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To Ring The Alarm!

Posted on December 20, 2015 by howesdubai

According to the latest CBRE ME report, prices of Dubai villas and apartments have seen annual falls of 14% and 16%, as total transactions have plummeted 33%. With an estimated 48k units being delivered over the next three years, it also expects further price deflation, with villa values down by another 10%. However, as the Dubai population – say of 2.6 million – has had an annual increase of 7.5% over the past two years, with all indicators that this trend will continue up to 2020, surely the demand will be out of sync with supply. Strip away the labour population of 1 million, it seems that there will be an extra 120k (7.5% of 1.6 million) added to the population every year.

In addition, the property developer estimates that 6k units, scheduled for completion this year, have been largely completed but have not yet been handed over to buyers. There is also the ‘X’ factor and its impact on the economy, with Arqaam Capital forecasting a US$ 23 billion windfall for the country’s GDP because of Expo 2020. It is expected to create 277k jobs and 153k visitors every week during the 6-month exhibition. Surely this would see the demand curve heading upwards?

In a bid to help stalled projects, the Dubai government introduced two schemes – Tanmia and Tayseer – four years ago, to secure government or private investment. Since then, under the former initiative, 56 projects, valued at US$ 3.3 billion, have restarted including 12, totalling US$ 545 million, in the past year. Eight developers are listed under the Tayseer plan which covers 40 delayed projects in Business Bay, with the proviso that the project is already 60% built.

Following an agreement with the Al Futtaim Group, Laservision Mega Media is to introduce a world-class water, sound and light show at Dubai Festival City. Scheduled to start in Q3 2016, the producers are looking at replicating the best of its other global attractions, such as Hong Kong’s A Symphony of Lights and Singapore’s Wonder Full at Marina Bay. Moreover, the Dubai retailer is expanding the 2 million sq ft DFC Mall by a further 400 retail outlets, 75 cafes, a Novo cine complex and parking for 6.5k vehicles.

There is no doubt that the hospitality sector has had a rocky year, exemplified by disappointing November data from STR Global. Preliminary figures show all indicators heading south, as new supply (5.4%) outstrips demand (2.4%). Despite major events in the month – such as the Big 5, International Motor Show, Airshow and numerous high profile sporting events – average occupancy dipped 2.9% to 83.0%. Average daily rates and revenue per available room both dropped by 7.1% to US$ 242 and 9.8% to US$ 201 respectively.

2016 will prove a hectic year for the Al Habtoor Group’s hotel division as it has been allocated an extra US$ 545 million, for further overseas expansion. Following the recent soft opening of St Regis Dubai at Al Habtoor City, the two other adjoining 5-star properties – The W and The Westin – will both open early next year.

The value of the conglomerate’s Dubai assets is put at US$ 3.4 billion, as its total revenue was up 16%. Its auto division posted record sales of 50.7k Mitsubishi vehicles (equivalent to 60% of all that maker’s GCC sales), as revenue for the nine months to September rose 17%. There was also a 5% revenue increase in its real estate division over the same period and this will be boosted when the 1.4k Al Habtoor City apartments and the Polo Resort & Club’s villas are released in the market.

A recent report by Lamudi indicates that since the turn of the century, a total of 190 skyscrapers has been built in Dubai, compared to just 23 in London. There is no doubt that such buildings – above 150 mt – are gaining in global popularity, with China now boasting 800. Last year, a record 97 buildings of over 200 mt were built globally.

Last week, the Ruler’s private real estate company, Meraas Holding, initiated a hospitality division. Under the 2020 Dubai Medical Tourism Strategy, the emirate hopes to attract 500k medical tourists, within the next five years, and companies, like Meraas Healthcare, want to tap into this burgeoning sector.

Ten years ago, McGettigan’s started its first venture outside of Ireland and now it has 11 hotels (one in Dubai and 10 in Ireland) and 11 pubs in Ireland, UAE, Singapore and New York. The chain has announced expansion plans for opening 40 new worldwide outlets before 2020.

The French nursery company Babilou Group, with 850 European centres, is to launch 20 more in the UAE by 2018. Initially focussing on Dubai, it has already opened its first in Downtown, with a second in Umm Suqeim next month.

It is reported that one of the emirate’s leading SMEs – Dubai Desert Extreme – is considering selling up to 40% share in the company to finance regional expansion plans. The distributor of bicycles and sports equipment, established in 2001, has 11 outlets, employing 160 staff and has an annual turnover of US$ 20 million.

This week, Dubai-based Aster DM Healthcare opened a medical facility in Bahrain and is planning to invest a further US$ 136 million for GCC expansion over the next two years.

Paris Gallery, the local retailer, has opened its first franchise store in Baghdad. The company, with a portfolio of over 600 luxury brands, has over 90 outlets in the GCC.

Dubai’s Fajr Capital is in discussions to buy a major shareholding in Cravia which owns the UAE licences for brands such as Cinnabon and Zaatar W Zeit, along with Five Guys rights in Bahrain and Saudi Arabia. Its annual turnover is reportedly US$ 55 million, with 71 outlets mainly in the UAE.

Marka Hospitality has signed an agreement with d3 (Dubai Design District) to open Dubai’s first Harper’s Bazaar Café in Q1 2016. This offshoot of the luxury fashion magazine will have a 140-seat capacity.

