in yet another attempt to kick-start the flagging economy. It has maintained its US$ 655 billion monthly asset purchases programme, including 10-year government bonds, which it will try to stop dropping into negative territory, and will continue in its push to see inflation top 2%. This will not be an easy task when latest trade figures show a US$ 184 million deficit, with year on year imports and exports down 17.3% and 9.6% respectively.

There was disappointing US August residential construction data with housing starts falling 5.8% to an annual rate of 1.14 million units, compared to 1.21 million a month earlier. Furthermore, building permits surprisingly dipped by 0.4% to 1.14 million. As expected, the Federal Reserve did not move on interest rates, so that investors continued to fill their boots on the global bourses and the greenback lost some of its recent impetus. However, as US growth is beginning to pick up, after a sluggish start to the year, a 0.25% December rate hike, after the presidential election, is all but inevitable.

UK bonuses reached record highs last year, totalling a mouth-watering US$ 59 billion – a figure that was up 4.4% year on year – and accounting for 6% of total remunerations; interestingly, this figure came to 22.7% in the financial and insurance sectors. Legally or otherwise, those bankers Can’t Get Enough!

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Where Did It All Go Wrong?

Posted on September 18, 2016 by howesdubai

libya-cameronAurecon, the appointed engineer and architect for The Tower at Dubai Creek Harbour, has awarded the wind-engineering consultancy to London-based MT Fluid Mechanics. On completion, the US$ 1 billion Emaar structure will be at least 100 mt higher than its 828 mt Burj Khalifa stable mate.

According to the August ValuStrat’s report, overall property values showed marginal falls, although prices for certain prime properties edged higher by between 0.8% and 2.8%. Its residential index posted a 97.6 reading, compared to 100 for January 2014 and 98.2 in August 2015. YTD villa prices have dropped 0.2 to 96.7, whilst apartments fell 0.4 to 98.2.

Meanwhile Cluttons are forecasting a 5% 2016 fall in the office market sector, as the impact of low oil prices and a sluggish global economic environment begins to take hold. Q2 office rents continued unchanged, with the sector flat until later next year, when the Expo factor kicks in to move prices higher.

Knight Frank’s Skyscraper Index points to H1 zero growth in Dubai’s commercial towers’ rents which have remained flat at US$ 469 per sq mt. Local rents are at the low end of the 30-city global scale and much lower than the top four – Hong Kong (US$ 3,001 per sq mt), Tokyo (US$ 1,703), New York (US$ 1,611) and London (US$ 1,229). Over the period, Shanghai rents grew by 7.6%, Sydney – 7.6% – and Hong Kong by 5.9%.

Rasmala, along with Ajman Bank and others, have invested US$ 82 million to acquire 72 warehouses, covering 600k sq ft, in DIP. The locally based investment management firm has a 7-year sale and leaseback deal with 31 tenants.

Deyaar has teamed up with Millennium & Copthorne who will manage three properties, totalling 953 keys, which are under development. Located in Al Barsha, Business Bay and Dubai Science Park, all will open within 18 months.

Although preliminary August hotel occupancy levels show a year on year increase of 3.4% to 76.1%, all revenue indicators declined; demand, at 9.2%, increased at a greater rate than the 5.5% supply. Two major indicators headed south – average daily room rate sank 10.2% to US$ 140 and revenue per available room by 7.1% to US$ 107.

Following its 31 August opening, the world’s largest indoor theme park, IMG Worlds of Adventure, returned impressive attendance figures during the recent Eid Al Adha break. The facility, encompassing some 1.5 million sq ft, welcomed over 100k visitors over the holiday period.

Damas has built a new high-tech production factory in Nad Al Hamar which has a monthly capacity to produce up to 280kg of gold into jewellery pieces. The firm will use 200 craftsmen in the new facility that will also utilise 3D printing techniques.

Dubai-based GFH Capital, part of Bahrain’s Gulf Finance House, has sold its remaining 18% share in Leeds United FC to Massimo Cellino for an undisclosed fee. The firm had taken over control of the football club in 2012 that saw its then Deputy CEO, David Haigh, becoming its MD and board member.

Abraaj is reportedly interested in acquiring the Dubai campus of Middlesex University, in a deal that could be in excess of US$ 60 million. The facility, one of a raft of private universities in the country, is currently owned by several local investors and posted an EBITDA return last year of US$ 6.8 million.

The group also sold its share in Colombian grocery retailer, Koba, for an undisclosed fee, to US-based Capital Group Private Markets, after a six-year investment that has seen its chain of supermarkets grow from 40 to 500.

The latest indication from the UAE Ministry of Economy is that the country’s 2016 exports of goods and services will be 4.0% higher at US$ 354.2 billion.

