The Way The Wind Blows

Posted on August 8, 2016 by howesdubai

mark-carneyAccording to ValuStrat’s projections, there are already some indications of a slight firming up in home rents. Median asking rents were 1.3 per cent higher than in Q4-15 and 2.8 per cent over Q1-16. Clearly, some of Dubai’s landlords are confident enough to demand more. Whether they are getting is another matter. (The ValuStrat data is based on a selection of freehold clusters alone).

Tristar Engineering has won a US$ 82 million tender for infrastructure work in the Residential District of Dubai South (formerly known as Dubai World Central), for completion by the end of 2017. Last month, the authority awarded contracts totalling US$ 272 million for various project developments, within the same location.

Nakheel is planning another property in Dragon Mart – a 295-key, 3-star hotel – on a 5.6k sq mt site, with a built up area of 16.9 sq mt. The developer is scheduled to have 10 hotels in the emirate within the next five years.

Already with a presence in Nanaimo, Prince Rupert and Vancouver, DP World has signed a 30+ year lease to run one of Canada’s largest ports -St John in New Brunswick. The Dubai-based operator will start managing the container terminal next year and work with the port authority to manage and expand its operations thereafter.

With more than 90 brands in its portfolio, including Ace and Ikea, Al Futtaim is working with UK agency, Dalziel & Pow to create Homeworks – an upmarket DIY model. Initially, it has plans to open three trial stores in the MENA region.

According to a recent Alpen Capital report, a total of 1.4k new schools will be needed in the UAE within the next four years, as the number of students is set to rise by 19.0% to 15 million. The study indicates that the GCC will require 51k new establishments before 2020, of which 41.7k will be in Saudi Arabia.

Dubai Health Authority’s four main hospitals are seeing more patients, with H1 numbers up to 524k; Dubai Hospital accounted for 38.0% of the total followed by Rashid (33.1%), Latifa (16.6%) and Hatta (12.3%).

A break-up of the 273.5 million journeys made on Dubai’s public transport in H1 – up 0.8% on last year – is as follows:

Metro 96.5
Bus 69.9
Taxis 97.4
Marine 7.1
Tram 2.5
273.5

The RTA network accounts for 15% of Dubai’s total transport requirements, compared to just 6% a decade earlier. It is also considering a feasibility study for Dubai Tram’s phases 2 (Burj Al Arab and MoE) and 3 (Beach Road to 2nd December Street).

Emirates is reportedly planning to raise an 18-month US$ 2.5 billion bridging loan, at 135 points over Libor, to finance up to ten A-380s, for delivery this year. This may be replaced by funding from the European ECA, if it becomes available over this time period, before being converted to a standard 12-year facility.

Novus Aviation Capital has announced the purchase and leaseback of three Boeing 737-900ERs from Indonesia’s PT Lion Mentari Airlines. The Dubai-based private aircraft leasing company, established in 1994, co-owns and manages assets valued at around US$ 3 billion.

The Emirates NBD July manufacturing and services UAE PMI indicated that business activity rose from 53.4 to 55.3, as there were impressive growth in both output (up 3.2 to 62.1) and new orders (up 2.7 to 57.5).

The former head of the Ras Al Khaimah Investment Authority could face further charges relating to a US$ 1.5 billion fraud, after being convicted in absentia for causing “wilful loss to public funds and misfeasance in public office”. Dr Khater Massaad was chief executive of Rakia from 2007 – 2012 and reportedly had other business interests

The DIFC saw the value of cases heard in the Court of First Instance surge 47.6% to US$ 937 million in the first six months of the year. The number of enforcement and arbitration cases rose by 33 to 50 and 6 to 23, as the average claim rose to US$ 8.4 million (from US$ 1.6 million) and fell to US$ 22.3 million (from US$ 36.0 million) respectively.

MAF Group posted a 10.9% hike in H1 revenue to US$ 4.1 billion as its EBITDA (earnings before interest, tax, depreciation and amortisation) rose 5.6% to US$ 518 million. The local conglomerate, with total assets valued at US$ 14.2 billion and a net debt of US$ 2.7 billion, has several divisions including Retail, Properties and Ventures. The former saw both revenue and EBITDA up by 9.0% to US$ 3.4 billion and 2.0% to US$ 159 million; during the period, it opened 11 new stores, bringing its total number of outlets to 160 across 15 countries.

Dubai Investments, which owns over 40 JVs and subsidiaries, reported H1 total income up 18.1% to US$ 373 million, as profits, attributable to shareholders, nudged 2.0% higher to US$ 141 million, At the end of June, the firm’s total assets were valued at US$ 4.3 billion, compared to total liabilities of US$ 1.2 billion.

Dubai International Capital, the international investment arm of Dubai Holding, is reportedly seeking potential buyers for its UK engineering company – Doncasters Group – valued in the region of US$ 2.2 billion. The private equity firm acquired the aerospace parts maker from RBS in a 2006 deal, worth US$ 923 million.

After last week’s acquisition of 9.9% of Aramex, Mohammed Alabbar has led another company, Jaona Investment, to buy a further 6.55% in the Dubai-based courier. It seems that this is part of a strategy to build an extensive regional e-commerce platform. Interestingly, this week, Australia Post (the world’s 4th biggest ecommerce logistics firm after DHL, UP and FedEx) has acquired a 4.5% stake in the courier company for around US$ 100 million.

Having sold his 9.9% holding in Aramex, its founder, Fadi Ghandour, is reportedly launching a US$ 500 million e-commerce venture capital fund. The Wamda Capital II fund will aim for early start up regional tech companies, with average investments of up to US$ 5 million and lower.

Gulf Navigation posted a 43.0% jump in H1 profit to US$ 4 million, as revenue increased by 6.1% to US$ 20 million; Q2 profits were up 40% to US$ 2 million on flat revenue of US$ 10 million. The Dubai-based shipping company still carries net liabilities of US$ 160 million and has accumulated losses of US$ 62 million.

Whilst Etisalat posted a 51.0% surge in Q2 profits to US$ 627 million, the country’s second telco, Du recorded an 11.3% slide in quarterly profits to US$ 121 million, as revenue remained flat, at US$ 836 million.

Emaar Properties posted a 7.6% hike in Q2 net profits to US$ 346 million, as revenue pushed up 6.6% to US$ 1.02 billion. Its shopping malls/hospitality sector and international operations contributed US$ 371 million (36.5%) and US$ 145 million (14.3%) respectively to the turnover figure. H1 revenue at US$ 2.84 billion was 23.0% higher than last year and resulted in a 12.0% increase in profit to US$ 676 million.

The DFM opened on Sunday at 3519 and fell back 1.3% to close the week on 3472 by Thursday (04 August 2016). Volumes, on the last day of trading, were at 171 million shares, valued at US$ 65 million, changing hands, (cf 461 million shares for US$ 156 million, the previous Thursday). Bellwether stock, Emaar Properties, was down US$ 0.03 to US$ 1.84, whilst Arabtec was US$ 0.01 higher at US$ 0.41.

Brent crude arrested its recent downward trend, closing the week US$ 1.59 higher at US$ 44.29 – whilst gold was much higher, up US$ 35 to US$ 1,367 at Thursday’s (04 August 2016) close.

Because of the state of the industry, there was no surprise to see Chevron record a 27.5% fall in Q2 revenue to US$ 29.3 billion, resulting in a net loss of US$ 1.5 billion. In H1, the oil giant had made a US$ 2.2 billion loss, compared to a US$ 3.1 billion profit over the same period in 2015.

Bedevilled by depressed commodity prices, Rio Tinto reported its worst profit figures in 12 years, as H1’s figures fell 46.6% to US$ 1.56 billion. Over the period, the mining giant has slashed spending by 48% to US$ 1.3 billion, sold under-performing assets, maintained capital spending at US$ 4 billion and managed to cut its net debt by 6.5% to US$ 12.9 billion.

In a US$ 35 billion deal, Uber has agreed to merge its Chinese business with its larger local rival, Didi Chuxing. The US firm has failed to make much impact in China since its 2014 launch and has put its annual losses at over US$ 1 billion; this deal sees it holding a 20% stake in the new entity. Also this week, Uber announced a US$ 500 million investment in a global mapping project, as a precursor of the driverless car era. The executive in charge of the project, Brian McClendon, was formerly head of Google Maps.

Having bought the Californian-based navigation software firm Telogis for an undisclosed amount and Yahoo for US$ 4.8 billion, Verizon is planning another acquisition. To further expand its reach in the vehicle tracking sector, the leading US wireless company hopes to conclude a US$ 2.4 billion deal for Fleetmatics Group – a company that saw its Q1 revenue increase by 21.0% to just US$ 79 million!

It is rather surprising to see that, despite the vehicle emission scandal, VW has taken over the top spot mantle from Toyota in H1 vehicle sales. The Japanese carmaker had held its No1 position for the past four years but its 4.99 million unit sales (down 0.6%) was not enough to beat VW’s 5.12 million (up 1.5%). GM’s unit sales fell by 1.2% to 4.76 million – but still good enough to secure 3rd place.

Tesla reported their 13th straight quarterly loss with a Q2 US$ 293 million deficit, as sales reached US$ 1.6 billion. Elon Musk’s electric car company also missed production targets of 17k units by 15.3%, whilst new orders were 67% higher than the same period last year.

Sony posted Q2 profits of US$ 205 million and remains on course to meet its annual target of US$ 775 million.

Alphabet, Google’s parent company, came out with stellar figures a week after Apple posted a disappointing 27.0% fall in Q2 profit to US$ 7.8 billion, on a 14.6% drop in revenue. It reported a 21.0% jump in revenue to US$ 21.5 billion, as its bottom line rose to US$ 6.9 billion.

It seems that new PM, Theresa May, is having second thoughts about the US$ 21.6 billion Hinkley Point nuclear power plant – the most expensive ever built! Just a day before its official launch, the government announced a 3-month delay to further review the details. Whether it is the costs, Chinese involvement (30.5% stakeholder) or the rate (US$ 122 per megawatt hour) agreed to pay the French builder, EDF, there are many that think it is a too high a price to pay.

Last month, it was the previous EU chief getting flak for joining a financial institution. Now it is the turn of the former Bank of England governor, Mervyn King, joining Citigroup as a senior adviser. This is the same man who has, in the past, reportedly described bankers as “incompetent and greedy” and he joins a long list of ex-government technocrats “going to the other side”; Ben Bernanke, the ex-Fed Reserve Chairman is employed by Pacific Investment Management Co and former US Treasury Secretary Timothy Geithner is with Warburg Pincus.

With all the scams and scandals in the industry, the surprising thing is the paucity of corrupt management being prosecuted and sent to jail. This week, three Anglo Irish Bank con men were sentenced to up to 42 months inside for manipulating US$ 8.0 billion in deposits by obvious sham transactions. The subsequent 2009 government bailout cost Irish taxpayers US$ 33.5 billion!

Despite doubling its H1 profits to US$ 3.3 billion, Lloyds expects a slowdown in growth, as interest rates will inevitably fall. Accordingly, it is taking measures to slash this year’s costs by a further US$ 530 million (and US$ 1.85 billion by the end of 2017). In the 4-year period to December 2017, UK’s largest bank will have seen its payroll reduced by 12k and the number of branches by 400.

Last week, major US banks and Deutsche had disappointing Q2 results – this week it is the turn of Barclays, as H1 profits tumbled 21.0% to US$ 2.7 billion. The bank is still paying the price for its past misdeeds and took a further US$ 530 million provision for costs associated with the Payment Protection Insurance (PPI) scandal.

HSBC posted a Q2 49.2% fall in pre-tax profit to US$ 3.1 billion, with H1 profit down 28.7% to US$ 9.7 billion; 83.5% of this total emanated from its Asian operations. The bank is also planning a share buy back in the region of US$ 2.5 billion this year. Meanwhile Standard Chartered reported a profit before tax figure of US$ 1 billion.

Barclays and RBS are among the 15 weakest of 51 leading European banks, based on tests by the European Banking Authority measuring how large financial institutions would fare in a major economic crisis. (RBS could still be fined up to US$ 10 billion by US regulators over its role in sales of mortgage bonds before the GFC). There is also real concern about the state of certain banks in countries like Italy and Portugal.

The RBA has cut Australia’s interest rate 25 points to 1.5% – a new record low. With inflation – at a 17-year nadir of just 1.0% – expected to remain at these levels, on the back of margin*      al growth in labour costs and low levels of business spending, this move is an attempt to boost growth.

As expected, Prime Minister Shinzo Abe approved a US$ 132 billion fiscal package to try and reboot the flagging Japanese economy. Three years of Abenomics – including promised structural reforms, a robust monetary policy and enhanced government spending – have failed to increase consumption and stimulate demand in the world’s 3rd largest economy. Whether these moves will meet the government’s aim to raise GDP by a further 1.3% is a moot point.

It seems that in 2010, the IMF defied its own rules by helping in the Greek bailout, despite widespread doubts about the country’s creditworthiness. Although involved in the first two bailouts, this last deal for a third US$ 96 billion rescue package did not include the fund’s participation – but there is mounting European pressure for their involvement again. It remains to be seen whether the fund will cow-tail to European (German) pressure, at the expense of the rest of the world. Under My Thumb

Q2 growth in the eurozone halved to 0.3%, compared to the previous quarter, as inflation rose 1 notch to 0.2% and the unemployment rate remained flat at 10.1%. Uncertainty following the Brexit vote is the reason given for these weak figures but the bloc’s problems have been apparent for a long time, with very little remedial action having been taken.

US Q2 figures disappointed the markets, growing at an annual rate of 1.2% – less than half of analysts’ expectations; Q1 figures were also revised downwards from 1.1% to 0.8%. Business investment lost 9.7% in the quarter, as inventories fell for the first time in five years, by US$ 8.1 billion. Furthermore, the country’s trade deficit widened, month on month, by US$ 2.2 billion to US$ 63.3 billion. However, it was not all bad news as consumer spending showed a major improvement at 4.2%. Nevertheless, the data seems to point to a rate hike later in the year, rather than next month.

Sterling took a tumble, falling at least 1% against other major currencies, when the Bank of England announced the expected reduction in interest rates from 0.50% to a record low of 0.25% – the first cut in over seven years. To help boost the flagging economy, governor Mark Carney increased BoE’s asset purchases by US$ 79 billion (buying gilts over the next 6 months) to US$ 570 billion and will oversee the buying of US$ 13.1 billion of corporate bonds.

Furthermore a US$ 131 billion Term Funding Scheme will allow high street banks access to cheap funding for both corporate and private consumption. Whether the triple whammy of almost negative interest rates, quantitative easing and further funding will work remains to be seen. Perhaps a weaker pound will help the country over the coming months as the Brexit turmoil continues to maintain economic uncertainty but we will have to wait to see The Way The Wind Blows.

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Long Hot Summer!