Moisekin has made a 65 kg clock valued at over US$ 1 million. The Russian jeweller has showcased the piece, with 1 kg of gold and 2k diamonds, at Dubai International Jewellery Week which ended on Saturday.

50 employees will lose their jobs as Yahoo plans to close its Dubai regional office next April. This follows the closure of other offices last year – in Amman and Cairo – in a bid by the internet giant to streamline its business. Over the years, it has been left behind by the likes of Google and Facebook, and although still valued at US$ 32 billion, this includes its US$ 30 billion stake in Alibaba.

Dubai authorities are reportedly contacting the Guinness Book of World Records to check whether its new US$ 8 million facility, located in Zabeel Park, is the largest global glow-in-the-dark gardens. The park, with installations based on wonders of the world by over 150 artists, opened on Wednesday.

Following a recent Deloitte report estimating that golf brings in US$ 131 million a year to the Dubai economy, the Investment Corporation of Dubai has appointed Peter Dawson as a consultant. The current president of the International Golf Federation and former chief executive of the R&A is to try and enhance the emirate’s position as a global golfing destination.

In a PPP (public private partnership), the RTA is to add 400 extra air-conditioned bus shelters (of which 150 will be solar-powered) with Right Angle Media Company, bringing the total number of such units to 1.3k by 2017. In addition, 50 smart shelters – with Wi-Fi and café facilities – will be built.

The RTA reportedly has invited bids for a 300 mt long, 22 mt wide bridge to replace the 40-year old Shindaga Tunnel. Last month, a tender was issued for the construction of Al Ittihad Bridge, also crossing the Creek.

Dubai’s annual inflation rate continues to fall and is now at 3.07%, year on year, and down 0.19% on the month. Although transport costs and food prices continue to fall (by 2.23% and 1.52% from October), housing and utility costs jumped 6.87% on the year and 1.14% for the month.

His Highness Sheikh Mohamed bin Zayed Al Nahyan is on an official visit to China, to meet President Xi Jinping, at which a US$ 10 billion joint strategic investment fund was set up. Abu Dhabi’s Mubadala and the China Development Bank will jointly manage the investment. Over the past 30 years, bi-lateral trade has gone from a tiny US$ 63 million to a probable US$ 60 billion by year end. Furthermore, China is Dubai’s top trading partner in 2014, with a total of US$ 45.7 billion. It was no surprise therefore to see the Abu Dhabi Crown Prince tweet that Dubai Ports is planning a US$ 1.9 billion investment in a country where it already has operations in Qingdao, Tianjin and Yantai.

DP World is also holding discussions with British Columbian authorities on possible expansion plans for the Fairview Container Terminal in Prince Rupert.

Government developer, Nakheel, has made its second profit payment (of US$ 60 million) this year, on its US$ 1.2 billion trade creditor sukuk.

It seems that longstanding negotiations, over US$ 2.3 billion of outstanding debts, between Dubai Drydocks World and its creditors (represented by six financial institutions) have stalled. On one hand, the Dubai World subsidiary is hoping for an extension to the first 2017 tranche of US$ 800 million – with a small cash repayment. For the balance of US$ 1.5 billion, maturing in 2027, DDW has offered either a smaller cash settlement or an extension. The creditors would evidently prefer a cash settlement in 2017 and a cash premium on the debt due in 2027. Discussions are on-going.

Atlantique Telecom, a subsidiary of Etisalat, has been hit by a US$ 451 million fine payable to Sarci, a minority shareholder in Telecel Benin. The company is appealing the verdict. Also this week, it is reported that the UAE telecom operator is negotiating a US$ 2 billion revolving credit facility, prior to future rate hikes.

MAF Holding became the latest local company to list on Nasdaq Dubai. Its US$ 500 million sukuk brings the exchange’s total 2015 sukuk listing to US$ 13.25 billion.

The DFM opened Sunday at 2945 and closed 4.3% up at 3073 by the end of the week (17 December). Of the bellwether stocks, both regained the previous week’s losses with Emaar Properties up US$ 0.16 to US$ 1.56, and Arabtec US$ 0.03 higher at US$ 0.30. Trading volumes on Thursday improved with 386 million shares, valued at US$ 120 million, changing hands, (cf 215 million shares for US$ 84 million, the previous Thursday).

In the previous week, Brent crude sank 9.7% (US$ 4.13) to US$ 39.61 and fared little better over the past 7 days, down 6.3% to US$ 37.11, as whilst gold slipped US$ 19 to US$ 1,053 at Thursday (17 December) close.

Last month, VW recorded global sales of 496k vehicles – a fall of 2.4% – with YTD sales slumping 4.5%, as a result of the emissions scandal; the company is unlikely to reach last year’s total turnover of 6.12 million units. Because of other economic reasons, sales in Brazil and Russia have fallen 51.4% and 31.8% respectively.

The Chinese Ministry of Commerce, following approval by other global authorities, including those in Australia, Brazil and the EU, has cleared royal Dutch Shell’s US$ 71 billion takeover of BG GROUP. The final hurdle will take place early next year when the shareholders have their say. If the deal goes ahead, Shell will gain greater access to the LNG market.