A SICO Bahrain report indicates that Dubai’s debt, currently at 129% of GDP, requires close scrutiny amid fears that GREs (government-related entities) could face higher interest costs, as liquidity tightens. Public debt has been rising at an annual 8% over the past five years, with finance costs of US$ 600 million accounting for 5% of the emirate’s revenue. The report estimated that US$ 51 billion of debt is due to mature before the end of 2018.

With the recent redundancy of some 15 staff, Istithmar World, is reportedly operating with a ‘skeleton staff’, to oversee, with other Dubai government entities, the sale of its remaining assets, including the Dubai-moored QE2, along with stakes in investment bank Perella Weinberg and US retailer Barneys. The company was the investment arm of Dubai World which was badly hit by the GFC and later forced to enter a US$ 14.6 billion restructuring agreement with its creditors.

The DFM opened for one day only this week at 3519 and lost 37 points to close the day and the week on 3482 by Thursday (15 September 2016). Volumes, on the last day of trading, were down at 222 million shares, valued at US$ 71 million, (cf 421 million shares for US$ 147 million, the previous Thursday). Bellwether stocks, Emaar Properties dropped US$ 0.03 to US$ 1.95, with Arabtec down US$ 0.01 at US$ 0.41.

Brent crude lost some of the previous week’s US$ 4.54 gain – down US$ 3.40 to US$ 46.59; gold performed likewise, US$ 23 lower at US$ 1,318 at Thursday’s (15 September 2016) close. Of the two main drivers for the jump in oil prices, one was recent talk between Alexander Novak and Khalid al-Falih, in which Russia and Saudi Arabia discussed ways to stabilise the market. The other was the news that Libya will more than double production to 600k bpd within four weeks and to 950k by year end.

Over the past week, shares in Wells Fargo have lost over 7% in value, following allegations that staff opened a staggering 2 million customer accounts without their knowledge. Consequently, the bank lost its position as the largest bank by market capitalisation to JPMorgan Chase. The scandal, originating from a bid to meet internal sales targets (and subsequent bonus payments) has already cost the bank US$ 190 million in fines and 5.3k staff their jobs, including head of retail operations, Carrie Tolstedt; she received more than US$ 9 million in stock and cash last year and left in July holding 2.5 million shares, worth about US$ 1290 million.

Deutsche Bank AG is in final discussions with the US Department of Justice in relation to an on-going investigation into the sale of residential mortgage-backed securities. Germany’s largest bank, which has already paid out fines totalling US$ 9 billion for other fines and settlements, will probably have to settle for more than the US$ 2.4 billion Goldman Sachs penalty.

Following its “Apple success”, it seems that the EU has Ikea in its sights – checking on claims, by the Greens/EFA group in the European Parliament, whether the furniture retailer has been avoiding tax through illegal means. The company stated that it had paid US$ 924 million in global corporate tax. Meanwhile, its holding company, INGKA, now based in the Netherlands, reported a 7.1% hike in annual turnover to a record high US$ 38.4 billion, with expectations of a US$ 56.2 billion figure by 2020.

A minor blow for Airbus is that one of its customers, Malaysia Airlines Bhd, is looking to offload its six-fleet A-380s because they are now considered superfluous to requirements. The airline has requested that 90 extra seats be added, so that they would be more saleable to potential Asian buyers. The jumbos would be replaced by smaller A-350s on the longer routes. This week, Singapore Airlines, the A-380’s first customer, reported that it would not be extending its lease on the first plane on expiry next October; it currently has 19 in operation.

A more serious problem is the manufacturer’s problem with Qatar Airways and its A-320neo. The ME airline has refused to take delivery of the updated plane as it considered the jet and its engine do not meet contractual obligations. Chief Executive, Akbar Al Baker, has threatened to cancel the US$ 6.4 billion order for 80 of the single aisle planes. Qatar Airways has a further dispute in relation to the failure of Airbus to deliver 5 A-350s that has had a negative impact on this year’s airline profit figures.

As if to prove that it genuinely wants to boost growth, Chinese banks more than doubled, month on month, net new loans in August to over US$ 142 billion, whilst its M2 money supply was 11.4% higher, compared to a year earlier. However, the central bank is wary of cutting rates further, or depleting bank reserves, as many companies and financial institutions still prefer hoarding to investing funds.

The new Michel Temer government has announced a massive privatisation plan to help the ailing Brazilian economy that is in its worst recession in over 80 years. The new president, who took over from the disgraced Dilma Rousseff, will put four airports and two port terminals up for sale along with PPP plans for the mining and infrastructure sectors. He will have a tough job to turn around an economy that is expected to contract a further 4.3% this year, after losing 3.8% in 2015.