Posted on July 31, 2016 by howesdubai

dubai-stepsDubai Municipality is still considering the whereabouts of a new tourist landmark, Dubai Steps – potential locations include Dubai Creek, Dubai Marina and Union Square. The 100 mt, 500-step structure will be unique because it will lead to nowhere.

Following its success with its initial release last month, Dubai Properties launched phase 2 of Bellevue Towers project, located in Business Bay. The 23-storey tower will house 300 apartments and be ready for hand over in 2019.

The IMF notes that the quality of loans to Dubai households has improved, as the ratio of non-performing accounts has fallen from 10.0% to 4.9% over the past three years – a sure indicator that this realty slowdown will not have the same negative impact as occurred after the GFC.

The authority estimated that Dubai’s average residential prices dropped 11% in 2015. Meanwhile JLL has indicated that over the past 18 months prices have fallen 15%, with villa prices in Q2 down 5%. Chestertons’ MENA reported that Q2 villa prices nudged 0.7% higher, whilst ValuStrat indicated a 1.1% decline over the same period.

As usual for Dubai realty, there are a plethora of conflicting reports about the state of the market. Phidar estimate that, quarter on quarter, there were 3.7% and 1.1% falls in apartment and villa prices. The firm expects further declines over the next 18 months, as institutional buyers and occupiers keep out, citing reasons such as the strong greenback and the uncertain economic climate. Land Sterling also reported Q2 falls in apartment prices – but at the much lower rate of 0.4%. On the other hand, Reidin has reported 1% increases in Q2 property values. Seven surveys, seven different findings!

A recent federal government directive sees SMEs, which are members of the Youth Project Development Organisation and owned by Emiratis, no longer requiring a bank guarantee to continue their businesses. The aims of the exercise are to encourage young locals to embrace the competitive knowledge-based economy and support their progress in a slowing economy.

One of Dubai’s lesser known free zones is Dubai Science Park and, as the name suggests, one of its main aims is to foster the growth of the UAE’s science sector. Among the facility’s 300 companies are a mix of SMEs and international companies, many of which will relocate to DSP’s new twin towers, on their completion early next year.

Thumbay Group has announced that it plans a US$ 327 million investment to build 6 hospitals and 12 clinics in various countries including the UAE, Egypt, India, and Qatar. Last month, the Dubai-based company had indicated it would spend US$ 163 million in the UAE on various healthcare and residential projects.

Following claims by the three biggest US carriers – American, Delta and United – that Gulf carriers, including Emirates, received massive government subsidies, it seems that the State Department, having studied the complaints, will take no formal action. The US administration has indicated that it will continue its commitment to the Open Skies policy and noted its economic benefits for the US economy.

Budget airline flydubai is travelling further afield, with news that it plans to fly to Bangkok, as from November. There seems to be a growing trend for such carriers to move away from just their traditional 4-hour or less routes to include longer-haul destinations. More effective and improved aircraft make this jump possible – the new Boeing 737 Next-Generation can now fly 37% further (up to 5.5k km) than older models.

A BMI report estimates that, following a decade of annual 17% asset growth, regional banks are set to see a marked decline to an average of 6%, over the next four years. The main driver is the slump in oil revenues, resulting in governments having to make good fiscal deficits, utilise local banks and reduce their spending.

Having already invested upward of US$ 900 million in Turkey, Dubai-based Abraaj Group has closed its 2014 Abraaj Turkey Fund I, which had raised US$ 486 million. The fund has already made two investments and focuses on mid-sized businesses that rely on domestic consumption, such as healthcare and logistics.

According to a recent study by TopHotelProjects, Dubai and Abu Dhabi have a combined total of 155 hotels projects (with 47.7k rooms) in the pipeline, with a further 28 (6.3k keys) in the other five emirates. Most will be ready for Expo 2020, with 56 and 58 slated for opening in 2017 and 2018 respectively. The top 10 Dubai hotel projects are:

  Keys Due Date
The Address Sky View 712 2016
Wyndham Marina 497 2016
Sky Central 672 2016
Lapita 503 2016
Tryp by Wyndham 672 2017
Royal Atlantis 1,050 2017
Rotana Al Barsha 528 2018
Bespoke 1,400 2018
Paramount 1,250 2018
Oyster Resort 1,748 Delayed
Total 9,032  

DP World reported a 1.2% increase in H1 gross container volumes on a like-for-like basis, handling 31.4 million TEUs (20’ equivalent units). Stronger results from Europe and India made up for “challenging” market conditions in Australia and Latin America, as well as a 6.0% domestic fall, as lower-margin cargo continued its downward trend.

The Dubai Chamber of Commerce and Industry has seen its membership grow 4.3% to 193k in the first half of this year; most of the new 8k members were SMEs. In H1, registered businesses recorded exports and reexports, totalling US$ 37.6 billion, with Saudi Arabia, at US$ 12.0 billion, the leading destination.

Privately owned Dubai-based Pacific Controls is reportedly in discussions with banks, in relation to a US$ 381 million debt restructure plan. The tech company, founded in 2000, is making use of a special mechanism, introduced by the banks, in order to help such companies affected by the likes of slow payments and working capital issues.

After four months of price increases, the Ministry of Energy has announced that Special 95 will drop 8.5% to US$ 0.44 per litre and diesel by 4.9% to US$ 0.48 for the month of August,

It is reported that the Emaar Properties Chairman, Mohammed Alabbar, has acquired 9.9% of Aramex from its founder, Fadi Ghandour, in a deal worth US$ 142 million. Its Q1 profits were up 11.9%, at US$ 26 million, and Q2 by 45.9% to US$ 34 million, compared to the same period in 2015.

Emaar Malls, 85% owned by its parent Emaar Properties, posted a 11.2% hike in Q2 profits to US$ 125 million, as revenue rose 10.3% to US$ 214 million.

Nakheel recorded a 4.0% hike in H1 profit to US$ 804 million, as it has handed over 1.2k residential units YTD. The developer also opened its first hotel, a 251-key property managed by Accor, located by the newly opened Dragon Mart 2.

Etisalat posted impressive Q2 consolidated results, indicating a 51.0% hike in net profit to US$ 627 million, as revenue moved 2.0% higher to US$ 3.62 billion. The telecoms company, with a 163 million-subscriber base, has declared a US$ 0.109 interim dividend.

Dubai Islamic reported a credible 11.1% hike in H1 net profit to US$ 545 million, as revenue jumped 16.9% to US$ 1.15 billion and impairment charges declined; Q2 profits were up 5.2% to US$ 272 million. Both net financing assets and customer deposits expanded by 12.0% to US$ 29.7 billion and 13.6% to US$ 34.1 billion respectively.

The DFM posted a 31.2% slump in H1 net profit to US$ 38 million, with Q2 profit down 59.6% to US$ 15 million. With overheads remaining relatively flat at US$ 13 million, the disappointing figures were the result of a 22.4% slide in revenue to US$ 62 million, of which US$ 50 million was attributable to operating income and the balance from investment returns. Trading value on the bourse in H1 was down 32.8% to US$ 18.9 billion. (The DFM is planning a new location in Business Bay, having received a 10k sq mt plot of land, valued at US$ 63 million, from Dubai Properties).

The DFM opened on Sunday at 3544 and fell back 0.7% to close the week on 3519 by Thursday (28 July 2016). Volumes, on the last day of trading, were at 164 million shares, valued at US$ 86 million, changing hands, (cf 461 million shares for US$ 156 million, the previous Thursday). Bellwether stock, Emaar Properties, was down US$ 0.04 to US$ 1.87, whilst Arabtec fell US$ 0.01 to US$ 0.40.

Brent crude continued its downward trend, closing the week US$ 3.50 down at US$ 42.70 – whilst gold was marginally higher by US$ 1 to US$ 1,332 at Thursday’s (28 July 2016) close.

Saudi Aramco has awarded a consortium, headed by Hydrocarbon Engineering (LTHE), a US$ 1.6 billion contract to develop the second phase of the Hasbah Offshore Gas Field.

BP reported a 44.6% fall in Q2 underlying replacement cost profits to US$ 720 million, as margins slid and oil prices remained low. The company also took another US$ 5.2 billion charge to cover liabilities from the 2010 Deepwater Horizon disaster, with the final bill being US$ 61.6 billion in legal fees, compensation pay-outs and government penalties.

McDonald’s reported a 3.6% fall in revenue to US$ 6.3 billion, whilst Q2 same-store global sales rose 3.1%; however the US increase was only 1.8% (compared to 5.4% the previous quarter). These returns were lower than market expectations, leading to some analysts predicting a further slowdown – and even a sector recession – within the next 12 months. On the bourses, leading fast-food chains – including Wendy’s, Red Robin Gourmet Burgers, Texas Roadhouse Inc and Noodles & Co – have seen worrying dips in share prices.

Troubled Mitsubishi, Japan’s 6th largest carmaker, had a disastrous quarter, as profits sank more than 75% to US$ 44 million, with revenue down 14.0% to US$ 4.1 billion. Nissan fared better recording a US$ 31 million Q2 profit, down 11.0%, as revenue fell 8.5% to US$ 25.0 billion, not helped by the strong yen. On the other hand, Peugeot Citroën more than doubled H1 profit to US$ 1.3 billion despite a fall in revenue and deliveries.

Although Airbus posted a 15.8% hike in H1 profits to US$ 1.96 billion on flat revenue of US$ 32.1 billion, it suffered a US$ 1.56 impairment relating to its gearbox problems with its military A400M model (US$ 1.15 billion) and other problems with the A350.

Malaysia Airlines has placed a US$ 5.5 billion order with Boeing for 50 Boeing Max planes as it continues to overhaul its aging fleet. The airline, taken over by the government following the MH370 incident, expects to return to profitability within three years and be listed on the local bourse thereafter.

Air France/KLM is still making losses; however, there has been an improvement with H1 2016 loss of US$ 125 million better than the US$ 174 million in the same period last year.

Deutsche Bank came in with worrying Q1 figures, as profit fell a disastrous 97.5% from US$ 877 million to US$ 22 million, with revenue falling 20.0%. Although its legal costs fell from US$ 1.32 billion to US$ 132 million, the bank still has to settle four large litigation cases, including forex manipulation and misselling of mortgage-backed securities.

As expected, Verizon Communication has acquired Yahoo, with the US telecoms firm paying US$ 5 billion for its search and advertising businesses. The deal does not include the company’s shareholding in Alibaba and Yahoo Japan, said to be worth in excess of US$ 40 billion. Yahoo posted a US$ 4.4 billion loss last year, when its share value plummeted by 34%; in Q1, it recorded a US$ 99 million deficit. Verizon’s Q2 profits have slumped 83% to US$ 702 million.

For the second quarter in a row the number of iPhones fell – this time by 15% to 40.4 million units in Q2; prior to this, sales of iPhones had never fallen since their 2007 launch. Apple posted a 27.0% drop in quarterly profits to US$ 7.8 billion on the back of a 14.6% fall in revenue to US$ 42.4 billion. As the smartphone accounts for up to 67% of the firm’s turnover – and sale numbers expected to dip over the coming months – profit improvements are not expected in the short term.

As active users rose only 1.0% to 313 million, the market was disappointed with Twitter’s Q2 revenue figure of US$ 602 million, even though it was up 20.0%, compared to the same quarter in 2015. The company seems to be moving to more of a breaking news and live video medium than just a social communication platform.

SABMiller shareholders are holding out for a better offer from brewing giant AB InBev, especially now that the pound has depreciated since Brexit. The previous offer valued the company at US$ 100 billion (£70 billion) which would now be worth US$ 92.4 billion. Now the offer has been upped to US$ 104.3 billion (£79 billion). If the deal were to go through, the new entity would produce almost 30% of the world’s beer.

Despite a major decline in fuel prices, American Airlines saw a 44.0% fall in Q2 profits to US$ 950 million, citing increased payroll costs, lower revenue and taxes, as the main reasons for this turnaround in fortunes. The world’s biggest airline also had a marginal reduction in revenue to US$ 10.32 billion.

The world’s last video cassette recorder will be produced by Funai Electric Co later this month. In 2000, the Japanese electronics made 15 million units, of which 70% were for the US market. Last year, with production down to an uneconomical 750k and the company facing mounting supply problems, the decision to cease production was taken.

Yet again another case of blaming Brexit – a Baker & McKenzie’s Global Transactions Forecast estimates that a disorderly exit from the EU could result in a reduction of US$ 1.2 trillion in mergers and acquisitions. However, the global M&A sector had already fallen 16.0% to US$ 1.5 trillion in H1, prior to the 23 June Brexit vote.

A former close ally of IMF chief Christine Lagarde has appealed a court decision forcing him to repay US$ 441 million; this was the sum that Bernard Tapie, also a confidante to the then-President Nicolas Sarkozy, was paid as compensation for a 1993 case against Credit Lyonnais. As French finance minister in 2008, Ms Lagarde approved this unusually high pay-out and now stands accused of negligence, with a possible (but highly unlikely) jail sentence in the offing.

With lethargic growth continuing, it is highly unlikely that Japan will meet its 2020 nominal GDP target of US$ 5.7 trillion by as much as 10%, with an estimated primary deficit of US$ 874 million. Abenomics is clearly not working for the world’s third largest economy and this despite a huge QE package, record low interest rates and structural reforms. Like the IMF, Prime Minister Shinzo Abe has a tendency to amend growth forecasts on a regular basis – and all downwards. On Wednesday, the government announced yet another stimulus package – this time totalling US$ 266 billion, in an attempt to get the economy moving.

Indicating that near-term risks have diminished, the Federal Reserve did not move on interest rates, maintaining them at record lows of 0.5%. The fact that household spending was higher, as unemployment rates head the other way, seem to be precursors of a hike in September, although inflation at 1.6% is still below the target number of 2.0%.

Much has been written about the shenanigans associated with 1Malaysia Development Bhd. Following US prosecutors alleging that at least US$ 3.5 billion has been misappropriated, 1MBD’s board has said that its 2013 and 2014 audited financial statements should not be relied on; at the same time, Deloitte, its auditors, resigned. The fund is under investigation in several countries, including Luxembourg, Singapore, Switzerland and US, for alleged corruption and money laundering. For Dubai residents and 1MBD stakeholders, it is going to be a Long Hot Summer!

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Where Have All The Flowers Gone – When Will They Ever Learn?

Posted on July 24, 2016 by howesdubai

dubai-safari-parkIt is reported that what would have been the world’s largest hospitality and leisure development in 2007 could be revived. The US$ 27.2 billion Bawadi, a JV between Dubai Holding and Emaar Properties, was shelved as a result of the GFC. At the time, the project would have encompassed 70 million sq ft and included 51 luxury hotels, 6 million sq ft of commercial and retail space, 1.5k restaurants and 18k residential units.