Rio Tinto has managed to source financing for its US$ 4.4 billion Oyu Tolgoi project. The Mongolian copper and gold underground mine will take up to 7 years to develop.

Following last month’s US$ 108 billion takeover of SAB Miller by Anheuser-Busch InBev, it seems that the former SAB Miller Peroni and Grolsch beer brands may be hived off for US$ 2 billion to a syndicate, headed by TPG Capital. It is inevitable that smaller breweries, such as Heineken and Carlsberg, will also show interest.

Despite Emirates propping up sales of 380s, with 38.7% (67) of all deliveries and 44.2% (140) of firm orders, Airbus is struggling and has reduced production to 30 this year, as interest dwindles. Indeed the plane maker received no new orders in 2015 and so it is looking at a revamped version of the superjumbo that would entail a fully re-engined plane. Last year, Airbus delivered 630 planes from its total range – in 2015, the figure could be marginally lower.

In the US, Fiat Chrysler has been hit with its second fine this year; in July, it reached a US$ 105 million settlement, relating to its handling of 20 recalls, covering 11 million vehicles – and now a US$ 70 million fine for its failure to disclose death and injury reports. Last month, the US National Highway Traffic Safety Administration also fined Takata Corp US$ 70 million for failures to disclose defects in its airbags.

20 package delivery firms, including the likes of the French divisions of DHL, FedEx and TNT, have been fined a total of US$ 742 million for colluding in price-fixing. UK’s Royal Mail was also involved and paid a US$ 61 million fine – its French division accounts for 17% of the company’s total revenue. The French anti-trust authorities have also fined telecom operator, Orange, US$ 385 million for abusing its dominant market position in that country.

In 2010, the EC fined 11 airlines – but none from the ME – US$ 735 million for fixing freight prices, with Air France (US$ 168 million) and KLM (US$ 117 million) bearing the brunt. At the time, Lufthansa escaped any penalty, as a result of providing evidence to the commission. Five years later, the General Court of the EU has backed the airlines to appeal the original decision.

Starbucks (with 800 outlets) is back in the news for all the wrong reasons, as it is reported that the company paid just US$ 12 million UK corporation tax this year. This is just slightly less than the US$ 13 million it paid in its first 14 years, when its total revenue was US$ 4.56 billion. Although the current US$ 52 million profit was nearly 17 times higher than in 2014, its tax bill was lower. No wonder then that the EC is closely investigating the tax affairs of many international companies who seem to be working the system.

Even in September 2014, blog ‘Foxy Lady’, it seemed that Christine Lagarde was being investigated. This week it was confirmed that the ex French finance minister, and current head of the IMF, is to stand trial for negligence. It relates to a 2008 US$ 438 million payment involving Bernard Tapie, a supporter of the then President Nicolas Sarkozy.

A recent study has estimated that online trading has doubled over the past 7 years and now accounts for 6% of the overall US economy. Employment over the same period has jumped from 1.5 million to 3 million, whilst the sector accounts for US$ 966 billion in economic activity.

It was definitely no surprise to see the Federal Reserve hike interest rates by 0.25% for the first time since 2007. This move is seen as the start of a gradual tightening in monetary supply that will probably result in a further three similar rises in 2016 for a median rate of 1.125%. The steady rise in economic growth, pick-up in the labour market and confidence that inflation will attain its 2% target in the medium-term made Janet Yellen’s decision inevitable.

With inflation levels of 25%, a sinking currency and depleting foreign reserves, incoming Argentine president, Mauricio Macri, has had to take drastic action. His decision to relax currency controls, brought in by the former leader, Cristina Fernandez de Kirchner, will result in the peso falling at least 40% from the official 10 to US$ 1 to 14. The government hopes that this will fuel economic growth and boost its flagging exports. On the flip side, imports become more expensive.

The World Bank estimates that the age old custom of slash and burn has cost Indonesia US$ 15.7 billion this year alone – twice as much as incurred from the devastating 2004 Aceh tsunami. This equates to 1.9% of Indonesia’s GDP and is often the result of companies illegally clearing land for palm oil and pulp wood plantations; an estimated 800k hectares have been burnt out by October this year.

The federal government has downgraded Australia’s May growth forecast for 2016 of 3.25% to 2.75%, which is slightly higher than the 2.5% expected in the current year. Furthermore, the budget deficit has widened by 6.6% to US$ 27.1 billion. The bad news is in contrast to the recent encouraging employment figures, which have seen 340k new jobs, added over the past year; the expected 6.0% unemployment level next year is lower than the original forecast of 6.5%. Inflation is set to range between the 2% – 3% target, as the country readies for a newer type of economy, beset by falling commodity prices, fragile global growth and decreasing terms of trade.

The November UK annual rate of inflation returned to positive territory, with a 0.1% reading, compared to a negative 0.1% the previous month. It is likely to remain at these levels for some time that is good news for consumers – with more spending power and the unlikelihood of the Bank of England hiking interest rates in the short-term. (Latest figures show annual average earnings up by 3.0% – which is obviously a lot higher than the current 0.1% inflation rate).