Prime Minister, Theresa May, has finally given the green light to the US$ 23.4 billion Hinkley Point nuclear power station – with “significant new safeguards”. With French (US$ 15.6 billion) and Chinese (US$ 7.8 billion) investment involved, the UK is keen to protect national security with a guarantee that the principal operator, EDF, cannot dispose of their stake without government approval and until the plant is built. On completion, 7% of the country’s energy will be from the Somerset location. Potential problem areas include China’s insistence that it uses its own design for future UK nuclear facilities (the first of which will be in Suffolk), the escalating costs associated with the project and the fact that EDF can sell energy at double the current market prices for a further 35 years.

It is no surprise to some that the Bank of England has had to revise its pre-Brexit gloomy growth forecasts, as the economy has performed better than expected. Whilst many predicted that the UK would fall off the economic cliff, and into inevitable recession, the fact is that signs all point in the opposite direction. With Q3 growth expected at 0.3%, unemployment falling (now at 4.9%) and retail sales improving, consumer confidence has bounced back. Yet again, the governor of the Bank of England, Mark Carney, was slightly out with his forecasting.

This week saw the end of David Cameron’s political career, as he resigned as MP for Witney. His losing the Brexit vote and the parliamentary report on Libya have surely tarnished Cameron’s legacy. The House of Commons foreign affairs committee condemned his chaotic Libyan intervention in 2011 and questioned his judgment in rushing to war, indicating that this was down to “erroneous assumptions”. Just like his two predecessors, Tony Blair and Gordon Brown, he must be thinking Where Did It All Go Wrong?

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Livin’ On The Edge!

Posted on September 11, 2016 by howesdubai

ecclestoneLatest Dubai Land Department data show that for the first 8 months of the year, there have been 38.8k sales, mortgages and other transactions, totalling US$ 43.0 billion, with 15.5k dealings, worth US$ 16.5 billion, over the past three months. Of the YTD total, property sales accounted for US$ 19.4 billion (28.1k transactions), mortgages – US$ 18.0 billion (8.5k deals) and others – US$ 5.6 billion (2.2k).

Days after announcing that the proposed Mall of the World would be moving to a new location, HH Sheikh Mohammed bin Rashid Al Maktoum revealed plans for Jumeirah Central on the same site – along SZR, presently housing the Police College. Covering an area of 47 million sq ft, the Dubai Holding US$ 20 billion mixed-use development will be home to 35k residents, have 7.2k hotel rooms, 3 shopping malls, 4.5 million sq ft of outdoor shopping, along with a cycling network, spanning 33 parks and open spaces. Phase 1, costing an estimated US$ 6.5 billion, will be completed in time for Expo 2020.

A JV between Emaar Properties and Dubai South will see the development of a 7 sq km area, adjacent to Al Maktoum International. The “reasonably” priced project will house 15k new residential units, a golf course and the usual accoutrements – schools, retail, hotels and parks. Phase 1 is expected to be completed within four years. This is in addition to Dubai South’s previously announced US$ 6.8 billion The Villages middle-income development, including 6k units, to be ready by 2019.

Also at this week’s 15th Cityscape Global, Nakheel announced plans not only to build 15k homes in its new US$ 2 billion Jebel Ali Gardens project but also two towers, next to Ibn Battuta Mall. These will have 531 apartments and be ready by Q4 2019. Nakheel’s chairman, Ali Rashid Lootah, also indicated that the developer will double the size of its leasing portfolio, to 36k, over the next five years.

Nakheel has also awarded the final phase of its high-end Nad Al Sheba residential community to Square General Contracting Co in a US$ 51 million contract to build 133 villas. The total project was valued at US$ 708 million, with contracts for the earlier 1,439 units, and a 1.2 million sq ft mall, awarded last year.

It has been a busy month for Nakheel as the developer announced yet another launch – this time, Palm 360. Located on a 500k sq ft Palm Jumeirah site, the twin tower hotel/residential apartment project will have 264 luxury residential units and two boutique hotels, on the first 9 storeys, with 110 rooms. A restaurant complex will link the two buildings at the 30th floor level.

Last week, Nakheel announced that a new 372-room Premier Inn, located adjacent to its 210 mt link between the Metro and Ibn Battuta Mall, would open later in the year. This week, the developer has appointed Hilton Worldwide to operate its 256-key, 18-storey property, under the DoubleTree brand, due to be built as part of a US$ 409 million project, including a mall, in JVT; construction, which will start next month, will be completed in 2019.

AE7 has been appointed by Nakheel to oversee the construction of Nakheel’s 20-tower development at Deira Islands. The US$ 1.9 billion, 9 million sq ft DI Boulevard project will comprise 16 apartment blocks, 2 hotels and 2 serviced apartment complexes and should be completed within three years.