Emaar’s latest launch consists of 147 1-3 bedroom exclusive apartments in Dubai Hills Estate, Mohammed bin Rashid City (MBR). Prices in this Acacia development start at US$ 272 million and the mid-rise tower will be completed by Q4 2018. The estate covers an area of 2.2 million sq mt, equating to about 20% of the landmass of MBR – being built by a Emaar/Meraas Holding JV. On completion, the new city will house 22k apartments and 4.4k villas, along with a boutique mall, two hotels, schools and leisure activities, including a golf course.

Plans are afoot to build the flower-shaped, eco-friendly Desert Rose City to accommodate up to 160k. The US$ 8.2 billion city will encompass 14k hectares, with 50% of the 20k plots allocated for affordable housing units. Dubai Municipality indicated that the city would be largely self-reliant utilising its own resources for communications, energy and transport.

Already with a US$ 817 million property portfolio under development, MAG 5 Property has appointed Fujairah National Construction Company as the main contractor for its US$ 52 million MAG 5 Boulevard project in Dubai South. The project will accommodate 1.2k units, with prices starting at US$ 104k; phase 1 is due for completion by Q4 2018.

Having recently handed over 328 residential units in phase 1 of its Living Legends Community in Dubailand, Tanmiyat Global has released 188 offices at its Exchange Tower in Business Bay.

Dubai Land Department posted that, although the number of H1 real estate transactions rose 22.8% to 28.3k, the total value dropped 12.4% to US$ 30.8 billion; the average transaction fell from US$ 1.53 million to US$ 1.09 million, as the impact of tightening liquidity and tougher mortgage requirements kicked in. Property sales (20k transactions) accounted for US$ 13.3 billion of the total transaction value, with mortgages (6.4k deals) accounting for US$ 13.2 billion.

The latest Luxhabitat report indicated a massive 13% drop in Q2 residential transactions as there was a marginal 0.3% increase in the prime residential sector (including DIFC, Downtown, JBR, Meadows and The Palm).

A triumvirate of Dubai authorities – Land Department, Economic Department and Municipality – is looking closely at the potential of, and the need for, affordable housing in the emirate. The group will analyse factors such as financing (from both sides – the developer and the end user), sector development and stimulation, as well as location.

Dubai South has awarded contracts in excess of US$ 272 million to a raft of companies, specifically for its Residential District adjacent to the Expo site. Eventually this area will house 10k villas / apartments, with a local population of 35k.

The Kuwait-based Action Group is to spend US$ 56 million to build a 220-key, 4-star hotel in Dubai Healthcare City. The property, to be managed by the Accor Hotels’ Novotel brand, is on a 26.3k sq ft plot of land that cost US$ 16 million.

A landfill site at Al Warqa’a has been transformed into a 199-hectare animal safari park, built to replace the outdated Dubai Zoo on Al Wasl Rd. The US$ 272 million facility, housing more than 5k animals, will be open to the public in Q4.

Empower won a US$ 490 million Nakheel contract to provide district cooling to JVC and JVT; the six new cooling plants will eventually provide 260k refrigeration tons for 400 buildings in the two locations.

Less than four weeks after Brexit, a recent local report found that it has had an adverse effect on Dubai’s retail and hotel sector, as average daily room rates fall 13%, year on year. Just like everything else that is heading south in the world, a good time to blame Brexit!

Troubled Arabtec is to receive a US$ 109 million debt facility from Aabar, a major shareholder. The money will be used to ensure expeditious delivery of its current project portfolio, at a time when the payment pipeline in the industry is getting longer, with margins falling.

Embattled Drake & Scull announced that it had been awarded a US$ 62 million contract for engineering, procurement and construction work at Iraq’s Zubair oil field.

In a further bid to diversify the country’s economy away from its dependency on oil, the UAE is planning to expand its manufacturing sector from its current 14% of GDP to 20% over the next five years.

The IMF has adjusted (again) its 2016 MENA growth forecast from 3.1% to 3.4%, as oil prices creep higher, but downgraded next year’s figure from 3.5% to 3.3%. The authority has also recommended that the UAE government should prioritise upgrading the quality of education, facilitating SMEs’ financing access and introducing a modern bankruptcy law.

The Department of Economic Development reported a 34.9% hike in Q2 transactions to 119.6k. Figures, such as increases in new licences (5.6% to 6.4k) and licence renewals (53.2% to 45.3k), indicate that the Dubai economy is weathering the global economic storm.

H1 inflation in Dubai rose to 1.75%, with the usual suspects – education (4.09%), housing (3.91%) and F&B (2.04%) – being the main drivers, whilst transport costs slid by 4.39%.

Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum has launched the Dubai Future Accelerators, focusing on the identification and deployment of futuristic prototypes and products. The ultimate aim of the new initiative is to transform the UAE into a global capital “to explore and create the future”.

June saw the Money Supply aggregate M1 falling 1.6% to US$ 131.0 billion, with decreases in both M2 and M3 by 0.5% to US$ 321.6 billion and US$ 371.8 billion respectively. The UAE Central Bank also reported a 0.5% increase in gross bank assets to US$ 682.9 billion, with gross credit also up 0.8% to US$ 420.5 billion.

Deyaar Development reported a 19.2% fall in H1 profit to US$ 30 million, with Q2 profit falling 30.1% to US$ 16 million, compared to the same period in 2015.

Sister banks posted Q2 figures that were better than market expectations. Emirates NBD reported a 15.8% surge in profits to US$ 520 million (and a 12.0% hike in H1 profits to US$ 1.0 billion), as provisions for bad debts dropped by 30% to US$ 171 million; its non-performing loans ratio has fallen to 6.6%, from a 2012 high of 14.3%. Emirates Islamic Bank more than doubled its quarterly profit to US$ 25 million, as total income rose 11.0% to US$ 335 million.

Mashreq’s H1 net profit decreased 15.4% to US$ 334 million, with a Q2 profit of US$ 147 million, as operating income rose 6.7% to US$ 872 million. The bank’s total assets fell 0.4% to US$ 31.3 billion, whilst loans and advances increased by 2.6% to US$ 16.8 billion; non-performing loans stood at US$ 708 million.

Following two successful US$ 500 million bond issues in 2013 and 2014, Global Securities, a division of MAF Holding, has listed a third for US$ 300 million on Nasdaq Dubai.

The DFM opened on Sunday at 3472 and continued its recent good run, rising 2.1% to close the week on 3544 by Thursday (21 July 2016). Volumes, on the last day of the trading, were at 461 million shares, valued at US$ 156 million, changing hands, (cf 530 million shares for US$ 187 million, the previous Thursday). Bellwether stock, Emaar Properties, was up US$ 0.08 to US$ 1.91, whilst Arabtec remained flat at US$ 0.41.

Brent crude dipped, closing the week US$ 1.17 down at US$ 46.20 – whilst gold was marginally down US$ 1 to US$ 1,331 by the Thursday (21 July 2016) close.

Six years after the Deepwater Horizon drilling disaster in the Gulf of Mexico, it seems that BP’s final bill will come to US$ 61.6 billion in legal fees, compensation pay-outs and government penalties. To help finance some of this total, of which US$ 20 billion went to the US government, the oil company has had to shed US$ 30 billion of its assets.

Houston-based Halliburton posted a US$ 3.2 billion Q2 loss, as revenue came in at US$ 3.8 billion.

EU’s coffers will be US$ 2.9 billion better off, as it has fined four truck manufacturers for price collusion and passing on costs of emissions-reducing technology. DAF, Daimler, Iveco and Volvo/Renault had carried on this illegal practice for 14 years, with the fraud only coming to light when their competitor (and fellow colluder), VW-owned MAN, turned whistle blower – and escaped any punishment.

Despite posting a 4.8% hike in Q2 revenue to US$ 1.3 billion, (with a 50% jump in mobile revenue to US$ 378 million), Yahoo recorded a loss of US$ 440 million for the period. However, it is still trying to divest its core internet business, with interest being shown by Verizon, that recently acquired AOL, and T&T; any deal is expected to raise up to US$ 6 billion. The actual company has a current market value of US$ 35.8 billion.

Another major tech company, IBM, saw Q2 profits sink 27.5% to US$ 2.5 billion, as revenue fell 3.5% to US$ 20.1 billion. Once the leader in the PC market, “Big Blue” has been bypassed by other players and has seen sales slump. A revamp of the business model will see IBM move away from hardware to software, including security, business analytics and security.

Three major US banks reported falling Q2 profits, as the earnings season started in earnest. Bank of America’s earnings fell 19.4% to US$ 3.9 billion, as revenue dipped 7.1% to US$ 20.4 billion. Although its bond business and trading operations revenue rose by 14% to US$ 3.5 billion and 10% to US$ 4.7 billion, Citigroup’s net income fell 14% to US$ 4.0 billion. Meanwhile, Wells Fargo posted a 3.5% fall in quarterly earnings to US$ 5.2 billion.

Last Friday, the market valuation of ARM Holdings was US$ 22.4 billion. On Monday, 18 July, the UK technology firm’s board accepted a bid by Japan’s Softbank, valued at US$ 32 billion – a premium of 43%! Apple and Samsung use the microchips, designed by the Cambridge-based firm that employs 3k, for their smartphones. However, the sale is a major blow to the UK’s technology sector that has seen other major players – including Cambridge Silicon Radio (acquired by Qualcomm) and Autonomy (to HP) – being sold off to overseas interests. Full marks to the Japanese company, that also saved itself 10% because of the fall in sterling, but the new government should be more careful when looking after the country’s crown jewels.

The ECB President, Mario Draghi, seems to be fighting a losing battle as he continues with scant apparent support from the bloc’s governments to spend more. He is fighting fires on several fronts with little success – inflation levels hovering around zero, record low interest rates, double-digit unemployment levels, sluggish growth, an underperforming economy and increasing resentment to the “European Project”. The ECB’s monthly US$ 88 billion QE policy and almost negative interest rates have failed to move static inflation, boost investment, encourage consumer spending or increase the rate of public expenditure. It must be remembered that these problems cannot all be pinned on the current scapegoat – Brexit!

Another company apparently using Brexit as an excuse for its failing is Lowcost Travelgroup. As of last Friday, when the holiday booking company went into administration, it had 110k bookings and 27k customers actually taking their holidays. Other reasons for their failure included the turbulent financial environment, increased terror threats and intense competition. 80% of the total payroll of 570 was based in Poland, with the balance operating from the UK.

Fears of a slowdown in the Chinese economy seem to have been negated with Q2 figures indicating a 6.7% expansion, in line with Q1. The good news was that, with the benefit of government stimulus measures, industrial output and retail sales moved north, although private investment dipped to a record low. Interest rates have been at all-time lows since last October and there has been a surge in public infrastructure projects. But what the economy really needs is a major structural overhaul.

The Department of Economic Development has closed down Exential Group, a DMC company reportedly running a dubious forex trading scheme. Gullible investors were attracted by annual returns of 120% and yet again a duopoly of investors’ greed and ignorance has seen some residents’ fortunes disappear. Where Have All The Flowers Gone – When Will They Ever Learn?

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Living In The Gangsta’s Paradise

Posted on July 20, 2016 by howesdubai

pokemon-go-banWith developers continuing to scale back on completion of launched and often pre-sold projects, the number of new homes handed over in Q2 totalled only 2.8k; industry expectations were that up to 40k residences would be handed over this year – in fact that number will struggle to reach 15k, with only 5k units delivered so far in 2016. Indeed, according to a Cavendish Maxwell report, 71% of units, that were expected to be handed over, have been delayed and a further 12% placed on hold. This tightening of the supply pipeline should negate any further price falls, as demand continues its upward trend.

Figures from the Dubai Land Department indicate that in H1, US$ 13.1 billion, from 21.8k transactions, were invested in the Dubai realty sector. Of that figure, five nationalities accounted for 57.4% of the total – UAE – US$ 3.3 billion, India – US$ 1.6 billion, Saudi Arabia – US$ 995k, UK – US$ 902k and Pakistan – US$ 728k.

Cavendish Maxwell have reported marginal Q2 declines in both Dubai apartment and villa prices, whilst over the past 12 months falls have been at 6% and 4% respectively. Meanwhile rents are showing marginal declines. The sector is still suffering from tight liquidity, consumer confidence and high deposit requirements from the financial institutions.

Core’s latest report sees a general softening in Dubai office rents, as stock levels continue to rise with a further 7.3 million sq ft, being built, adding to the current 90 million sq ft portfolio. In Q2, the property broker estimated that there were price falls of 10% in JLT, 6% along SZR and 3% in Business Bay, although Tecom and DIFC bucked the downward trend with rentals up 10% and 6% respectively.

Yet another Damac launch this week – this time phase 1 of The Beach at Navitas Hotel & Residences, comprising 3-bedroom apartments, with prices starting at US$ 341k. The 5-tower residential and hotel development will be located within the massive 55 million sq ft Akoya Oxygen project and will have all resort type facilities, including artificial beaches.

Al Shafar General Contracting will be the main contractor for the Vivanta by Taj hotel, to be built in JLT. Piling work has already started and completion date is set for Q4 2018.

The 304-key Aloft Dubai City Centre Deira, due to open in Q1 2018, will have an outdoor rooftop VOX Cinema. The property will also utilise Starwood’s keyless entry, allowing clients to use their smartphone for room access. The hotel will be Majid Al Futtaim’s 11th in the country, whilst it will become Starwood’s 26th, with a further 17 in the pipeline.

If Kleindienst, the firm behind Dubai’s The Heart of Europe development, have their way, the company will soon have the region’s first honeymoon destination. It is developing St Petersburg Island, a heart-shaped island, as a 5-star resort especially for newly-weds.

According to the Dubai Statistic Centre, Dubai’s permanent 2015 population was 2.4 million, with this figure boosted by the daily influx of 1.1 million souls, who live in other emirates but work in Dubai.

An agreement between the World Economic Forum, the UAE government and the Dubai Future Foundation will see the 2-day Shaping the Future annual meeting taking place in the emirate in November. The gathering will build on the work of the Global Future Councils.

The Al Naboodah Construction Group is expecting revenue to climb 75% this year, to US$ 954 million, as new management aims to better utilise related company links with its offshoots, including Arcon ready-mix concrete business, National Plant and Equipment and Trans Gulf (MEP).

Four-year old Careem, the local online taxi booking service, plans to spend US$ 100 million on R&D over the next five years. The company, with three million registered users, has already added 50 engineers in Pakistan and will open further centres in Egypt and Germany.

The 2016 Skytrax World Airline Awards saw Emirates voted the best airline in the world, as well as scooping the world’s best inflight entertainment and best regional airline.

Dnata continues on its acquisition trail – this time it has bought a majority shareholding in the UK’s Air Dispatch, with no monetary details available. This subsidiary of Chapman Freeborn Group provides loading services to airports in Prague and Warsaw and has Cathay Pacific, Qantas and Qatar Airways among its client base.