The unemployment rate has fallen over the past year from 6.0% to 5.2% (1.71 million) – its lowest level in nearly 10 years – whilst job vacancies at 707k is at its highest in 14 years; currently, there are 31.3 million people in employment – up 505k – as average annual earnings rose by 2.4%.

Mystery surrounds the recent disappearances of several Chinese financial firms’ executives which seem to coincide with a crackdown by authorities, following dramatic mid-year falls in the stock markets. Last month, Yim Fung, the Hong Kong boss of Guotai Securities, was reported missing, followed this week by the disappearance of Fosun International’s chairman, the legendary Guo Guangchang. In addition, the biggest mainland brokerage firm, Citic Securities, announced that two of its investment bankers have gone AWOL. It could be time To Ring The Alarm!

Posted in Finance | Tagged Arabtec, DFM, Drake & Scull, Dubai, Dubai Financial Market, Emaar, Emirates, emirates airline, Emirates NBD, HH Sheikh Mohammed bin Rashid Al Maktoum, Nakheel | Leave a comment

Big Wheel Keep On Turnin’ – Proud Mary

Posted on December 17, 2015 by howesdubai

The less said about Donald Trump the better . . .

UAE is thought to be the most generous country in the world, having donated US$ 47.4 billion since its 1971 foundation. Latest figures indicate that 64.1% of aid is concentrated in three sectors – “government and civil society” (US$ 22.0 billion), “public programs support” (US$ 6.1 billion) and humanitarian and relief aid (US$ 2.3 billion). 89.4% of the aid has gone to Asia (US$ 21.8 billion) and Africa (US$ 20.6 billion).

Last week it was all about making Dubai the greenest city in the world – this week new laws, introduced by HH Sheikh Mohammed bin Rashid Al Maktoum, aim to place Dubai as the smartest global city. The emirate’s ruler is keen to foster closer ties between the public and private sectors by introducing legislation to facilitate PPPs and by authorising the newly created Dubai Smart City Office to enter into ventures with any entity to implement best practices.

Next April, Four Seasons will have their second Dubai property in DIFC – a year after the opening of its Four Seasons Resort Dubai at Jumeirah Beach. The 106-key hotel, with interiors by New York’s Tihany Design, will also have four outlets.

Another hotel due to open next year will be the 103-room Bespoke Hotel and Residences Palm Jumeirah. The UK management group, with over 200 global boutique properties, has signed a JV with Dubai-based IFA Hotels and Resorts for its first foray in the local market.

Hilton Worldwide is in discussions with both of its local partners – Majid Al Futtaim and Wasl Hospitality – to add to its current three Dubai properties (Al Mina, Al Muraqabat and Mall of the Emirates), under the mid-market Hilton Garden Inn brand. All have been opened in 2015, with the next one in Bur Dubai, slated for an early 2019 completion.

Dubai Municipality has indicated that work on its US$ 500 million Aladdin City project will start late next year, with completion by the end of 2018. Air-conditioned bridges will connect the three (25, 26 and 34-storey) towers which will comprise both hospitality and commercial space.

The US-based Nikki Beach Resort & Spa will partner Meraas Holding in a 52k sq mt resort, due to open in Q1 2016. The resort, located on Pearl Island peninsula, will incorporate other leisure facilities, including Nikki Beach Restaurant & Lounge.

Meraas has also established a new division to manage its hotel portfolio. Apart from the upcoming 7-star Bulgari, the company already has links with Emaar Hospitality, with the Rove brand, and Jumeirah, with Venu.

By H1, Dubai had 667 hotel establishments (5% higher than the same period in 2014) and 94.9k rooms – up 7%.

The latest report from Unitas Consultancy and Reidin.com seems to point to a marked slowdown in residential property sales over the past two years. For example, Dubai Marina sales for the nine months to September were down 33% to 1.5k, compared to the same period in 2014, whilst Downtown recorded a 37.5% drop to 500 units.

Work is expected to start on the US$ 6.8 billion Mall of the World in 2017, with the Police Academy moving to Academic City. The mega city, covering 1.7 million sq mt, will be finished by 2030 and will include 278 buildings, with a network of 33 roads and 152k sq mt of walkways.

Local community mall developer, aswaaq, is planning to expand its 11 Dubai community malls and supermarkets. A US$ 30 million investment will see new facilities – 3 malls and 3 supermarkets – creating 300 jobs.

Dubai is set to get two more supermarkets as Abu Dhabi-based Fresh & More, founded last year, plans a 50% UAE expansion which would bring its total of outlets in the UAE to 21 by the end of next year.

LG Gulf has spent US$ 8 million in refurbishing its anchor store in Dubai Mall. The company’s president, Yong Geun Choi, is confident that the electronics sector will continue to flourish, despite low oil prices and a drop in consumer confidence.

Emirates Flight Catering has signed an exclusive agreement with Dubai South to build an inflight catering facility for the private and business aviation sector that will be using the new mega airport.

In 2016, Emirates is expecting the delivery of 36 new aircraft (20 Airbus 380s and 16 Boeing 777s), whilst retiring 26 older units over the next two years. By the end of 2015, the fleet will be 244 strong, following the acquisition of 26 planes this year, with a further 262 planes, valued at over US$ 120 billion, on order. It is interesting to note that the fleet average age for Emirates is 5.6 years, compared to the top 5 US carriers’ mean of 10.7 years.