Damac Properties is expected to hand over 450 villas and 900 apartments in its Akoya development next month. Late last year, 479 golf-view apartments were delivered. During Cityscape Global, the developer announced five new developments – a new phase of Akoya Imagine, Akoya Cuatro Villas, The Residences at Aykon City, Aykon Hotel & Hotel Apartments at Aykon City and Villas at Akoya.

The 109-unit Azizi Yasmine became the first of 17 projects in Al Furjan completed by Azizi Developers, with a further four buildings, 750 units, due for handover in Q4. With three other projects on Palm Jumeirah, its 20-project portfolio has an estimated development value of US$ 2.0 billion. It is now launching six 15-storey residential buildings – five in Dubai Healthcare City and one in Downtown Jebel Ali area over the next six months.

Abu Dhabi-owned Bloom Properties is entering the “affordable” housing market sector by building twin towers, with 686 apartments in JVC. Aimed at mid-market buyers, starting prices are at US$ 98k, with owners due to move in by early 2019. In the same market range, Nshama has launched 2k units, with prices starting at US$ 167k, whilst Danube is a recent entrant offering studio flats at US$ 117k.

Sobha is planning a third large residential community, in addition to their current US$ 4 billion Sobha Hartland and US$ 10 billion Mohammed Bin Rashid Al Maktoum City – District One. The developer is introducing what seems to be a new category into the sector – “affordable luxury”; that being the case, the location is likely to be further out of the metropolis than the other two developments.

It is thought that the tender for the US$ 272 million Mohammed bin Rashid Library, located in Al Jaddaf, will be awarded to one of six bidders in Q4. The 66k sq mt building will hold more than 2 million e-books (making it the top global electronic collection), 1.5 million volumes and 1.5 million audio books.

Dubai Wholesale City – slated to become the largest wholesale hub in the world – has started accepting applications from interested entities. The US$ 8.1 billion project, covering 550 million sq ft, is set to enhance Dubai’s position as a world class trading hub in a sector that is currently valued at US$ 4.3 trillion.

MAF opened its 20th mall this week – My City Centre Al Barsha houses 20 shops. The mall owner expects the current sales slowdown (particularly at the luxury end) to continue into 2017 before rebounding. In June, the company revealed plans to invest US$ 8.2 billion in the UAE, most of which will take place before 2020.

DP World has won a 30-year concession to manage and develop Berbera seaport – its second operation in the Republic of Somaliland, in addition to Djibouti. The initial investment, in a JV with the government, is estimated at US$ 435 million.

Gulf Navigation Holding has apparently signed a new agreement with a major creditor, Nordic American Tankers, to fully settle a long-standing debt. The new management of the Dubai-based company is keen to settle all historical outstandings, so as to start afresh.

Reports from Bloomberg indicate that Souq.com investors, Tiger Global Management and South Africa’s Naspers Ltd, are planning to sell a 30% stake in the online retailer for an estimated US$ 360 million. This comes six months after the 11-year old company secured US$ 275 million from several investors.

It is reported that Dubai Financial Group LLC, part of Dubai Holding LLC, may be planning to sell its 12% share in Bank Muscat SAOG that could be worth up to US$ 300 million. Funds could be used to repay the French creditor, Natixis SA, under a 2-year old restructuring agreement.

The UAE cabinet has approved the final draft of the federal bankruptcy law that will prove to be a boon for both businesses and the economy. The long awaited legislation will allow struggling companies the chance of restructuring failing businesses and will see the possible end of jailing proprietors for bounced cheques. There have been reports that some SME owners were departing the country, when loans and debts could not be repaid, leaving banks picking up the US$ 1.4 billion tab for unsettled loans.

Despite a slight two-notch drop in August to 55.7, the Emirates NBD PMI indicated that Dubai’s private sector is still holding up well. The monthly survey showed that both new orders and business confidence had improved, with three major components – wholesale/retail (55.5), travel/tourism (54.7) and construction (52.6) – all in healthy territory.

According to a recent report, H1 earnings from UAE listed companies fell 8%, with total earnings of US$ 32.8 billion, driven down by lower oil prices and subsequent weaker growth. Unsurprisingly, the main drag sectors were commodities, construction and realty.

The Eid Al Adha break will see the public sector off for the whole of next week, whilst the private sector will have three days’ holiday from this Sunday (11 September). The DFM will only be open for one trading day next week – Thursday.

The DFM opened on Sunday at 3512 and nudged 7 points higher to close the week on 3519 by Thursday (08 September 2016). Volumes, on the last day of trading, were down at 222 million shares, valued at US$ 71 million, (cf 421 million shares for US$ 147 million, the previous Thursday). Bellwether stock, Emaar Properties, was up US$ 0.02 to US$ 1.95, with Arabtec higher by US$ 0.01 to US$ 0.41.