Although ME carriers posted an 11.8% jump in May air passenger numbers, compared to 4.5% the previous year, capacity increased by more – 15.6% (compared to the global average of 5.5%). IATA estimate that 2016 profits for the region’s airlines will rise by 14.2% to US$ 1.6 billion whilst the global increase will be lower at 8.5% to US$ 39.4 billion. (Some airlines must be making losses if Emirates, US$ 2.27 billion, and Qatar Airways Group – US$ 824 million – made such recent impressive profits).

According to Al Ansari Exchange, UAE expats remitted US$ 1.4 billion to their home countries over the last week of the holy month of Ramadan – 20% higher than last year, and three times the daily average. In 2015, the UAE Central Bank estimated that a sum of US$ 23.9 billion was remitted.

Although the June Emirates NBD Economy Tracker Index is marginally up to 54.6, it is still below the 3-year trend. However there were welcome signs of improvement in two main sectors – retail at 58.2 and tourism at 54.1; even the maligned construction segment had a positive reading of 51.5. Despite these rays of sunshine, there was no improvement in employment numbers, in contrast to the past four-year upward trend.

The June Emirates NBD UAE Purchasing Managers’ Index posted a monthly fall from 54.0 to 53.3 that is lower than the 3-year 56.3 average. One contributing factor to the sluggish figures could be attributable to the start of the holy month of Ramadan. However, non-oil private trade continued to improve, as higher output and new orders shored up a marginal improvement in the sector.

UAE’s Q1 direct non-oil trade, at US$ 73.4 billion, was slightly down on the same period in 2015; 40.2% (or US$ 29.5 billion) of the total emanated from Asia, Australia and the Pacific, whilst Saudi Arabia was the leading regional partner. Imports – at US$ 45.3 billion – comprised 61.6% of total trade, with reexports, at US$ 15.4 billion, and exports of US$ 12.7 billion making up the balance. Whilst the country’s trade momentum has been somewhat subdued, the slowdown in global trade is reflected in these figures. (Credit Suisse has predicted a 2.9% growth this year for the country’s non-oil economy, followed by 3.7% in 2017).

With its US$ 500 million Tier 1 Sukuk, Noor Bank’s listing became Nasdaq Dubai’s 11th of the year and brought the total value of Shariah bonds on the exchange to US$ 44.6 billion.

The DFM opened on Sunday at 3371 and regained all the previous week’s losses and more, rising 3.0% to close the week on 3472 by Thursday (14 July 2016). Volumes, on the last day of the trading, were at 530 million shares, valued at US$ 187 million, changing hands, (cf 289 million shares for US$ 116 million, the previous Tuesday). Bellwether stock, Emaar Properties, surged US$ 0.11 to US$ 1.83, whilst Arabtec also moved north by US$ 0.02 to US$ 0.41.

Brent crude recovered somewhat and closed the week US$ 0.97 up at US$ 47.37 – whilst gold headed the other direction – down US$ 30 to US$ 1,332 by the Thursday (14 July 2016) close. (Iran’s oil exports at 2.6 million bpd have almost reached pre-sanction levels).

It came as no surprise to see Which? reporting that several UK banks have been charging customers several times the fees, compared to payday lenders. It seems that for borrowing US$ 130 for 28 days, customers of HSBC, Lloyds, RBS and TSB could be charged between US$ 104 and US$ 117 – four times higher than the maximum charged by a payday loan institution.

It seems that the seven bidders to acquire Tata Steel’s UK operations will now face serious international competition, as the Indian conglomerate has decided to “look at alternative and more sustainable portfolio solutions for the European business”. At least three major players – China’s Hebei Iron & Steel, India’s JSW Steel and ThyssenKrupp AG – could be interested in JV agreements with Tata Steel. There could be several sticking points in relation to the inclusion of its UK business, employing 15k, including resolution of the US$ 950 million British Steel pension fund liability and government assistance with any bailout.

Boeing could lose out on a potential US$ 25 billion order, with the House of Representatives passing a motion to block US aircraft sales to Iran. Any ban would have to be approved by the Senate. In January, Airbus won an Iranair order for 118 units, with Boeing later reaching a similar preliminary agreement.

Mitsubishi Aircraft Corp’s attempt to break the Embraer and Bombardier duopoly in the regional jet sector received another boost with a 20-aircraft order for its 92-seat MRJ90 from leasing company Rockton; this comes after a similar order earlier in the year from Aerolease Aviation LLC.

Meanwhile, Airbus has announced that it will cut the delivery of its A380s form its current annual level of 27 to 12 per annum as from 2018 – a sign of disappointing sales and a shorter than expected life span?

Pokemon’s first foray into mobile gaming hit the jackpot as GO’s runaway triumph saw the company’s shares jump 86%, to gain US$ 17.0 billion in just two days of trading, following its 06 July launch. Since the app, that has been released only in the US Australia and New Zealand to date, is free, Pokemon investors are unlikely to reap the dividends that the game’s success should warrant.

After last week’s Amazon announcement that it was creating 1k jobs, the UK received another fillip on Monday with news of a further 2k new jobs, as a result of a government agreement with Boeing. The deal involves expanding the US planemaker’s UK research operations and the purchase of 9 Boeing P8 maritime patrol aircraft.

Saudi Arabia’s Kingdom Holding has lost US$ 40 million because of the recent fall in sterling. The company agreed to trade its US$ 3.2 billion stake in FRHI Holdings – owner of the Raffles and Fairmont brands – for a 5.8% share in the French hotel group, Accor, US$ 339 million cash and other assets, including a stake in California’s Claremont Hotel and increasing its stake in London’s Savoy to 58.8%.

Three major elections were settled this week. Following his success, Prime Minister Shinzo Abe, Japan has slashed two major forecasts – growth from its January estimate of 1.7% to 0.9% and inflation from 1.2 to 0.4%. With the three arrows of Abenomics – monetary, fiscal and structural – continuing to miss their target, it is inevitable that a further stimulus package (up to US$ 200 billion) will soon be implemented.

The markets initially reacted favourably to news that the incumbent Australian Prime Minister, Malcolm Turnbull, scraped home, a week after the actual election. However, the Conservative leader will face many problems including the distinct possibility of a credit rating cut of the country’s coveted AAA status, declining consumer confidence and a ballooning trade deficit.

Theresa May became the UK’s Second ever Prime Minister and the 13th in the Queen’s 64-year reign. Her first job appeared to be the axing of the Chancellor George Osborne to be replaced by Philip Hammond. The markets seemed to take the ministerial changes in their stride, with Thursday’s closing of sterling at 1.32 to the US$, FTSE 100 at 6662 and FTSE 250 at 16775.

Following May’s blip, when only 11k new jobs were created, normality returned to the US economy with June figures coming in at a healthy 287k. The jobless rate – measured by the number of unemployed actually looking for work – rose 2 notches to 4.9%, whilst the monthly wage growth was a disappointing 0.1% (2.6% year on year). If there is further encouraging economic data in the coming weeks, a Fed rate hike could be on the cards for September.

Now that a revision has been made to the level of its capital assets, brought about by the number of aircraft imported by leasing companies and other reclassifications, Ireland has amended last year’s impressive 7.8% growth to a spectacular 26.3%. The country’s economy has been bolstered by the fact that it is the home of many overseas companies, redomiciling there for favourable tax reasons.

The IMF has revised forecasts for the Italian economy in the wake of the Brexit vote – to under 1% this year (from 1.1%) and 1% in 2017 – down from 1.25%. Other analysts indicate even lower growth for the Eurozone’s third biggest economy. In the unlikely event that the country fully implemented all recent reforms, it would probably only reach its 2008 peak after a further decade; this compares to other eurozone countries that would be 25% higher by 2025. Italy’s cause will not be helped by high unemployment level, bank debts totalling US$ 398 billion and a rising public debt, currently at 132.9% of GDP – with only Greece in a worse state.

The EU has been beset with internal problems largely of their own making – structural weaknesses, high unemployment and soaring debt levels. Nevertheless the EU has been looking for some excuse to explain its miserable economic performance over the past few months and has been handed one on a plate – the UK Brexit.

Now this is one of the main factors behind the IMF’s decision to cut its 2017 growth forecast for the bloc from 1.7% to 1.4%, with 2016 marginally down to 1.6%. Others include political and economic uncertainty, market volatility and falling investor confidence. (The IMF has a past record of consistently changing forecasts downwards on a regular basis).

A bigger worry to the EU has to be the state of its banking system; for example, Italy may need external assistance as its financial institutions are awash with bad loans. However, the IMF’s main concern is Deutsche Bank which it considers the biggest single risk to the global financial system of the world’s top 29 banks. If that were to suffer, then expect carnage in the markets.

A US Congressional report seems to confirm what many already know – big banks have too much sway with governments. It seems that although HSBC was accused, in 2012, of money laundering for drug cartels – and subsequently paid US$ 1.9 billion in settlement – it never faced criminal charges nor saw any of its top officials prosecuted. The report alleges that the UK government “influenced” the outcome and “hampered” the probe with Chancellor George Osborne “intervened in the HSBC matter by sending a letter to Federal Reserve Chairman Ben Bernanke… to express the UK’s concerns regarding US enforcement actions against British banks”.

Although not the only entity, Goldman Sachs has a history of apparent collaboration with global governments and institutions. In 2009, it is reported that the bank received US$ 20 billion in bailouts, payments and backstops under the Obama administration – that year it paid out US$ 16.2 billion in bonuses. Interestingly, the likes of Robert Rubin (Treasury Secretary in the Clinton administration), Henry Paulson (Treasury Secretary – Obama) and Mark Patterson (Chief of Staff Treasury) were three of many who had previously held important positions In Goldman Sachs – as Co Chairman, CEO and lobbyist respectively.

Governor of the Bank of England, Mark Carney, spent 13 years with the bank in various countries. President of the ECB, Mario Draghi, is not only a member of the lobbyist Group of Thirty but also worked for Goldman Sachs from 2002 – 2005. Even Prime Minister, Malcolm Turnbull, was MD Australia and partner in the bank for four years to 2001.

The latest episode sees the former head of the EC, Portugal’s Jose Manuel Barroso, taking up a job advising the US bank on the consequences of Brexit – this comes 20 months after he stepped down from his presidency. There is something called conflict of interest or is it that some of out politicians, bureaucrats, fat cats and financiers are benefitting, at our expense, Living In The Gangsta’s Paradise?

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The Great Pretender!

Posted on July 9, 2016 by howesdubai

tony-blairReidin’s latest report shows marginal May increases for both Dubai apartment and villa prices – but 5.2% and 6.0% down year on year. Meanwhile rents for both apartments (3.0%) and villas (6.4%) fell over the year whilst May saw a 0.47% increase, as villa rents edged downwards by 0.53%.

Damac has launched the first phase of Akoya Imagine – 3-bedroom villas, with prices starting at US$ 327k. Located adjacent to the Tiger Woods-designed golf course, the units will go on sale this Saturday (09 July), with options to spread payments over three years and no service charges for five years.

Greek company Consolidated Contractors Company has reportedly won a US$ 136 million contract to build the 70-storey residential Opera grand Tower in Downtown. The project, the first of 8 towers in that location, will have a large public plaza and amphitheatre.

Next month sees the opening of Dubai Opera House and although there is much work to be carried out before then, the developer is confident that all will be ready for the Plácido Domingo opening on 31 August.

IMG Worlds of Adventure, due to open the world’s largest indoor theme park next month, has awarded a 15-month MEP (mechanical, electrical and plumbing) contract to locally-based Farnek. The developers have also given DEI a three-year contract to be its exclusive souvenir-imaging provider.

As expected, passenger traffic at Dubai International continued to break records, with a 7.2% surge to 6.7 million passengers during May, bringing the YTD total to 34.6 million – up 7.0% on the first five months of 2015. Three countries – India (990k), Saudi Arabia (549k) and UK (435k) – accounted for 29.4% of passenger numbers. Freight volumes edged higher – 4.7% up in May to 217k tonnes and 3.9% higher YTD, to 1.056k tonnes.

Dubai International is not only the world’s busiest international facility, it has also been confirmed as the world’s 3rd busiest airport according to Airports Council International. With 78 million passengers, it is still some way off Atlanta-Hartsfield-Jackson’s 101 million and Beijing, with 90 million.

Having resigned from his position as chief executive of Emaar properties in April, Abdullah Bin Lahej has been appointed to a similar role with Dubai Properties Group, a unit of Dubai Holding. He replaces Abdul Latif Al Mulla who had been in that role since August 2015 and left to “pursue other ventures”.

Mashreq and Arady Properties have launched the country’s initial Qualified Investor Real Estate Fund. With equity of US$ 300 million – and a maximum 50 investors – the Shariah-compliant entity, with a 6-year life, will source assets with strong potential yields.

The Dubai Gold and Commodities Exchange posted a record H1, with trading volumes up 409.6% to exceed 9.5 million contracts and on 24 June posted a daily record of 151k contracts, valued at US$ 3.55 billion. One of the better performing sectors was precious metals, with a 104% growth to 423k contracts.

Abu Dhabi-based Menacorp Financial Services has been ranked the country’s leading brokerage firm – out of 49 – for H1, in terms of trade value and market share.

The DFM opened on Sunday at 3311 and regained all the previous week’s losses, rising 1.8% to close the shortened week on 3371 by Tuesday (05 July 2016). Volumes on the last day of trading before the Eid Al Fitr holiday were at 289 million shares, valued at US$ 116 million, changing hands, (cf 134 million shares for US$ 65 million, the previous Thursday). Bellwether stock, Emaar Properties, rose US$ 0.03 to US$ 1.72, whilst Arabtec also moved north by US$ 0.02 to US$ 0.39.

Brent crude sank on the back of increased production in Nigeria and closed the week US$ 3.31 down at US$ 46.40 – whilst gold, as expected in times of uncertainty, headed the other way – up US$ 42 to US$ 1,362 by the Thursday (07 July 2016) close.

As part of a JV breakup between Shell and Aramco, the Anglo/Dutch petro giant is asking for US$ 2 billion as compensation for the Saudi company to retain a larger share. If the agreement proceeds, Aramco will take over control of Motiva’s largest US refinery in Texas and retain 26 distribution terminals with Shell becoming sole owner of two refineries in Louisiana and Shell-branded gas stations in some eastern US states. The JV will continue a 50:50 split in a Japanese refining facility and Saudi Aramco Shell Refinery Co in Jubail.

Oracle has paid a US$ 3.0 billion penalty for reneging on a software agreement with Hewlett Packard Enterprise. The case, centring on making software that ran on high-end titanium chips, was settled in 2012 but it has taken more than three years to resolve the monetary payout. Last month, the Californian-based computer technology giant lost another case, when seeking damages of US$ 9 billion from Google.

UBS has been directed by Swiss authorities to provide clients’ bank details to French tax officials. Other countries are expected to follow suit following information received from German investigators and shared with other countries. This comes as a major blow not only to UBS but also to the Swiss banking sector, the world’s biggest offshore financial centre, with overseas assets topping US$ 2 trillion.