It is ironic that Emirates will be carrying 15k US civil servants next year as its code share partner, JetBlue, won a government tender. This comes at the same time that United announced the cancellation of its flights into Dubai, following Delta’s similar decision last month. Now none of the big 3 US carriers, (American, Delta and United), who are accusing Gulf airlines of unfair government subsidies, have a Gulf presence.

Although October traffic was up 4.4%, to 6.3 million passengers, annual growth rate at Dubai International slowed, as the impact of low oil prices, regional turmoil and a strong greenback took effect. For the first 10 months of the year, passenger numbers totalled 65.0 million – 11.2% up on last year.

A new directive from the Department of Economic Development will see the end of companies, in both the education and healthcare sectors, being able to charge extra on any credit card payment. This will come into force next February and could well be followed by similar action for the service sector.

Dubai Economic Council has signed a partnership agreement with Philips to create Dubai Global Innovation Centre, following a MoU signed in 2014. Building of the non-profit centre will start in 2016, with the aims of establishing research projects and encouraging innovation.

Although still in positive territory, the Emirates NBD UAE PMI’s rate of growth has slowed dramatically. November saw a .5 point monthly rise to 54.5 which indicates growth in the non-oil sector, despite the slump in energy prices, general wariness in the market and tightening liquidity.

Despite the doom and gloom around the emirate, growth this year is expected to be in line with the previous three years – at 4.0% – according to the DG of the Department of Economic Development, Sami Al Qemzi. Earlier in the month, Sultan bin Saeed Al Mansouri indicated 3% – 3.5% GDP growth for the UAE.

Dubai Gold & Commodities Exchange saw a monthly 41.0% growth, compared to November 2014, as year on year volumes rose by 23.0%.

A November law has established a new Dubai Statistics Centre which, inter alia, will oversee all surveys carried out by private entities; in order to ensure the quality and veracity of information contained in future reports, companies will require prior authorisation before publishing.

Dubai start-ups may benefit from the announcement that the US venture capital firm, 500 Startups, has established a US$ 30 million fund; 500 Falcons will help up to 200 MENA entities, with seed money of up to US$ 100k and will focus on e-commerce.

It seems that the recent clampdown by US authorities on dollar banking transactions is having an adverse impact on local financial institutions and individuals. In a bid to weed out money laundering and tax avoidance, both the time and compliance costs of clearing through US correspondent banks have increased. The UAE central bank governor, Mubarak Rashid al-Mansouri, has noted that this is having an adverse effect on the country’s financial institutions and has already discussed the problem with the US.

Embattled Drake & Scull received a crumb of comfort this week with a US$ 67 million MEP contract in the capital, bringing its total project awards this year to US$ 689 million. On Thursday, the company’s shares were trading at US$ 0.104 – over 58% down YTD.

The DFM opened Sunday at 3204 and closed a massive 8.1% down to 2945 – its lowest level in over two years – by the end of the week (10 December). Of the bellwether stocks, Emaar Properties lost US$ 0.17 to US$ 1.40, whilst Arabtec fell US$ 0.03 to US$ 0.27. Trading volumes on Thursday were again wafer thin, at only 215 million shares, valued at US$ 84 million changing hands, (cf 169 million shares for US$ 92 million, the previous Tuesday).

Brent crude had a week to forget, sinking by 9.7% (US$ 4.13) to US$ 39.61, whilst gold nudged up US$ 11 to US$ 1,072 at Thursday (10 December) close.

There was no deal forthcoming from the latest OPEC meeting which ended last Friday, as the 13-member bloc failed to agree an oil production ceiling. As one of the main protagonists, Iran, wants to restore its output to pre-sanction levels, before considering any production cut-backs, it is hard to predict how much this would add to OPEC supply. It is estimated that Iran will pump at least a further 1 million bpd into a bloated market that is already adding a superfluous 2 million bpd to stock levels. Basic economic theory indicates that, under the current status quo, where supply is greater than demand, prices will continue to fall. However, it is noted that since October, US producers have closed 15.3% of active oil rigs to 572, with the Energy Information Administration cutting next year’s production forecast to 8.8 million bpd, compared to current level of 9.3 million bpd.

Last month drug makers, Pfizer and Allergan, announced a US$ 150 billion merger to be followed this week by a US$ 120 billion deal between Dow Chemical and DuPont. Although the Chinese slowdown and low oil prices have proved catalysts for the chemical industry to consolidate, rising competition from non-conventional producers is the main driver. It is estimated that the merger could see the new venture saving over US$ 3 billion in costs alone.

Although on a smaller scale, the same scenario is occurring in the hospitality industry. In November, a US$ 12.2 billion deal was agreed with Marriott International acquiring Starwood Hotels. On Wednesday, Accor bought FRHI Holdings (owner of Fairmont, Raffles and Swissôtel) for US$ 2.9 billion. The deal will see the French company acquiring 155 hotels in 34 countries, whilst the current owners of FRHI, Kingdom Holding Company and the Qatari Investment Authority, will retain 5.8% and 10.5% stakes in the new venture.