Brent crude bounced back this week, surging US$ 4.54 to US$ 49.99; gold performed likewise, up US$ 24 – to US$ 1,341 at Thursday’s (08 September 2016) close. The main driver for the jump in oil prices was recent talks between Alexander Novak and Khalid al-Falih in which Russia and Saudi Arabia discussed ways to stabilise the market.

BHP Billiton has hived off 50% of its West Australian Scarborough area gas fields to Woodside Petroleum for a reported US$ 400 million. The company has been badly hit by the oil price slump and had delayed development of this project.

Enbridge Inc is set to acquire the Houston-based Spectra Energy Corp for US$ 28 billion, in an all-stock deal, that will result in the continent’s largest energy pipeline and storage company; the Canadian entity will be paying a 12% premium on the early September market price. This follows a March deal that saw TransCanada Corp buy Columbia Pipeline Group for US$10.2 billion.

Following its unsuccessful May bid for Monsanto, Bayer has upped the ante by 4.5% to US$ 127.5 per share, which values the seed company at US$ 65 billion (compared to its recent market value of US$ 47 billion). If the deal were to go through, the new entity would be world’s biggest agricultural supplier and its very size may raise competition concerns with US regulators.

FTSE 100 tech firm, Micro Focus is to spend US$ 8.8 billion to acquire HP’s software arm following the recent US$ 32.4 billion deal that saw Japan’s Softbank take over ARM Holdings.

The shipping industry has been thrown into chaos with South Korea’s Hanjin, which has been haemorrhaging money for years, filing for bankruptcy. It is estimated that the country’s biggest shipping company, and world’s seventh-largest container shipper, has some 540k containers, with fully laden ships remaining at sea in a state of limbo. The 2008 recession and sluggish global economy have seen weaker trade and overcapacity resulting in historically low shipping rates that in some cases would struggle just to pay for the fuel. There is no end in sight to the deadlock and the knock-on effect could hit retailers, as cargo remains in containers and inaccessible on the high seas. The government may have to offer long-term, low interest funding to keep the company afloat, so it can rescue an estimated US$ 14 billion worth of stranded cargo.

Three Vietnamese airlines are set to buy 40 aircraft, valued at US$ 6.5 billion, from Airbus; they include 20 A321s at US$ 2.4 billion, 10 A350s (US$ 3.1 billion) and 10 A320s worth just under US$ 1 billion.

UK retailer, M&S, has retrenched 500 of its HO staff in London, as it continues to cut costs in the wake of an on-going sales slump. Latest quarterly figures indicated a 9.0% fall in like-for-like clothing sales with total group turnover down 0.4%. It is little wonder then that the present company’s share value, of US$ 7.4 billion, has fallen by more than 33% over the past year.

MasterCard, the world’s second largest credit and debit card provider after Visa, is facing a US$ 18.6 billion legal claim for anti-competitive card fees for 16 years ending 2008. The case is being brought to the European Court of Justice by a group of UK consumers.

According to Christine Lagarde the world is under threat from a “low-growth trap” – slowing investment, sluggish productivity, rising debt levels, weak demand, increasing gap between the rich and poor and eroding labour skills. The IMF MD is concerned that growth over the past five years has been a lot slower than the 3.7% average recorded over the period 1990 – 2007.

The weaker than expected US job numbers of 151k (with unemployment of 7.8 million remaining at 4.9%) would appear to preclude any chance of the Fed raising rates later this month; a December hike is now more likely – after the Trump election. The figure was well down on the preceding month’s 275k and the yearly average of 204k.

With Wednesday’s announcement that June quarterly expansion was 0.5%, (and an annual 3.3% rate), Australia celebrated 25 years of continuous growth. It also recorded a stunning 4.5% hike in quarterly public demand.

On the flip side, the lucky country posted record high foreign debt levels, import values rose 2.75% and the current account deficit saw a 4.0% quarterly jump to US$ 11.8 billion. Australian factory activity has fallen to its lowest level in a year, as the latest PMI showed 46.9 – the 9.5 monthly drop saw an abrupt end to 12 months of growth in the sector. The main drag factor was a sharp slowdown in the food and beverage sector, whilst two other indices dropped below 50 – textiles/clothing and machinery/equipment.

After 18 months of the ECB buying government debt, totalling US$ 1.12 trillion, the jury is still out whether the strategy has helped or hindered the eurozone economy. Two major indicators offer little evidence – inflation levels are still flirting around zero (cf the 2.0% target) and bank lending remains slow moving. Meanwhile the 19-country bloc was hit with more disappointing news – the IHS Markit PMI fell 0.3 to 52.9 in August, its lowest level in 19 months, as German output fell to a 15-month low. There is no doubt that more action is required to kick-start the faltering economy.