Four Barclay city traders received prison terms this week for their role in the Libor-rigging scandal and this success was a welcome respite for the Serious Fraud Office that had seen five others acquitted earlier in the year. There are probably hundreds of others who should have been locked up for participating in the scam that negatively affected so many households and companies. Senior management appear to have fallen under the radar and escaped scot free as more junior staff have taken the brunt.

With the expansion of its express delivery service, Prime Now, Amazon will create 1k new jobs in the UK, in addition to the 2.5k already recruited earlier in the year. Amazon itself has 15.5k employees in the country and supports further 74k jobs, via Amazon Marketplace.

Another multinational has fallen foul of the ever-increasing moves to stop cross border tax deals in the EU. This time, Proctor & Gamble is being investigated for the possibility of using Swiss units to avoid Italian taxes. P&G follow the likes of Amazon, Apple and Google who have been under the scrutiny of the EU or national tax authorities, including Italy, for similar actions.

One casualty of the Brexit vote could be the planned merger between the London Stock Exchange and the Deutsche Boerse. A US$ 20 billion deal was agreed earlier in the year and, although shareholder agreement is almost certain, it may not meet regulatory approval; the German authorities will not like the fact that London will be the HQ for the new entity.

To placate certain sectors of the EU bloc, the EC has granted both Spain and Portugal extra time to remedy their deficits (5.1% and 4.4% respectively) so as to avoid fiscal sanctions. Both countries are in breach of the EU’s rules that public deficits should be maintained at less than 3% of GDP. In the current climate of the UK voting to leave and growing continental discontent, high unemployment and sluggish growth for anti-EU parties, it seems highly unlikely that sanctions will be applied.

With just US$ 200 million in its operating account, and total debts of US$ 70 billion, the government of Puerto Rico has defaulted on a debt of US$ 779 million. President Obama has indicated that a US federal agency would oversee a debt-restructuring program and there would be no litigation arising on existing debts.

After a disappointing raft of Q1 economic data in the US, factory activity, which accounts for 12% of the GDP, is picking up as the national index rose from 51.3 to 53.2 in June, with ISM new factory orders index and order backlog index also climbing to 57.0 (from 55.7) and 52.5 (from 47.0) respectively; any reading above 50 indicates expansion. On the flip side, the revised April construction spending saw a 2.0% fall, followed by a 0.8% drop in May.

In line with the rest of the world, the Australian dairy industry is struggling with further price cuts expected this year with minor improvements in 2017. The global oversupply has meant the closure of many dairy farms as margins dip with many unable to scale back on costs.

The US and the UK are not the only democracies in some disarray – Australia is still searching for a government, a week after the election saw both main parties, with 76 seats each, needing minority support to form an administration. Ratings agencies have warned officials that a hung parliament may result in delays in much needed legislation and could see the country, with a credible 3.1% annual growth, lose its coveted AAA rating. Next month will probably see a rate cut to 1.5% despite weak domestic inflation.

Even before the Brexit referendum, the UK construction industry, which accounts for 6% of the country’s economy, was in trouble, as the sector’s June PMI (Purchasing Managers’ Index) plunged to 46.0 – its worst contraction since the GFC. Hardest hit were house building and commercial, with civil engineering remaining flat.

Despite intimating that taxes would have to go up in the event of a Brexit vote to leave the EU, Chancellor George Osborne has floated plans to slash corporation tax from 20% to 15%. Its aims are to entice existing companies to remain in the UK and overseas entities to move to the country, with a competitive tax threshold.

The Chancellor is not the only one to have a change of view following the Brexit vote. IMF chief, Christine Lagarde, now has an optimistic view that could result in the EU deepening their economic integration, despite disenchantment with the EU institution. She admitted that although there is uncertainty in world markets, a global recession is unlikely and that she remained positive.

Former Prime Minister, Tony Blair, was strongly criticised in this week’s Chilcot Report for joining the US-led Iraq invasion without a satisfactory legal basis or proper planning. Teflon Tony, in a two-hour egomaniacal ramble, pleaded for exoneration, claiming that he had acted in good faith and believed that it was better to remove Saddam Hussein from power. The Great Pretender!

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Mr Know It All!

Posted on July 7, 2016 by howesdubai

panguna-pngHH Sheikh Mohammed bin Rashid Al Maktoum has approved the 2030 Dubai Industrial Strategy, with the aim of generating a further US$ 44 billion to the emirate’s GDP. Its focus will be on six sectors – aerospace, aluminum, equipment, food and beverages, maritime and pharmaceuticals.

Emaar has awarded a US$ 272 million contract to Trojan General Contracting to build 1.4k Mira Oasis townhouses in the 2nd phase of its massive Reem project. Located adjacent to Arabian Ranches, the development is spread over three phases, due for staggered completion dates – December 2017, September 2018 and December 2018.

Jumeirah Golf Estates has sold all phase 1 of its Redwood Park project, due to be handed over in Q4. Prices for the 3-4 bedroom townhouses – overlooking the Fire golf course – start at US$ 681k.

Despite the reported slowdown in the Dubai realty sector, Damac has announced that is has already awarded 25 contracts, valued at US$ 817 million, in the first six months of the year. Its main contract has been for the construction of 2.7k villas in Akoya Oxygen. Currently, the developer has 31k residential units and 13k hotel rooms in various stages, from planning to work in progress.

The emirate’s hotel room portfolio, totalling 82.8 keys, had further stock added this week with the opening of the 356-room W Dubai – Al Habtoor City. This follows the introduction of The St Regis Dubai late last year, in the same location on the banks of the new Dubai Canal. The operator’s third property, Westin Dubai – Al Habtoor City, with 1k rooms, will open in Q3. (It is estimated that this year alone, Dubai will see an extra 10k rooms added to stock – and this after only 621 keys were added in Q1).

Nepalese CG Hotels and Resorts plan to build their first regional hotel in JLT – a 200-room luxury property. The company currently operates 100 hotels, with 4.4k keys, in 12 countries – a number that it plans to double by 2020.

It is estimated that 2015 activities at the Dubai World Trade Centre contributed US$ 3.3 billion to the emirate’s economy, equivalent to 3.1% of GDP. With an additional 15.5k sq mt extension last year, the venue has increased its capacity to 122k sq mt and hosted 2.7 million visitors at 396 trade exhibitions and conferences; of the 2.6 million who attended the 104 large-scale events, 42.3% were from overseas – providing a much needed boost to the hospitality, airline and retail sectors. (The same sectors would have also benefitted from the one million visitors who have flooded into Dubai during the holy month of Ramadan).

There will be slight price increases in July for petrol and diesel for the 4th consecutive month. The Ministry of Energy has announced a US$ 0.054 (1.1%) increase in Super 98 to US$ 0.51, whilst diesel jumps 4.5% to US$ 0.50 per litre

Expolink Consortium, led by Alstom, and including the Spanish company Acciona and Gulermak from Turkey, has won a US$ 2.9 billion contract to expand the metro’s Red Line by 15 km to take in the 2020 Expo site. The project, due for completion by Q4 2019, also includes the supply of 50 trains, with 7 new stations, and is expected to service 125k passengers daily.

The RTA is also planning a US$ 1.1 billion investment in upgrading the city’s road infrastructure and will reportedly issue tenders in the coming months. It would seem inevitable that there will be increases in charges, such as licence fees, salik and parking, to help fund such massive transport undertakings.

DEWA has awarded a Masdar-led consortium to build the 800-megawatt 3rd phase of the Sheikh Mohammed bin Rashid Al Maktoum Solar Park, to be completed by 2020. The total US$ 13.6 billion project, due for completion by 2030, will eventually produce 5k MW.

The amount of money the government pours into Dubai’s infrastructure can be seen from the fact it accounts for 35% of its budget expenditure – compared to the US total of 8%, UK’s 3% and Saudi Arabia’s 3%. In the same Unitas Consultancy’s report, it is estimated that there has been a 16.3 times increase in the value of Dubai’s freehold housing market to US$ 132.2 billion, over the past ten years.

The Investment Corporation of Dubai posted a 3.5% fall in profit to US$ 2.4 billion, mainly because of the collapse in energy prices, as that revenue sector fell 30.2% to US$ 13.5 billion. Nevertheless, the state-owned entity, with major stakes in local high profile companies – including Emaar, Emirates, Emirates NBD and Flydubai (transferred in last August) – increased its distribution to the government by 247% to US$ 1.9 billion.

Over the past 12 years, the government’s smart initiatives have resulted in direct cuts of US$ 1.2 billion. It has been independently calculated that there have been savings of US$ 5.6 for every US$ 1.0 spent under the Smart Government Dubai strategy.

Following similar developments in India and Malta, Dubai Holding is set to roll out its Smart City concept in Nigeria, following an agreement signed with the state of Lagos. This new African set up will be run on the same lines as Kochi Smart City in Kerala, expected to create 90k jobs by 2020, which includes 6.5 million sq ft dedicated for information technology and knowledge services.

The local healthcare group, DM Aster Healthcare, started in Dubai by Dr Azad Moopen as a single surgery, has filed papers with the Securities and Exchange Board of India for a possible IPO on the Mumbai bourse. The company, which now runs several hospitals, clinics and pharmacies and employs 1k doctors, will use the funds for future expansion plans in this booming sector.

It is reported that Emirates has appointed Christoph Mueller as its CTO (chief transformation officer), in charge of digitisation. The German was CEO with Aer Lingus from 2009 – 2015 and currently holds the same position with Malaysia Airlines.

Dubai-based RKN Global has pulled out of building a planned US$ 98 million factory in Slovakia, citing local opposition hostility and EU political uncertainty, mainly arising from the recent Brexit referendum. The facility would have manufactured ID and e-cards and provided employment opportunities for up to 1.4k in an area where unemployment tops 14%.

With a 70-year history in Dubai, HSBC has confirmed the transfer of its Middle East subsidiary (HBME) from Jersey to the DIFC that will see the transfer of US$ 40 billion in assets. The new addition will be housed in the bank’s 20-storey tower, being built in Downtown, that will also house all the bank’s 4k local employees when opened in 2018.

Yet another major bank – following the likes of SCB and HSBC – is planning to move its HQ to Downtown. Mashreq has awarded a contract to Arabian Construction Company to build a 151mt tower, which will be completed within three years.

DIB, the emirate’s biggest Sharia-compliant bank, reported that its US$ 272 million recent rights issue was more than three times oversubscribed. Consequently, the bank’s updated share capital has increased to US$ 1.35 billion, with the new cash being used for expansion purposes and to meet the more stringent regulatory requirements.

On Tuesday, shareholders of Dubai Parks & Resorts voted to change the company’s name to DXB Entertainments ahead of its planned October opening of three theme parks – Bollywood, Motiongate, and Legoland, along with a Legoland Water Park. The park operator also has an exclusive contract with the US-based Six Flags and is to open a park in the same location by 2019. (Notwithstanding this agreement, and following a directive from HH Sheikh Mohammed bin Rashid Al Maktoum, the company has agreed to provide all support if Six Flags were to set up in Saudi Arabia).

Nasdaq Dubai, the largest global exchange of its kind, now has Islamic bond listings totalling US$ 43 billion, following DP World’s latest US$ 1.2 billion sukuk.

The DFM opened on Sunday at 3368 and shed most of the previous week’s gains, falling 1.7% in ever so thin trading to close on 3311 by Thursday (30 June 2016). Trading volumes on Thursday were at 134 million shares, valued at US$ 65 million, changing hands, (cf 153 million shares for US$ 55 million, the previous Thursday). Bellwether stock, Emaar Properties, was down US$ 0.05 to US$ 1.69, whilst Arabtec dropped US$ 0.01 to US$ 0.37. YTD both shares showed rises of 8.96% and 8.80%, as the DFM rose by 5.08%.

Brent crude fell back – shedding US$ 0.40 to US$ 49.71 – whilst gold recovered – up US$ 22 to US$ 1,320 by the Thursday (30 June 2016) close. Evidently, the Brexit referendum, seeing the possibility of the UK pulling out of the EU, had little effect on these commodities.

The Abu Dhabi government has announced that it is considering a US$ 135 billion tie up between its investment fund, Mubadala International, and International Petroleum Investment Company. The former is responsible for investments that will add value to Abu Dhabi’s economy, whilst IPIC’s role is to make investments in the energy sector; it already owns Spain’s Cepsa and Canada’s NOVA Chemicals and is currently in dispute with Malaysia’s SWF, 1MDB, over a US$ 6.5 billion debt. Having made profits of US$ US$ 1.5 billion and US$ 2.2 billion in the preceding two years, IPIC posted a 2015 loss of US$ 2.7 billion, citing low energy prices, write-downs and difficult market conditions for the reversal in fortunes.

It is reported that VW has come to a final settlement, totalling US$ 14.7 billion, arising from its fraudulent emission tests in the US. The disgraced German carmaker has set aside US$ 10 billion to repair or buy back the 475k affected vehicles and pay compensation to owners of up to US$ 10k. A further US$ 2.7 billion will be set aside to offset excess diesel emissions and US$ 2 billion for research. VW posted a US$ 7.3 billion provision in its 2015 accounts but the final figure could be in excess of US$ 40 billion when a potential US$ 20 billion penalty for Clean Air Act violations is considered.

Another carmaker with problems is Toyota that has announced a 3.4 million-vehicle (half of which are 2008-2012 hybrid Prius and Lexus CT200h models) recall owing to faulty airbags and/or fuel emission controls.

In a moribund environment that has seen no technology IPO, of more than US$ 150 million in 2016, the news from Tokyo is welcome. Japan’s number 1 mobile-messaging service, Line Corp, plans a US$ 1.1 billion IPO later in the year and to use the funds to target both the local and US markets. The company had hoped to carry out this exercise two years ago and the delay may have seen its value drop by US$ 3 billion, as competition from the likes of Tencent Holdings and Facebook has eroded their share in the Japanese market. The IPO puts the market cap of Line at US$ 6.6 billion, compared to US$ 10 billion in 2014, although it made a loss of US$ 75 million on revenue of US$ 1.2 billion.

In what would result in the world’s largest confectionary company, with 18% of the market, Mondelez has offered US$ 23 billion for Hershey, currently the second biggest behind Mars which controls 13.3% of the sector. The main shareholder, the Hershey Trust – a US$ 12 billion charity – has rejected the initial bid.

Airbnb is currently sourcing finance for future domestic and international expansion plans, following which the San Francisco-based company could be worth in excess of US$ 30 billion, having tripled its value over the past two years; this includes a sevenfold increase from Chinese travellers.

As happened last year, both US operations of Deutsche Bank and Santander have again failed the Federal Reserve’s annual stress test, with all other 31 banks tested passing; however Morgan Stanley only received approval on condition that it submitted an updated capital plan later in the year. The tests are used to see whether financial institutions could keep operating in the event of a severe economic crisis, such as occurred in 2008.