As energy prices continue to fall, Woodside Petroleum announced that it had withdrawn its US$ 8.4 billion September bid for Oil Search. Australia’s 2^nd largest oil firm, of which the Papua New Guinea is a 10% shareholder, was expected to tap into that country’s gas prospects via Oil Search, whose major shareholder is also the PNG government.

German investment firm JAB Holding has acquired Keurig Green Mountain for a reported US$ 13.9 billion – this at a 78% premium on its Friday 04 December closing price, but well down on its November 2014 book value of US$ 23.7 billion. Coca Cola is the largest investor in the US maker of K-cups single-serve coffee pods and will have a 17.4% shareholding in the new private company, with Keurig maintaining its independent status. In a growing market, it is estimated that the coffee pod sector accounts for US$ 6 billion or 40% of the global coffee market.

Although an apparent agreement was reached last year, General Electric has decided not to go ahead with the US$ 3.3 billion sale of its appliance division to Sweden’s Electrolux.

Despite sales of US$ 3 billion, it is reported that Cadbury’s (now owned by Mondelez International) paid no corporation tax last year. It joins a host of other multinationals, such as Amazon, Google and Starbucks, who have courted parliamentary and public outrage, by their “legal” tax arrangements. In 2010, Kraft Foods acquired the UK chocolate maker in a US$ 17.5 billion deal, with Kraft hiving off its snacks business to Mondelez two years later.

Japanese authorities are expected to slap a US$ 40 million fine on Toshiba for the accounting scandal that saw the electronics conglomerate inflating profits by US$ 1.25 billion over a 7-year period. Over the past five years, two other Japanese companies have been involved in accounting irregularities – IHI Corp and Olympus.

It is expected that Japan will beat China to build India’s first high speed train line – from Mumbai to Ahmedabad; the 505 km journey currently takes at least eight hours but the new line would cut the travel time to just two! The US$ 14.7 billion project is one of the country’s biggest foreign investments and is a sign of the Modi government’s efforts to update India’s ageing infrastructure.

Over the past two months, employment data has surprised many analysts in Australia. In October, 56k new jobs were created and this was bettered last month with 71k extra, bringing the jobless rate down to 5.8% – a 19-month low. On the other hand, economic growth is still relatively soft at 2.5% and lower than the expected 3.2%. However, the RBA has resisted moves to cut rates which are now expected to remain at current levels for at least H1 2016.

The same cannot be said for the world’s largest dairy producer, New Zealand, which is suffering from a softening in international prices. This week, the Reserve Bank cut benchmark rates for the 4^th time in six months to 2.5%, in a bid to counter its strong dollar and boost the inflation rate which is lower than the government’s target.

The World Bank estimates that most emerging market countries’ economies have slowed over the past five years, with the prospect of more of the same over the coming years. With the exception of India, the BRIC countries have seen major economic downturns, after being touted as saviours of the world in 2010, not helped by corruption and falling commodity prices. Furthermore, many countries have seen incoming foreign investment fall, (estimated at 25%) and increasing amounts of capital returning to safe heavens. A stronger dollar is a major problem in as much it makes borrowed money more expensive to repay.

President Jacob Zuma continues to spook the markets – this time as he fired his finance minister, Nhlanhla Nene, a week after Fitch cut the country’s debt to BBB-, the lowest investment grade level. South Africa’s sluggish economy is bedevilled by falling commodity prices, lengthening power outages and on-going corruption. 2015 growth at 1.4% is at its lowest level since 2009, whilst the gross debt to GDP has almost doubled to 50% over the same period. Furthermore the rand is at a record low of 15.38 to the US$, whilst benchmark 10-year bonds, at 9.46%, are at their highest rate since the GFC.

Another BRIC country suffering the same problems is Brazil with a Moody’s rating of Baa3 – its lowest level of investment grade. At this level, overseas investors may pull out of the country particularly as no positive changes are likely next year, with a continuing recession inevitable. Q3 saw a 1.7% contraction, whilst last year the fall was 3.2% with benchmark rates at highs of 14%. The economy is being dragged down by massive corruption problems, spiralling inflation, rising unemployment and falling domestic demand.

In line with the terms of their 3^rd creditors’ bailout agreement (for US$ 93 billion), the Greek government has approved a tough 2016 budget. The country, now in its 6^th year of austerity, expects a 0.7% contraction in its economy next year, after zero growth in 2015.

Surprisingly, German October trade figures fell, with exports and imports down 1.2% and 3.4% respectively. These figures, along with disappointing industrial output figures, may indicate that the economy is hurting from the slowdowns in both China and emerging markets. However, other economic data, including its trade surplus widening 8.3% to US$ 22.8 billion, show otherwise so the government will be hoping for stronger November returns and 2015 growth nudging 2.0%.

This week is another indicator of the all too cosy relationship between government and big business, as two former labour politicians acquire lucrative postings. Former Prime Minister, George Brown, has been appointed to the advisory panel of Pimco (which also includes former Fed chairman Ben Bernanke and Jean-Claude Trichet, ex-president of the ECB). His Chancellor, Alistair Darling, has joined the board of Morgan Stanley. In 2014, the bank’s board were well remunerated with fees of US$ 75k and US$ 250k worth of stock. It is hoped that both of them have more luck than they had running the country up to their demise in 2010.