The Japanese have not taken kindly to the UK Brexit vote warning that many of their companies – including the likes of Daiwa, Honda, Mitsubishi, Nissan and Nomura – will leave the country. It is estimated that 50% of Japanese European investment is based in the UK. If the bloc’s trading and investment laws become no longer applicable, then many companies will close down and move to the continent, mindful of the possibility of being charged twice for trade tariffs. Prime Minister May must be hoping that the Chinese president, Xi Jinping, shows more patience than Prime Minister Abe.

Following a US$ 2 billion fall a month earlier, Chinese August forex reserves fell by US$ 16 billion to US$ 3.19 trillion as the country spent money on defending the Yuan against capital outflows. Q2 growth was 0.2% lower at 6.7% from the same period in 2015,   as the world’s largest country is in the throes of a major restructuring programme to a consumer-spending nation, rather than depending on cheap exports and top-heavy government investment.

Formula 1 is set for new ownership with the acceptance of Liberty Media’s offer of US$ 8.5 billion. The US company, backed by John Malone, has appointed Chase Carey, a director of Sky plc, as F1’s new chairman. US private equity firm, CVC Capital Partners, will divest its 35% stake holding, whilst Bernie Ecclestone and his family trust, Bambino Holdings, are set for a US$ 1.1 billion bonanza pay-out. The octogenarian, however, will remain as F1’s Chief Executive – a sure sign that the man still prefers Livin’ On The Edge!

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Bridge Over Troubled Water

Posted on September 4, 2016 by howesdubai

samsung-galaxy-note7With developers keeping a firm grip on the supply of residential units (this year only 35% of expected new property will be released into the market), it is surprising to read many property-related reports full of doom and gloom. Core Savills is one of the few property consultancies to report that prices are heading north and, after seven consecutive quarters of falls, they moved higher by 1%, with transactions up 5%. The biggest Q2 rises were in the Meadows and Springs – up 3% (but 7% down on the 12 months); JV villa prices were also 7% lower on the year but 5% down year on year. Rents were largely flat although there were losses of between 2% – 4% in Al Barari, DSC, Dubailand, Emirates Hills and Palm Jumeirah.

The world’s biggest shopping centre, The Mall of The World, is still a going concern but will be moved from Al Sufouh to a different location on Sheikh Mohammad bin Zayed Road. The original US$ 22 billion concept called for 745k sq mt of retail space, connected to a theme park and 100 hotels/serviced apartments, with 20k rooms. Whether there will be changes remains to be seen but it is expected that phase 1, encompassing 25% of the plan, will be ready prior to Expo 2020.

Following its launch earlier in the year, the Vincitore Palacio US$ 37 million project is reportedly 90% sold out. The developer’s first foray in the local market is located in the Arjan district and comprises 175 apartments and is slated for completion by Q2 2017.

Nakheel has announced that its proposed US$ 1.1 billion Deira Islands mega mall will cover 600k sq mt, larger in size than Dubai Mall. The developer has already started infrastructure work, which will add a further 40km to the emirate’s coastline, along with a US$ 245 million resort and water park.

The developer also announced the opening of its new 210 mt link between the Metro and Ibn Battuta Mall which will see 90 new dining and retail outlets opening in Q4, along with a 372-key Premier Inn. This follows the May opening of the 300k sq ft phase 1 extension, with 60 outlets. It also plans a1.2 million sq ft mall in Nad Al Sheba, where it is currently building 1.5k villas.

According to Deyaar Development, work has already started on its Al Barsha project – a 299-key hotel along with 109 serviced apartments. The building, covering 70.8k sq ft, is slated for completion by the end of next year and is in addition to similar developments – The Atria in Business Bay and Mont Rose Dubai Science Park.

A new hotel brand is set to enter the Dubai market. Tin Hotels, a JV between Singapore’s General Hotel Management and investment company Van de Bunt Partners, is set to open its first 3-star hotel here in 2019. GHM already operates luxury Chedi brands in Muscat, Indonesia, Switzerland and Vietnam and has projects in Sharjah.

Murray & Roberts, one of the first international construction companies to arrive in Dubai in the 1990s, has decided to leave the building sector and focus in future on three key areas – energy, mining and water. It is expected that any outstanding work in the country will be completed by next year.

With a 5.4% increase in H1 revenue to US$ 627 million (and passenger traffic up 16.5% to 4.9 million), flydubai managed to post a 39% reduction in losses to US$ 24 million. The main drag factor was down to the “uncertain international economic situation”, not helped by the strong greenback vis-à-vis other currencies.