Rio Tinto has transferred its 54% stake in Bougainville Copper to an independent trustee, some 27 years after the Panguna mine closed due to civil unrest. What makes this a surprising move is that in its 2014 annual report, the world’s second biggest miner reported the mine’s reserves at 19.3 million oz of gold and 5.3 million metric tonnes of copper – which would be valued today at US$ 51 billion! There were many reasons for the civil war that closed the mine, including a growing support for secession from the mainland and a belief that the PNG government was receiving a disproportionately large share of benefits from the mine.

With a Q1 revision, the US economy grew faster than initially reported – from 0.8% to 1.1% – on the back of stronger exports; on the flip side, consumer spending was adjusted down to 1.5%. Q2 growth is expected to come in at the higher rate of 2.4% but later in the year, the figures could be affected by the recent Brexit vote.

By and large, it has been a good 2016 to date for the global economy if figures below are anything to go by. 13 of the 16 indicators point north, with the biggest half yearly gains being Brent (36.57%), silver (34.80%), gold (24.53%) and the rouble (14.71). Sterling’s problems began well before Brexit and can be seen from the latest current account deficit figures whilst the other big loser CSI300 is returning to its pre-bubble level.

The FTSE 100 is 4.20% higher YTD but it is its performance since the referendum that needs noting – up 3.9% – on the back of the fact that most of the companies on this bourse have large non-sterling revenue streams. A better barometer on the health of UK businesses is the FTSE 250 where the improvement has been slower and although 1.7% higher at 16,271, it is still 6.1% lower than its 22 June reading of 17,333.

H1
% Unit 30 Jun 22 Jun Mar 16 Dec 15 Sep 15 Jun 15 Dec 14
24.53% Gold US$ oz 1,320 1,276 1,242 1,060 1,114 1,174 1,186
12.77% Iron Ore US$ lb 53 52 55 47 57 62 73
36.57% Oil – Brent US$ barrel 49.71 50.05 37.52 36.40 48.70 63.05 57.33
17.74% Coffee US$ lb 146 143 128 124 121 131 161
1.56% Cotton US$ lb 65 65 58 64 60 68 62
34.80% Silver US$ oz 18.63 17.38 15.45 13.82 14.57 15.68 15.77
1.40% Copper US$ lb 2.17 2.17 2.18 2.14 2.38 2.62 2.88
1.37% AUD US$   0.74 0.75 0.77 0.73 0.71 0.77 0.81
-10.81% GBP US$   1.32 1.48 1.44 1.48 1.52 1.57 1.53
1.83% Euro US$   1.11 1.14 1.14 1.09 1.11 1.11 1.21
14.71% Rouble US$   0.16 0.15 0.14 0.14 0.15 0.18 0.17
4.20% FTSE 100     6,504 6,262 6,175 6,242 6,061 6,521 6,548
-15.47% CSI300     3,154 3,134 3,214 3,731 3,195 4,409 3,532
2.69% S&P 500     2,099 2,085 2,060 2,044 1,887 2,063 2,091
5.08% DFMI     3,311 3,376 3,356 3,151 3,593 4,087 3,774
-0.65% ASX AllOrd     5,310 5,350 5,083 5,345 5,021 5,451 5,415

The market has not been helped by the fact that the two main parties in the UK – Conservatives and Labour – are facing leadership races with current incumbents, David Cameron and Jeremy Corbyn, little more than dead ducks. The process could take up to three months, during which time a lot of dirty washing will be hung out. Democracy at work is sometimes not a pretty sight!

It seems that, in Luxemburg, whistle-blowers are hung out to dry, as two former PwC employees have been found guilty in the so-called Luxleaks tax scandal. The huge exposé of favourable corporate tax deals that many companies – including Apple, Ikea and Pepsi – had with the duchy occurred when the current President of the EU, Jean Claude Juncker was Prime Minister. An apparent case of the poacher now turning gamekeeper!

Just as the eurozone moved out of negative territory – up a marginal 0.1% – it seems that the Brexit vote will see the bloc return to deflation. This seems to be a poor return for the huge ECB stimulus programme that has failed to jump-start the sluggish economy. It will be some time before the ECB attains its target of 2% inflation, despite introducing negative interest rates and acquiring corporate bonds – a programme that could be seen to favour the corporate heavyweights. The fragile state of the economy was reflected by its credit rating being cut from AA+ to AA.

Meanwhile the UK’s credit rating was cut two notches from AAA, as a direct consequence of the Brexit vote that also pushed sterling to its lowest level against the greenback in over 30 years, closing Thursday at US$ 1.32. The UK’s current account deficit topped a record high US$ 43.4 billion in Q1, as the economy grew 0.4%. Three of George Osborne’s main aims have been to remain in the EU, to protect the country’s AAA rating and cut back the deficit. Not a good week for Mr Know It All!

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Rockin’ All Over The World!

Posted on June 27, 2016 by howesdubai

cameron-brexitHaving launched its Living Legends project in Dubailand in 2006, Saudi developer, Tanmiyat, has announced that 184 villas and the first of 12 proposed tower blocks have been handed over – six years behind schedule. A second phase, in the 15 million sq ft development, will be handed over by Q4 2016, with overall construction completed within 18 months.

With the aim of building “more affordable” homes, Jumeirah Golf Estates has awarded a contract to Dubai’s Sumer Contracting Company to construct 674 apartments (with prices starting at US$ 163k) and 54 townhouses. Building work is expected to start this month with completion expected in 2018.

Decision No (8) of 2016, by HH Sheikh Mohammad Bin Rashid Al Maktoum, sees royal approval, allowing foreign ownership of three new plots in Dubai World Central. Consequently, non-UAE nationals can now claim rights to absolute ownership in these specified locations, close to both the new international airport and the 2020 Expo site.

Dubai Municipality is planning a US$ 545 million investment that will see 2k metric tonnes of solid waste converted to produce 60 MW every day by 2020. The facility, which will be the largest of its kind in ME, will also form part of the strategy that sets to reduce landfill by 75% within five years.

Al Futtaim Retail has signed an agreement with French fashion chain, ba&sh, that will see ten outlets opening over the next three years, with the first shop opening in City Walk, by the end of the year. Meanwhile, the Dubai-based operator has announced that its Carrefour franchise will be the anchor store in Abu Dhabi’s US$ 1 billion Reem Island development.

This week saw the arrival of the 80th Airbus 380 to the Emirates fleet, with a further 62 in the pipeline, 21 of which are due for delivery this year. Consequently, the airline is set to recruit more than 700 pilots this year (to add to its current figure of 3.9k) to meet not only its A380 expansion but also its massive Boeing 777 fleet.

Hong Kong is now the world’s most expensive city for expats, as it take over the reins from Luanda followed by Zurich, Singapore, Tokyo and Kinshasa. The latest Mercer report, covering 209 locations, has different conclusions than a recent Economist Intelligence Unit study which places Singapore, Zurich, Hong Kong, Geneva and Paris in their top 5 pricy cities. Dubai has moved up the Mercer ladder two places to 23rd.

Adeptio, the local investment group headed by Mohamed Alabbar, has finally reached an agreement with the Kuwaiti Kharafi family to acquire a majority 69% stake in Kuwait Food Co (Americana), owner of the ME franchises for KFC and Pizza Hut. The deal, worth US$ 2.4 billion, sees Adeptio buy all Al Khair’s Americana shares for US$ 8.82 each – a 26% premium; US$ 1.5 billion of the financing will be via a bridging loan.

With nearly 220k limited liability companies in the country, it was no surprise that a one-year extension has been granted for companies to comply with the requirements of Federal Law No 2 of 2015 on Commercial Companies. Businesses were originally given a one year grace period – to 30 June 2016 – to amend their Memorandum of Association and Articles of Association, which has now been extended to 30 June 2017.

Having a UAE property backlog of US$ 7.7 billion, and 13k units in the development stage, it is little wonder that Moody’s has upgraded Emaar Properties’ credit rating to Baa3, with a stable outlook. In Q1, the developer, that to date has delivered 40.2k units to the local residential market, posted 17.0% increases in both revenue, to US$ 962 million, and profit to US$ 328 million.

The possible link up between NBAD and First Gulf Bank could be a portent of more consolidation in the country’s banking sector.

As previously noted, both Emirates NBD and Commercial Bank of Dubai were tapping the markets for financing, prior to any possible Fed rate hikes later in the year and to ensure liquidity remains at acceptable levels. This week, the former signed a 3-year US$ 1.7 billion loan (US$ 450 million higher than originally planned), whilst CBD is expected to finalise a US$ 500 million facility before the end of the month.

With the latest Emirates Islamic’s US$ 750 million sukuk, the nominal listing of this sharia paper has topped US$ 41.8 billion on Nasdaq Dubai – the largest total of any exchange in the world.

The DFM opened on Sunday at 3308 and regained most of the previous week’s losses rising1.8% in continuing thin trading to close on 3368 by Thursday (23 June 2016). Trading volumes on Thursday were at 153 million shares, valued at US$ 55 million, changing hands, (cf 120 million shares for US$ 49 million, the previous Thursday). Bellwether stock, Emaar Properties, was up US$ 0.04 to US$ 1.74, as Arabtec remained flat at US$ 0.38.

Brent crude recovered – up US$ 2.90 to US$ 50.11 – whilst gold fell back – down US$ 35 to US$ 1,298 by the Thursday (23 June 2016) close. These were the balances before the Brexit results became known at which time the markets will be in inevitable turmoil.

Elon Musk is the chief executive of Tesla and chairman of SolarCity – and the major shareholder in both companies. This week, the electric carmaker made a US$ 2.8 billion bid for the leader in full-service solar power systems for buildings that also uses Tesla batteries in its projects.

Having recently confirmed that it had been falsifying fuel efficiency tests for the past 25 years, Mitsubishi is forecasting a US$ 1.4 billion loss this year, as over US$ 3 billion has been wiped off its share value. The company, the 16th largest in the world, produces about 1.2 million vehicles every year.

In a bid to expand its global footprint, particularly in the Asia-Pacific region, Revlon has agreed to acquire Elizabeth Arden for US$ 870 million; this represents a 50% premium on its latest share price. Combined turnover of the new entity will be in excess of US$ 3 billion.

In the same sector, Balmain, has been acquired by the Qatari Mayhoola investment fund in a US$ 522 million deal. Consequently, the French luxury company, mainly a wholesale chain, will now have finance to expand internationally and enhance its accessories lines.

Every month since last August, the Saudi government has been selling about US$ 5.3 billion of domestic bonds to banks to fund its budget deficit, caused by low oil prices. Now it is borrowing abroad, having raised US$ 10 billion in May, and will issue a dollar bond in the coming weeks.

After three years at the helm, Raghuram Rajan will be stepping down as the governor of the Reserve Bank of India to return to a life of academia. During his tenure, the Indian economy has become one of the fastest growing in the world, currently at 7.9%, the currency has stabilised and its inflation rate has almost halved to 5.8%.

The latest casualty in the on-going Brazilian Petrobas corruption scandal is former tourism minister, Henrique Alves, charged for money laundering and tax evasion. He becomes the third cabinet minister – after former Transparency Minister Fabiano Silveira and former Planning Minister Romero – to stand down since interim president Michel Temer took over from Dilma Rousseff last month.

Meanwhile, the August Olympics in the troubled city is facing financial problems with Rio’s governor requesting federal funds to help fulfill public service obligations during the Games. Furthermore, emergency measures are required to avoid “a total collapse in public security, health, education, transport and environmental management.”

The IMF has warned the US about the fact that sees 1 in 7 of its population lives in poverty, recommending a boost to the minimum wage level and offering paid maternity leave in a bid to get more females joining the workforce. If no action is taken to tackle this problem, there could be future problems, with the world body recommending increased investment in education and social programmes.

Despite owing its creditors US$ 335 billion, Greece expects to receive a fresh tranche of funds from the eurozone bailout fund, starting with an interim pay-out of US$ 8.4 billion. The country will receive further funds once a series of reform conditions have been met.

To readers of this blog, it was no surprise to see the British (excluding the Scots and Northern Irish) vote to leave the European Union. The nation – and the world – woke up to a financial bloodbath on Friday morning with sterling plunging US$ 0.18 overnight, to US$ 1.3228, and the FTSE shedding US$ 162 billion in early trading. Brent crude dipped by over 5% whilst safe haven assets, gold and the yen, headed in the other direction – up US$ 45, to US$ 1,343, and 5.2% respectively.

Major markets did not escape either, with France’s CAC, Germany’s DAX and the Nikkei all heading southwards – by 10%, 8% and 8% respectively. Some currencies suffered the same fate – Poland’s zloty sank by 7% and the euro was 3% weaker to the US$. Prime Minister David Cameron fell on his own sword and has offered his resignation (in the coming weeks) to The Queen.

The market does not like uncertainty and surprises and will inevitably overreact as it has done so today. In the short-term, expect a raft of interest rate cuts and further monetary easing by several central banks. Normality will eventually return but until then expect the markets to be Rockin’ All Over The World!

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Time To Say Goodbye

Posted on June 22, 2016 by howesdubai

brexitAlthough there are still pundits who forecast that residential prices will continue to fall, basic economic laws dictate otherwise. Over the past 18 months, it is estimated that 23k units have been handed over, including 5.5k in H1; supply is being manipulated and phased in, with developers keen not to flood the market. During that time, supply has expanded only 5.9% to 405k, whilst Dubai’s residential population (demand) has grown by 8.1% (189k) to 2.516 million.

According to Global Capital Partners, Emaar and Nakheel deliver about 44% of all residential units in Dubai, as government-owned developers have accounted for 56% of all new homes released over the past 4 years. However, with Damac having 40k units in the pipeline, private developers may predominate in the future.

Damac has reported that it has already sold 800 apartments in its mixed-use Aykon City development, overlooking the Dubai Canal. With phase 1 having sold out, the developer is launching phase 2 before the end of the holy month of Ramadan.

After a sell-out of the initial launch of its Sharia-compliant apartments development, Ghalia, Damac has announced a further release. The 742-key, 38-storey project, located in Jumeirah Village, is an opportunity for the Dubai developer to tap into the expanding global halal tourism market which was worth US$ 145 billion last year. The emirate is the second most popular global destination in this sector after Malaysia.

Eastern International LLC has secured a US$ 62 million Limitless contract to complete the final 30% work on its two residential towers at The Galleries, at Downtown Jebel Ali. The mixed use development, comprising 641 apartments, should be completed by the end of next year – a decade behind schedule.

To help fund on-going developments, the Meydan Group has sourced finance of Dhs 272 million, by dint of a US$ 190 million sukuk and a US$ 82 million term facility.

Official approval has been given for the RTA to build the US$ 91 million EC3, in readiness for Expo 2020. The Green Enterprise Command and Control Centre will be used to manage public transport, as over 20 million visitors descend on the site over a six month period starting October 2020.