The focal point of the Meraas Holding’s US$ 1.6 billion Bluewaters Island project, Dubai-I, is facing possible delay. Dutch company Starneth Group, the designer of the Ferris wheel, and principal contractor Hyundai Engineering and Construction are locked in legal arbitration in Singapore, over management and budget issues. It is reported that Starneth, now taken over by Challenger Acquisitions, has stopped working on the US$ 40 million project and the US$ 5.6 million order for the drive system has been cancelled by Hyundai. Will the Big Wheel Keep On Turnin’ – Proud Mary?

Posted in Finance | Tagged Arabtec, Blue Waters, DFM, Drake & Scull, Dubai, Dubai Financial Market, Emaar, Emirates, emirates airline, Emirates NBD, HH Sheikh Mohammed bin Rashid Al Maktoum, Nakheel, UAE | Leave a comment

Let The Sun Shine In!

Posted on December 8, 2015 by howesdubai

In a bid to make the emirate a global centre for clean energy and green economy, HH Sheikh Mohammed bin Rashid Al Maktoum has launched the US$ 13.6 billion Dubai Clean Energy Strategy 2050. Its main target is to ensure that clean energy sources contribute over 75% of Dubai’s energy requirements to make the city have the least carbon footprint in the world. At the launch, the Dubai Ruler also revealed plans for the Dubai Green Zone, to attract industry research and development expertise as well as establishing a US$ 272 billion Dubai Green Fund.

The Palm is set to have yet another 5-star property – this time developer Nakheel has contracted Starwood Hotels & Resorts Worldwide to operate The St Regis Dubai. The 289-room, 23-suite hotel will be located on the first 18 floors of the US$ 223 million, 52-storey Palm Tower – the remaining floors will house 504 luxury apartments.

Twelve years after its launch, the long-stalled and much-changed Dubai Peal development, overlooking Jumeirah Palm, may spring back to life. Canada Business Holdings is considering this project, along with other distressed realty opportunities in Dubai, and has a war chest of US$ 6 billion to reportedly spend in the emirate. Last year, Hong Kong’s Chow Tai Fook Endowment Industry Investment Development (CTFE) took a US$ 1.9 billion stake in the 4-tower project which includes plans for 1.5k apartments, seven 5-star hotels, 60 restaurants, retail outlets and a 1.6k seat theatre.

Dubai Sports City will see yet another residential complex open by H2 next year. Fortuna Village, built around the Els Golf Course and comprising only 30 four-bedroom luxury villas, will be Victory Heights 8^th community, bringing the total amount of villas to 1k.

The world’s largest indoor theme park is set to open, almost 2 years later than planned, in Q1 2016. The IMG Worlds of Adventure, covering 1.5 million sq ft, encompasses four distinct zones – Cartoon Network, IMG Boulevard, Lost Valley – Dinosaur Adventure and MARVEL. The owners – brothers, Ilyas and Mustafa Galadari – expect 20k daily visitors.

The Dutco Group has signed an agreement with the UK-based Snoozebox – a company that converts shipping containers into portable hotel ‘on-site’ accommodation. The rooms do not require water or mains electricity but still come with en-suite wet rooms with shower, basin and toilet. They can be quickly assembled and, being fully operational within days, are in demand for major events.

HNC Healthcare Group will be spending US$ 82 million over the next five years. The Dubai-based company will start with ten new facilities in the UAE, expanding to 100 by 2020 in the GCC and India.

Schlumberger becomes the first free zone company to be licensed by DWTC as it takes up office space in the Dubai Trade Centre District. The building is already 70% pre-let, with a 588-key Ibis hotel, due to be open next year, as part of phase 2 of the development; this will also include two more office buildings.

A recent study indicates that Emirates has already contributed US$ 848 million to the Indian GDP, despite restrictions on flights. It is estimated that if the airline were allowed a further 4.5k extra weekly seats, the Indian economy would benefit by an additional 40k tourists and 4.8k new jobs. If this entitlement were to be tripled to 13.5k weekly seats, 100k new jobs would be created, that would be a boost to the GDP and foreign exchange earnings of US$ 2 billion. Despite this, there is reluctance from the Indian government to increase Emirates current weekly quota of 183 flights. (This week, Spice Jet announced plans to start Dubai flights from both Hyderabad and Jaipur).

Emirates has signed a code-sharing agreement with Malaysia Airlines which will stop flying to Paris and Amsterdam and will use Dubai as a future base. The deal sees EK passengers using MH for connections within the Asia Pacific region. Meanwhile Emirates has been ranked 6^th in a global survey by Airlinrratings.com, with Air New Zealand maintaining its top position, for the third year in a row, followed by Qantas.

Although still on the rise, with October demand up 8.3% and 11.6% on the same month last year, the rate of cargo growth has slowed in the ME. IATA reported that October global airfreight was up by only 0.5% compared to the same month last year, as measured by freight tonne kilometres.

Dubai-based hospitality group, Rotana, is planning to expand its global footprint by a further 27% extra capacity, with the addition of 3.8k rooms. The addition of 14 new hotels next year would bring its total number of properties under management to 100.