Special 95 petrol prices will increase by 1.2% to US$ 0.447 this month but the price is still some 4% down on the same period last year, when deregulation was introduced.

In a recent Visa report, the company estimated that 40% of all GCC e-commerce transactions originated in the UAE, with Saudi Arabia accounting for 35%. The country’s 28% annual growth was aided by the large percentage of millenials shopping on line – UAE (75%) and Saudi Arabia (58%). A further study – by AT Kearney – estimates the GCC e-commerce market will expand, over the next four years, to US$ 20.0 billion, from its current level of US$ 5.3 billion.

It is reported that Emaar Properties may be in the market for a sukuk sale in the region of US$ 500 million. The last time the company was involved in a similar deal was when Emaar Malls Group LLC raised US$ 750 million in June 2014. It is estimated that GCC bond and sukuk sales have more than doubled YTD to US$ 38 billion.

Following its May US$ 750 million 5-year sukuk issue, Emirates Islamic has priced a further US$ 250 million tap on the existing Islamic bond, priced at 170 bp over midswaps. (A tap transaction is simply a continuation of the original sukuk, adjusted to reflect existing market conditions – the May issue was at 220 bp over midswaps).

As part of the government’s smart government initiative, 16 of the country’s major banks have signed a MoU to own and operate a mobile wallet platform. The mWallet can be considered a cashless wallet that will encourage the cashless society with all transactions via smartphones.

The DGCX has initiated a new vehicle for local investors, with the introduction of stock futures on five US companies (Apple, Facebook, Google, JP Morgan and Microsoft), as well as ten Indian entities. Over the next 12 months, a further 100 companies will be added to the listing. Nasdaq will start similar operations in September.

The DFM opened on Sunday at 3472 and rose 1.0% to close the week on 3512 by Thursday (01 September 2016). Volumes, on the last day of trading were at 421 million shares, valued at US$ 147 million, (cf 122 million shares for US$ 53 million, the previous Thursday). Bellwether stock, Emaar Properties, was up US$ 0.01 to US$ 1.93, whilst Arabtec also nudged US$ 0.01 higher to US$ 0.40. YTD, the bourse is 11.22% higher, with Emaar performing well, showing a 24.78% rise from its year’s opening of US$ 1.55 with Arabtec coming in16.80% higher after its 01 January balance of US$ 0.34.

Brent crude fell back with a vengeance this week, US$ 5.44 lower at US$ 45.45; gold was also down – US$ 40 – to US$ 1,317 at Thursday’s (01 September 2016) close. For the first eight months of the year, the yellow metal had rallied by 20.4% (from US$ 1,089 to US$ 1,311) but lost US$ 46 in August from its start of the month price of US$ 1,357. Brent was fairly flat from its opening year price of US$ 44.30 to close on 31 August at US$ 46.89 but gained ground in the month – up 7.3% from its month’s opening of US$ 43.70.

The ACCC, Australia’s consumer watchdog, is seeking a public declaration of misconduct, financial penalties and corrective advertising from VW in the wake of its emission scandal. Covering 55k vehicles and ten models, the German carmaker will also face several private class action lawsuits.

It is reported that Mondelez International, which owns Cadbury chocolate, is not to proceed with a US$ 23 billion cash and stock bid to take over US confectioner Hershey. Previous takeover bids have failed because of concerns from its major stakeholder, the charity, Hershey Trust.

Global legal firm, Slater & Gordon, is facing problems following a US$ 1.3 billion loss, caused mainly by Brexit and the proposed UK changes to accident compensation laws. To date, 14% of UK staff has been retrenched, and four offices closed, as the firm’s debt level rose 11.1% to US$ 0.9 billion.

Caesars Entertainment Corp is facing lawsuits from several bondholders for alleged reneging on guarantees of bonds, totalling US$ 11.4 billion, by its subsidiary Caesars Entertainment Operating Co Inc, which filed for bankruptcy in January 2015, with debts of US$ 18 billion. Caesars has been accused by one of the parties of asset stripping prior to the bankruptcy filing.

Valeant Pharmaceuticals International Inc has been accused of racketeering by forcing buyers to pay exorbitant prices for its drugs between January 2013 and October 2015. In a class-action complaint filed in New York, the Canadian company’s ties with the defunct speciality pharmacy Philidor RX Services LLC resulted in excessive costs for some drugs.

Samsung Electronics saw an estimated US$ 7 billion wiped off its market value on Thursday, as it released news that it would be delaying shipments of its Galaxy Note 7 smartphone for quality control testing, amid reports of exploding batteries. This could not have come at a worse time, as competitor Apple is expected to unveil their new iPhones next week.