Using funds from its own cash resources, Emirates has repaid a 5-year, US$ 1 billion bond on maturity and will settle a US$ 110 million facility later in the month: this brings the total of its repaid sukuks over the past five years to US$ 2.8 billion. The airline is expecting delivery of 36 aircraft this year.

Dnata has bought a shareholding in Destination Asia Group, its first foray in the Asian inbound travel sector. Details of the size and value of the stake are unknown. The Bangkok-based company, with 700 staff, was founded in 1996 and has a presence in 11 regional countries.

Dubai International recorded a 7.2% increase in April passenger traffic to almost 7 million, as YTD numbers moved 6.9% higher to 27.9 million. There were double digit growth figures emanating from Eastern Europe (12.6%), Asia (12.1%) and GCC (10.3%). Cargo traffic for the month came in 4.8% higher, at 214k tonnes, whilst the YTD rise was 3.8%, at 829k tonnes.

With net current liabilities of US$ 165 million and accumulated losses of US$ 64 million, 30% of Gulf Navigation’s shareholders have failed in a bid to raise the company’s authorised equity from US$ 150 million to US$ 1.36 billion.

Government-owned, ENOC, has signed a financing agreement for a US$ 230 million unsecured loan from the Industrial and Commercial Bank of China Ltd (ICBC). The funds will be used for future business expansions, including both its retail and exploration sectors, which will see its revenues grow even faster than the 45% seen over the past five years.

The UAE Space Agency and NASA have signed an agreement that could see both countries sharing spacecraft, technology and research information in their joint quest to explore Mars. This is an important step in further improving long-standing political, cultural and economic bilateral ties that will see both nations uniting to go where no man has been before.

Alubond, the Ajman-based company, that supplied the cladding panels for The Address Hotel that caught fire on New Year’s Eve, will no longer manufacture the inferior non-fire rated panels. Over the past three and half years, there have been at least 11 towers that have caught fire and it is inevitable there will be imminent changes to the UAE Fire and Life Safety Code. The company, which has 50% of the country’s cladding market, will focus on panels that are fire resistant and able to withstand temperatures of 332 degrees.

By the end of March 2016, Dubai’s non-oil trade topped US$ 87 billion, with imports, exports and reexports at US$ 53 billion, US$ 10 billion and US$ 24 billion respectively. The top 3 items, accounting for almost half of the total imports, were mobile phones (21.9%), gold (16.3%) and diamonds (11.7%). The emirate’s top 3 trading partners remained unchanged, with China (US$ 10.6 billion), India (US$ 6.3 billion) and USA (US$ 6.0 billion).

Dubai’s inflation rate continues to head south with May’s year on year CPI of 1.4% compared to the previous month’s figure of 1.9%. The main drivers were the cut in many food items (with the onset of the holy month of Ramadan), along with slowing housing and utility costs.

The Ministry of Finance issued early notice of the upcoming VAT regulations. In phase 1, there is compulsory registration for all companies, with annual revenue of US$ 1 million, whilst it remains an option for entities with revenue of between US$ 510k and US$ 1 million. At a later date to be disclosed, Phase 2 will see registration being mandatory for all participating companies. It is thought that the tax, at 5%, will be introduced in all GCC countries by 01 January 2018 and education, health care and staple foods will be exempt. The UAE is forecast to generate first year tax revenues of between US$ 2.7 billion and US$ 3.3 billion –collection and other indirect costs are unknown.

The IMF has forecast that GCC countries could boost their GDP by 1.5%, with the implementation of this 5% VAT levy. Interestingly, this is just slightly less than the contribution made by the oil and gas sector to Dubai’s GDP which has fallen to less than 2% from 55% in 1981. When all factors and ancillary costs are considered, the question is whether this will prove beneficial to the emirate’s future progress. One inevitable impact of its introduction will be higher inflation.

The Bank of Khartoum has agreed to buy Etisalat’s 92.3% stake in the Sudanese fixed line operator Canar for US$ 95 million, after a move to sell its share to Kuwaiti firm Zain was blocked by Sudanese authorities. Having spent US$ 125 million in 2008, to more than double its share in Canar, the UAE telecom provider took a US$ 125 million impairment charge in 2012.

The DFM opened on Sunday at 3371 and fell 1.9% in exceptionally thin trading to close on 3308 by Thursday (16 June 2016). Trading volumes on Thursday were at 120 million shares, valued at US$ 49 million, changing hands, (cf 410 million shares for US$ 158 million, the previous Thursday). Bellwether stocks, Emaar Properties and Arabtec, both fell – by US$ 0.06 to US$ 1.70 and US$ 0.01 to US$ 0.38 respectively.

Having sailed past the US$ 50 mark the previous week Brent crude took a battering – down US$ 4.72 to US$ 47.21, whilst gold continued its recent bullish run – up US$ 25 to US$ 1,298 by the Thursday (16 June 2016) close.

In a surprise – and maybe desperate – move, Microsoft has made a cash bid to acquire LinkedIn for US$ 26.2 billion; at US$ 196 per share, this represents a premium price of 50% above current market value. This figure is well below the networking and job-search firm’s 52-week high of US$ 258. The tech company’s previous major acquisitions were in 2011, US$ 8.5 billion for Skype, and, in 2014, US$ 7.2 billion for Nokia’s mobile devices business; Microsoft’s CEO, Satya Nadella, will hope that this venture is more successful!

With the easing of international sanctions taking effect, there are reports that Iranair has agreed to purchase 100 Boeing jets, in an order worth US$ 30 billion. This follows Airbus winning a US$ 27 billion provisional order for 118 aircraft earlier in the year.

Sports Direct’s Mike Ashley has written to Duff & Phelps confirming his interest in BHS, the high street chain that has collapsed, with a loss of 11k jobs and a US$ 825 million pension black hole. There is hope that if dialogue can be reopened, parts of the former shopping empire can be saved.

With Chinese authorities seen to be cracking down on corruption, gaming revenues have been hit in Macau, the only place in the country where casinos are allowed. Consequently, Australia’s Crown Resorts, 51% owned by James Packer, has decided to demerge most of its assets there, represented by a 27.4% shareholding in two casinos, into a new entity allowing the parent company to focus on its domestic market and interests in Las Vega and Manila. On Thursday, its share value rose 15% on the news.

Established in 2006, the Libyan Investment Authority is claiming US$ 1.2 billion from Goldman Sachs, relating to 9 disputed trades carried out in 2008. The case, expected to last 7 weeks in London’s High Court, involves claims that the US bank encouraged the US$ 67 billion sovereign wealth fund to make risky and worthless investments. The LIA is also expected to take Société Generale to court over similar trades amounting to US$ 2.1 billion.

With news that the Japanese central bank was not to add further stimulus to boost the economy, the yen rose to its highest in almost two years to 104 v the US$, whilst the Nikkei fell 3% to 15,434 on export price worries.

Even after two years of trying, the Bank of England is still some way off its 2.0% inflation target, as May’s CPI remained unchanged at 0.3%. Comparatively low energy prices, coupled with low economic and wage growth, would indicate that the BoE target is still at least months away. However, the country’s unemployment total at 1.67 million, equating to under 5%, is the lowest since October 2005.

Next week’s Brexit referendum continues to spook global financial markets. It was a reason that the Federal Reserve did not move on rates and Chair Janet Yellen warned that it could have consequences for economic and financial conditions in global financial markets. Australian shares shed US$ 19.7 billion on Monday, as yields on German10-year sovereign bonds moved into negative territory for the first time ever.

Although other issues are in play – including the apparent ineptness of central banks to boost local economies, the continuing slowdown in not only the Chinese but also the world economy and US interest rates – the common factor is nervousness that the UK may indeed exit the EU. It is interesting to note that reports that sterling has tanked are untrue – on 31 March it was trading at 1.437 to the US$ – on Thursday (16 June) 1.436. (Whatever the decision next week, sterling will fall but only in the short-term).

With the Brexit poll only 7 days away, nobody really knows whether the country will be better off in or out of the 28-country EU bloc. For many, there are only two factors – economic and immigration – to consider but there is a third important issue. Just like in the US, where voters have ditched mainline political incumbents in favour of a maverick like Donald Trump, a majority of UK residents could be dumping the UK political establishment – manifested by the BBC (Blair, Brown and Cameron) – the European bureaucracy and international establishments such as the IMF and World Bank. Time To Say Goodbye?

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Speaking Words Of Wisdom, Let It Be!

Posted on June 14, 2016 by howesdubai

muhammad_aliAfter last week’s announcement it was to invest US$ 8.2 billion on local real estate, Majid Al Futtaim Properties has confirmed that part of the money would be spent on a mixed-use development, adjacent to Global Village. Encompassing 750k sq mt, the project will include 2k residential units, a 1.2 million sq ft regional mall and hotels.

The Ramada Hotel, built in 1982 and famous for its 41mt high and 9 mt wide stained glass mural, is to be demolished, to be replaced by a 5-star hotel along with a mall and residences. What will happen to the world’s tallest stained glass structure, designed by John Lawson, remains to be seen.

It is reported that The Corintha at Meydan Beach, adjacent to the Hilton JBR, will open in 2019. The 55-storey tower, designed by the American firm AE7, will house 300 keys and 60 luxury apartments.

As the result of the success of phase 1 – with all 100 apartments selling out the same day – Dubai Properties has brought forward the immediate launch of the second phase of its Bellevue Towers development in Business Bay. The project is slated for a 2019 completion.

Union Properties has secured financing of US$ 79 million to help with the construction of its US$ 123 million Oia Residence in MotorCity. The main construction contract, for the building of 271 residential units, was awarded last month to China State Construction Engineering Corporation Middle East; completion date is set for late 2017.

The Sheikh Zayed Housing Programme has signed a US$ 53 million contract with Dubco Construction for its159-villa complex in Al Qoz. Work at the 900k sq mt site has already started and is expected to take 20 months until handover.

It has been confirmed that the upcoming US$ 1 billion, Santiago Calatrava-designed The Tower at Dubai Creek Harbour will be at least 100 mt higher than the 828 mt Burj Khalifa. It will comprise both residential and leisure facilities, as well as observation decks, but most of the structure will be as a traditional tower. It will be the focal point of the 6 sq km Dubai Creek Harbour, located near to the Ras Al Khor National Wildlife Sanctuary, and will be completed before the start of Expo 2020.

Damac has launched a 60-strorey residential tower in its US$ 1.3 billion Aykon City development, near to Dubai Canal. Starting prices for apartments, which go on sale this Saturday, will be at US$ 463k, with a 2021 completion date. (The property developer announced a 14.6% fall in Q1 profit to US$ 286 million, as revenue sank 33.3% to US$ 441 million).

With the sell-out of its latest project – the US$ 82 million 418 apartment Glamz – Danube Properties has now sold its entire six-project stock, totalling US$ 490 million. The company expects to launch a further two developments this year.

As the US$ 163 million Jumeirah 1-located Union Museum takes shape, approval has been given for specified permanent collections. The facility, operated by Dubai Culture and Arts Authority, will relate the story of the country’s history and development and will also restore the Union House to its original state.

Although occupancy rates are among the highest in the world, at 87%, Dubai YTD hotel rates and revenue continue to head southwards; average room rates have fallen by 9.6% and RevPAR (revenue per available room) is down 10.5% to US$ 258. Although TrevPAR has slowed at a lower rate, 6.6%, profit per room for the first 4 months has fallen 11.4%.

The new US$ 572 million Abu Dhabi – Dubai motorway is due for completion by the end of the year. The 4-lane, 62km highway – an option to the busy E11 – will ease congestion between the cities and will have a capacity of 8k vehicles an hour.

The country’s largest Sharia-compliant lender, Dubai Islamic Bank, will have a US$ 861 million rights issue opening next week, as it seeks to expand its capital base. The 988.4 million shares on offer are priced at US$ 0.87 – on Thursday, the share closed the week on US$ 1.39.

DP World has won a 50-year concession to develop a new Ecuadorian port project in Posorja. 50% of the US$ 1 billion investment will be spent on phase 1, including land purchase, channel dredging and infrastructure over the next two years. The Dubai port operator already has a South American presence in Argentina, Brazil, Peru and Suriname. Indeed it is also planning to expand its port and cruise operations in Buenos Aires which has a capacity of 600 TEUs and 300k passengers. Over the past 20 years, DP World has invested US$ 250 million.

IBM has signed a 10-year, US$ 300 million contract with Emirates to fully manage the airline’s IBM mainframe and storage. Since the airline’s inception, its ticketing and reservations system has been IBM-related.

DEWA has awarded a contract to China’s Harbin Electric and Saudi Arabia’s ACWA Power to build and operate a 1.2k MW clean coal power plant. This development is the first phase of the authority’s US$ 1.8 billion Hassyan project and should be on line by 2023. DEWEA will maintain a 51% share in the new arrangement.

Dubai Investments, in partnership with Al Mal Capital, is planning to invest 10% seed capital in each of two funds, targeting the burgeoning healthcare and education sectors. Both funds will be in the region of US$ 272 million each, with an expected 8% cash yield.

There was a welcome improvement in the UAE’s PMI reading with a monthly rise in May from 52.8 to 54.0, mainly driven by the output index posting 59.9. The good news was somewhat offset by the jobs growth reading of 50.4 – slightly above the neutral point of 50.0 – and weaker purchasing activity. However, the country’s non-oil private sector is moving in the right direct, albeit at a slow rate.

HE Mubarak Rashid Al Mansouri, the UAE Central Bank governor, indicated that the dollar peg (at Dhs 3.6725) would be maintained and any US rate hikes would be mirrored in the local banking sector. He also considered that recent volatility in the market had been contained and the sector is improving, following a difficult Q1.

The DFM opened on Sunday at 3263 and returned to positive territory, with a 3.3% increase in thin trading to close on 3371 by Thursday (09 June 2016). Trading volumes on Thursday were at 410 million shares, valued at US$ 158 million, changing hands, (cf 446 million shares for US$ 114 million, the previous Thursday). Bellwether stocks, Emaar Properties and Arabtec, both moved up -by US$ 0.08 to US$ 1.76 and US$ 0.02 to US$ 0.39 respectively.

Brent crude sailed past the US$ 50 mark – up US$ 2.78 to US$ 51.95, whilst gold continued returned to positive territory – up US$ 60 to US$ 1,273 by the Thursday (09 June 2016) close. It is to be noted here that this blog had forecast at the beginning of the year that Brent would be at US$ 52 by June!

Over the next five years, Kuwait is planning to invest US$ 115 billion in oil projects, US$ 30 billion of which will be for three downstream ventures. The aim of the exercise is to lift production capacity by 33% to 4 million bpd by 2020. Meanwhile, Saudi Arabia reports that it has maintained its capacity at 12 million bpd, despite the low oil prices. Last year, the Kingdom pumped an average 10.2 million bpd – a record – with almost 70% destined for the export market.

According to Airbus, only 319 A380s have been ordered, with Emirates its largest customer by far, with a total of 142. The main worry for the local airline is that the French plane-maker may pull the jumbo and concentrate on its more saleable product lines such as the A320. Sales of the 380 have been disappointing, as many large airlines have only bought relatively low numbers, and any chance of the A380Neo being brought on line is remote.

It has been confirmed that BHS will disappear from the UK’s high street resulting in the loss of 11k jobs and the closure of 163 shops. The former retail giant fell into administration in April with a pension black hole of US$ 830 million. Former owner, Sir Philip Green, is facing mounting criticism for his role in selling the company last year to little-known consortium Retail Acquisitions, whose Dominic Chappell had a history of bankruptcy and little retail experience.

Johnson and Johnson has acquired private hair care company Vogue International for a reported US$ 3.3 billion. The US company has markets in its home country and 38 others.

New York-based Ralph Lauren is planning to close 50 of its global stores (10% of its total outlets) and retrench 6.7% of its 15k staff in a bid to cut costs by US$ 180 million. The fashion house is to concentrate on its three main lines – Ralph Lauren, Lauren and Polo – and will overhaul its production processes. Over the past year, its shares have fallen by 30%.

It was no surprise to see that the World Bank has done what it is good at – amending yet again its global growth forecast to 2.4%, compared to its 2.9% January prediction. Both eurozone (at 1.6%) and China (6.7%) remain the same but the US sees its growth cut to 1.9% – from 2.4% – whilst Japan is slashed from 1.3% to 0.5%.

The US Labor Department reported the worst employment figures in almost six years, with only 38k new jobs recorded in May, as the jobless rate fell to 4.7%; this was due to people dropping out of the labour force and no longer considered “unemployed”. This will inevitably lead to the Fed Reserve putting any interest rate on hold until at least September.

Recent blogs have highlighted the problems that local financial institutions have been facing with regard to non-performing loans. In the same vein, Australian banks have suffered because of their over exposure in the commodity sector, whilst the US has still not seen the full impact of the fracking slowdown and the inevitable write down of US$ billions. Now the OECD has put the spotlight on the growing problem of bad debts in the eurozone and the high level of debt.

Moody’s has warned Australia of its growing government debt, which it is set to rise to US$ 443 billion from just US$ 37 billion in 2008. The country – one of only ten in the world with a AAA credit rating – is set to see a widening deficit as Treasurer Scott Morrison is keen to introduce up to US$ 40 billion in tax cuts over the coming years and any spending cuts, particularly with regard to welfare, will be modest. Whichever party wins the 02 July election will have to bite the bullet and start to rein in public spending.

South Africa just managed to hold on to its investment grade credit rating, BBB-, but is still on negative outlook by S&P. Any fall would see the country given junk bond status that, in turn, makes borrowing more expensive. This would be a blow for an economy that has a budget deficit of 3.2% to GDP and has seen growth fall from 1.3% last year to 0.7%.

With Saturday’s death of Muhammad Ali, the world lost a true champion. The following is a snippet from a 1974 David Frost interview and what an epitaph 42 years later.

David Frost: What would you like people to think about you when you’ve gone?
Muhammad Ali: I’d like for them to say:
He took a few cups of love.
He took one tablespoon of patience,
One teaspoon of generosity,
One pint of kindness.
He took one quart of laughter,
One pinch of concern.
And then, he mixed willingness with happiness.
He added lots of faith,
And he stirred it up well.
Then he spread it over a span of a lifetime,
And he served it to each and every deserving person he met.

Speaking Words Of Wisdom, Let It Be!

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Running On Empty!

Posted on June 8, 2016 by howesdubai

concourse-d-dubai-airportOn Sunday, HH Sheikh Mohammed bin Rashid Al Maktoum inspected the new US$ 1.2 billion Concourse D, at Dubai International Airport. The world’s first dedicated facility for Airbus 380s covers an area of 150k sq mt and has an annual capacity for 18 million passengers, equivalent to 50k every day.

Millennium & Copthorne is to partner with the First Group to manage its Millennium Place JVT – a 34-storey, 599-key 4-star property; the hotel, which is expected to open in 2019, will be First Group’s third, following others in Dubai Marina and Jumeirah Village Circle (JVC).

Dubai Properties has launched Bellevue Towers – twin 23-floor buildings, housing a total of 300 units, along with retail and hospitality outlets. Located in Downtown, the project will be completed by 2019.

With ongoing developments already in Sports City and Silicon Oasis, Shaikhani Group has released details of its US$ 954 million 2025 plan. Phase 1, a US$ 60 million mixed use development in JVC, includes 133 residential units.

It is reported that Dubai Investments, 11.5% owned by the Investment Corporation of Dubai, is seeking US$ 300 million to help finance its Mirdiff Hills project, slated to cost US$ 954 million (including land at US$ 272 million). The development will be a mix of residential, retail and commercial.

RTA contracts, valued at US$ 192 million, have been awarded for phases 4 and 5 of the Dubai Water Canal project, due for completion by this September. The former, costing US$ 84 million, relates to infrastructure work on both sides of the canal, whilst the latter is to complete the link with the Business Bay Canal.

Savills’ latest report indicates that Dubai residential market prices may have bottomed out and that, with limited available prime stock being released over the next three years, its outlook continues to be steady.

Meanwhile, the bullish Reidin/Global Capital Partners report concludes that the recent property correction has not been as severe as the 2008 debacle, citing the fact that price falls, for instance, in JLT and The Greens were 53% and 47% after the GFC, but this time around came in 4% lower and flat respectively. Furthermore, average prices fell 31% in the 22 months after the 2008 meltdown, compared to 13% over the same period since 2014.

Majid Al Futtaim is to invest US$ 8.1 billion locally over the next decade, with plans for 10 City Centre shopping malls, 10 Carrefour hypermarkets, 30 Carrefour supermarkets and 6 hotels. Following this expansion, the group will have doubled its retail footprint to 1.5 million sq mt, have 4.8k hotel rooms, and have provided an extra 170k direct and indirect jobs.

New DED rules have been established to ensure that the emirate’s 2.8k grocery stores have a “uniform identity”. Existing outlets will have two years to accede to these regulations, that will see standardisation in business identity, store design, fit outs, signage etc. The main aim is to improve the quality of retail service, in line with Dubai’s global image.

According to reports, D&D London, owners of Quaglino’s and Coq d’Argent, are looking to expand operations into Dubai for a number of their concepts and brands. The group already has restaurants in London, New York and Paris.

Drake & Scull has won a two-year, US$ 33 million Emicool contract to design, build and operate a chilled water facility in Dubai Sports City. The extension of the new district-cooling network will increase capacity to 77k tonnes of refrigeration.

DP World has announced a US$ 442 million agreement with the government of Somaliland to develop and operate a regional trade and logistics hub, primarily for fast growing Ethiopia. The port of Berbera will be the company’s 8th operation in Africa, following similar agreements in Algeria, Djibouti, Egypt, Mozambique and Senegal. With spending of over US$ 1 billion, DP World’s capacity in the continent is estimated at 6.2 million TEUs (20’ equivalent units).

One of the world’s biggest liners, at 348 mt, the Ovation of the Seas, berthed in Dubai, on its journey from Barcelona to Singapore. It is such stopovers at Port Rashid that should see the number of cruise tourists in 2016 reach 500k, compared to 456k last year – and an ambitious one million total by 2020.

An often overlooked facet of Dubai’s burgeoning hospitality sector is time-sharing. With the sector expected to contribute US$ 3.8 billion to Dubai’s economy by 2020, Arabian Falcon Holidays is actively looking to Africa – a continent that accounts for 5% of Dubai’s inbound visitors – for new business prospects.

The proposed US$ 2.2 billion, 69% acquisition of Kuwait Food Co’s (Americana) by Dubai investment firm Adeptio has fallen through. The Kuwaiti company, owned by the Al Kharafi family, has been on the market for over two years but no agreement could be reached between the two parties.

DEWA confirmed that it would be building the world’s largest CSP (concentrated solar power) plant, located at Mohammed bin Rashid Al Maktoum Solar Park. On completion in 2030, the solar park will have a capacity of 5 GW but the tender for phase 1 is for 200 MW. CSP is some five times more expensive than the traditional photovoltaic (PV) technology but has the advantage of having storage capabilities.

With the aim of investing more in Queensland’s Sunshine Coast, local company Najibi has launched an Australian investment and development company, Sanad Capital. The new entity will focus on community-based, eco-friendly projects in an area that has 9 million visitors every year.

Emirates NBD has indicated that it is considering plans for the country’s first digital bank, as it announces a US$ 136 million investment into digital innovation and a complete overhaul in its modus operandi.

According to the UAE Central Bank, April Money Supply Aggregate M1 rose 0.6% to US$ 134.4 billion, with M2 down 1.3% to US$ 327.8 billion and M3 marginally up to US$ 374.4 billion. Both gross bank assets and gross credit remained flat at US$ 678.7 billion and US$ 413.2 billion respectively.

Following last month’s 10.6% fuel increase, July has seen a further 4.8% hike in Special 95 to US$ 0.477 per litre, as diesel jumps 10.6% to US$ 0.482.

40% of the estimated US$ 100 million, 2014 MENA venture capital investment found its way to the UAE, according to a report from this week’s Arab Digital Forum. However, the total regional figure investment rate is low on a global comparison and 12 times less when compared to the US. Interestingly, only 19% of 2014 start-ups, that received funding over the previous three years, have failed.

Payfort reported that UAE internet spending rose by 23% last year to top US$ 10 billion and that this figure could reach US$ 27 billion by 2020. Airlines and e-commerce accounted for more than 86% of the 2015 total spend, with entertainment showing impressive growth.

The ME’s largest online retailer is looking at an IPO within the next two years. With ambitious expansion plans, Souq.com would need a further capital boost to its finance – and a public issue is an option. Three months ago, the company received overseas funding totalling US$ 275 million. With on-line shopping accounting for only 1.5% of regional retail traffic (compared to 8% globally), the Dubai-based company sees a bright and profitable future for the sector.

Arabtec shareholders agreed to write off 44% of retained losses by using US$ 272 million of its US$ 312 million statutory reserves. The beleaguered contractor is in the throes of a major restructuring plan to firm up its capital base and improve business practices.

Following the recent Dubai Parks and Resorts US$ 458 million capital boost, it is reported that Qatar Holding now holds an 11% stake in the entertainment company. Its major shareholder, Meraas, now has a 52% holding, down from 60% before the capital increase. Shares were trading at US$ 0.38 at Thursday’s close.

The DFM opened on Sunday at 3351 and returned to negative territory, with a 2.6% fall in thin pre-Ramadan trading to close on 3263 by Thursday (02 June 2016). Trading volumes on Thursday were at 446 million shares, valued at US$ 114 million, changing hands, (cf 467 million shares for US$ 120 million, the previous Thursday). Next week, with the start of the holy month of Ramadan, trading could be further subdued.

Bellwether stocks, Emaar Properties and Arabtec, fell in tandem – by US$ 0.06 to US$ 1.68 and US$ 0.02 to US$ 0.37 respectively.

Brent crude dipped US$ 0.42 to US$ 49.17, whilst gold continued its recent downward trend – down US$ 7 to US$ 1,213 by the Thursday (02 June 2016) close.

The Russian firm, Krasnye Barrikady, has been awarded a US$ 1 billion Iranian order for ten rigs. The agreement sees both parties to jointly build the rigs for exploration and production in the Gulf.

It was no surprise to see that VW reported a 19.4% fall in Q1 profits to US$ 3.5 billion (and a 3.4% drop in revenue to US$ 55.8 billion), as the fallout from the emissions scandal rumbles on. The carmaker has already put aside US$ 17.5 billion to cover these costs to date with some forecasting that this figure will eventually top US$ 32 billion.

IATA has forecast that ME carriers will see a 14.2% hike in 2016 profits to US$ 1.6 billion, as global airline profits are expected to rise by 8.5% to US$ 39.4 billion; worldwide cargo revenue is expected to fall by 6.1% to US$ 49.6 billion. Regionally, demand is expected to jump 11.2%, whilst supply is expected to grow at the higher rate of 12.2%.

Sainsbury’s planned US$ 2 billion takeover of Argos could be in jeopardy as the Competition and Markets Authority is looking into the question of unfair competition, if the merger were to go ahead. The new entity – with non-food sales of US$ 8.7 billion and 2k sites – would compete with the likes of M&S and John Lewis.

Greybull Capital has acquired Tata Steel’s European long-products division, following confirmation of a US$ 580 million financing package being finalised. The new business, manufacturing steel for the rail and construction sectors, will be known as British Steel and the owners expect to be profitable within a year. With the government considering a restructuring of the industry’s US$ 21.8 billion pension scheme, there are reports that Tata may decide not to sell its remaining 11 UK plants.

In the UK, HM Revenue & Customs have lost a case, involving Project Blue, ultimately owned by the Qatari government, and its 2007 purchase of Chelsea Barracks. With US$ 73 million at stake, the Court of Appeal ruled that the tax office had pursued the wrong party for the stamp duty on the US$ 1.7 billion sale. Project Blue did not actually own the property as it had used an Ijara arrangement so that it belonged to the bank, Masraf al Rayan, who then leased it back to the defendant.

Although a slight improvement, May eurozone inflation still remains in negative territory at -0.1%. This data – along with the fact that unemployment was unchanged at 10.2% – will have forced the ECB not to go ahead with further QE measures. The rate for the 28-country bloc EU came in at 8.7% as the German figure dropped to a record low of 6.0%. Despite the good news, the likes of Greece, Spain and Italy still have double digit rates of 24.4%, 20.1% and 11.7% respectively. Another disturbing feature of the unemployment data is that 18.8% of those under 24 have no job.

With Australia going to the polls on 02 July, the Turnbull government got a boost with a better than expected 1.1% in Q1 growth figures, as both exports and household spending headed north. With an annualised growth of 3.1%, the data probably precludes the need for a further cut in interest rates, now standing at a historically low 1.75%.

The world’s fastest growing major economy just got faster. India recorded a 0.4% increase in 2015-16 to 7.6%, as the April quarter’s growth touched 7.9%. Meanwhile, with some analysts predicting a hard landing, China’s expansion continues to slow.

An amnesty in Argentine aims to see the return of some of the US$ 500 billion of unregistered funds, deposited in overseas accounts, so that monies can be used to pay for much needed infrastructure projects and to pay outstanding pension funds. President Mauricio Macri is introducing a law that will see the returned funds having to pay between 0% – 15% tax, depending on the amounts involved.

For the 5th successive quarter, Brazil recorded negative growth, with the economy reeling from political problems, the zika virus, corruption and the pending impeachment trial of President Dilma Rousseff. It is estimated that its GDP fell 5.4% year on year and although a marginal improvement to a 4.3% contraction is expected this year, the recession could continue for several more years. Even with the August Olympics coming up, the country is surely Running On Empty!

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