In a key decision, the EC found that Apple’s deal with Ireland has violated the bloc’s state-aid rules and involved illegal assistance, via a highly favourable tax arrangement. The penalty of US$ 14.5 billion surprised some analysts but will serve as a warning to hundreds of other entities, with similar arrangements in countries such as Ireland, Belgium and Luxembourg. Both the Irish government and Apple will appeal the decision but there is no doubt that the country benefitted through the creation of new jobs (5.5k) and the company by a financial boost and a probable unfair advantage over competitors; it is estimated that Ireland is home to 700 US companies employing 140k. The US Treasury continues to watch proceedings with interest, worried that the US taxpayers will lose out and has already stated that the commission had overextended its legal authority and unfairly targeted US entities.

The English Premier League posted a record transfer window spending in August of over US$ 1.5 billion, compared to just over US$ 1.2 billion last year. The last day, 31 August, saw deals totalling US$ 203 million. The biggest signing, at US$ 117 million (the most valuable in transfer history), was that of Juventus star, Paul Pogba, by Manchester United’s new manager, Jose Mourinho; ironically, the French international left the same club in July 2012 after refusing to sign a new contract, much to the displeasure of the then Reds manager, Sir Alexander Chapman Ferguson.

With oil sales accounting for 70% of government income, it is no surprise to see Nigeria slip into recession after two quarters of negative growth, following Q2’s contraction of 2.1%. The country’s economic problems have been exacerbated by an 11-year high inflation rate of 17.1% and a failure to prop up the naira, by delaying its devaluation, with a disastrous consequence for its forex reserves.

Although still the world’s fastest growing major economy, expanding at an impressive 7.1%, India’s latest growth figure was down from 7.9% the previous quarter and also lower than analysts’ expectations. Despite the relatively disappointing return, an early interest rate cut is still on the cards. If the Modi government could get a handle on corruption, bureaucracy and lack of transparency, prevalent at government level, growth figures would almost certainly attain double digit levels – but ‘if’ is a big word!

In her recent keynote address at Jackson Hole, Janet Yellen conceded that with the job market improving, along with economic growth, even though disappointing, the prospect of a rate hike is a step nearer. She also remarked that the Fed is closer to its dual targets of employment maximisation and stability of prices. Following her unusually upbeat address to central bankers, a rate hike is inevitable this year and may come in September (but more likely later); any interest rise will only be the second in a decade and would follow the other hike last December.

Recent economic data confirms that the US economy is edging higher. July home sales witnessed their fastest rate increase in more than nine years whilst unemployment benefit claims dipped; in Q2, consumer spending was up by 4.4% and GDP growth was at 1.1%.

Although Q2 saw a 0.2% growth, the Greek economy is set for a further year of contraction and a mild recession. Weak consumer spending, continuing high unemployment levels (at over 24%, the highest in the EU), tight liquidity, disappointing export numbers and low investment indicate that the country is going nowhere fast. Last year’s US$ 95 billion bailout package seems to have been only a stop-gap measure, with little to show the Greek population for their pain of pension cuts and tax increases. Their enforced target of reaching a budget surplus of 3.5% of economic output seems to be only a pipedream – as does the EU’s estimate of 2.7% Greek growth next year.

Despite protestations to the contrary, it seems that the Remain camp painted a much bleaker picture of what would happen if Brexit occurred. The latest data bears this out with the UK manufacturing PMI climbing 5 points in August to 53.3 from 48.3 a month earlier following the referendum. Furthermore, August employment was up for the first time this year. It seems that the economy will not spiral into recession, as previously expounded by the Whitehall mandarins, and is likely to travel in the other direction.

Even more QE may be on the cards as eurozone inflation rate remained flat at 0.2% – some way off the ECB’s 2.0% target. With unemployment unmoved at 10.1%, it seems that more stimulus measures, in addition to those already in situ – the US$ 89 billion monthly bond purchases, interest rates at 0% and bank deposit rates of minus 0.4% – will have to be introduced.

A major blow to the bloc is the reported bid by France to call for a halt in the massive Transatlantic Trade and Investment Partnership talks between the US and the EU, with President François Hollande stating there would be no agreement until at least 2017. Even the German Economy Minister, Sigmar Gabriel, indicated that negotiations were effectively doomed. Not surprisingly, EU trade commissioner Cecilia Malmstroem disagreed that negotiations had failed. It will be interesting to see whether a single country – the UK – can come up with a US trade agreement quicker than a single bloc with 28 countries! Undoubtedly, no love is lost between the EU and US trade negotiators and the chances of any worthwhile deal being made are remote – the link between the two parties is no more than a Bridge Over Troubled Water.

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