Emaar Properties has agreed a joint venture with Bitexco Group to develop a 427-hectare site in Ho Chi Minh City over the next 15 years. The US$ 1.4 billion project will be the Dubai company’s first foray in Vietnam but its 11^th in the international market that includes Egypt, India, Saudi Arabia and Turkey.

Latest figures from the Federal Customs Authority indicated a 2.4% hike in H1 non-oil foreign trade to US$ 145.5 billion as imports dipped 0.9% to US$ 92 billion, whilst exports surged 28.0% to US$ 22.2 billion. Gold, raw aluminum and jewellery accounted for 55.6% of exports, contributing US$ 7.8 billion, US$ 2.4 billion and US$ 2.1 billion respectively. Native gold, vehicles and non-composite diamonds led the imports, with 28.9% of the total, with US$ 13.8 billion, US$ 6.8 billion and US$ 6.0 billion respectively. Reexports dropped 2.0% to US$ 31.4 billion.

There was some good news for the UAE economy as its 2015 budget deficit forecast is set to be lower than expected. Because of spending cuts, abolishing certain subsidies and higher than expected revenue streams, its deficit will be 2.1% of GDP, down from the original 2.5%. The fiscal H1 deficit was US$ 5.7 billion and, at the current rate of spending, this will easily fall short of the earlier 2015 projection total of US$ 33.8 billion.

It is reported that online commodity trader, Gold AE’s trade licence has been terminated by the DMCC, following bitter disputes between its shareholders. The company had suspended its online services late last month and dissatisfied clients are being advised to take any complaints to the courts or DIFC, where the company’s parent, Gold Holding Limited, is registered.

Union Insurance has raised its stake holding in Depa by 4.7% to 11.41% – a sign that it has confidence in the troubled fit-out company’s future, despite the fact that it has lost over 25% of its market capitalisation this year; it had also reported a 44.0% decline in H1 profits to US$ 4 million. Following a Q3 loss of US$ 6 million on a 32.0% slump in revenue to US$ 95 million, the company is undergoing a restructuring which will inevitably involve staff cuts.

The DFM opened Sunday at 3204 and closed at the same 3204 by the end of the shortened week (30 November) because of National Day holidays. Of the bellwether stocks, Emaar Properties lost US$ 0.03 to US$ 1.57, whilst Arabtec fell US$ 0.01 to US$ 0.30. Trading volumes on Tuesday were marginally up but still very weak, at only 169 million shares, valued at US$ 92 million changing hands, (cf 165 million shares for US$ 54 million, the previous Thursday). In November, both shares recorded dramatic falls – Emaar by US$ 0.18 to US$ 1.57 and Arabtec US$ 0.14 to US$ 0.30 – as the index slid 300 points to 3204.

Both Brent crude and gold headed south again this week by US$ 1.62 to US$ 43.84 and US$ 9 to US$ 1,061 at Thursday (03 December) close. At the end of November, YTD, both commodities had slumped – Brent crude by 22.2% (US$ 12.72) to US$ 44.61 and gold by 10.2% (US$ 121) to US$ 1,065.

Iran has apparently overhauled the way it offers energy contracts to overseas companies, as the lifting of sanctions will see the country’s energy investment reaching US$ 30 billon. Previous oil contracts often deterred foreign participation but new ones will give investors a greater share in long-term profits. Once sanctions are finally lifted, the country plans to immediately increase production by 16.7% to 3.5 million bpd, increasing to 5 million bpd by 2020.

Every week there are never-ending stories of corruption in governments, sporting bodies, financial institutions and business entities. The latest company to come under the bribery spotlight is British American Tobacco. According to a BBC Panorama investigation, the company illegally paid off politicians and civil servants in East Africa for a number of years with one of its employees, turned whistleblower, indicating, “it was the cost of doing business there”.

The Serious Fraud Office reported that Sweett Group had admitted two 2013 bribery charges in the Middle East. The UK company provides professional services for the construction and infrastructure projects.

Fast food chain MacDonald’s is the latest international company to be investigated over its tax policy, with the European Commission claiming it has avoided paying tax in both Luxemburg and US on European royalties. The company has paid no tax in Luxemburg since 2009 despite large profits, the last one recorded being over US$ 250 million in 2013.

Ten months after Japan’s Mitsubishi Heavy Industries and Kawasaki Heavy Industries were a shoo-in to build Australia’s new submarines, without a competitive tender process, two European competitors have joined the fray. France’s DCNS and Germany’s ThyssenKrupp Marine Systems have now entered bids for a contract that could be worth US$ 36 billion. A final decision is expected in 2016 and whoever wins the project, it will prove a huge stimulant for the local economy.

Atlassian, founded in 2002 on a US$ 7k credit card debt, is expected to be valued at US$ 3.6 billion, as it goes public on New York’s Nasdaq Stock Market. The Australian software maker, whose latest revenue figures are at US$ 320 million, plans to sell 20 million Class A shares. The two Australian founders – Scott Farquhar and Mike Cannon-Brookes – are expected to retain a 67.2% stake in the new public company.

Despite the current inflation rate of 1.8%, being below its 2% – 3% target, the RBA has decided to leave rates unchanged, at the historically low level of 2.0%. Although its currency is at the relatively low 0.71 to the US$ and employment is nudging higher, the economy is still reeling from sinking commodity prices and sluggish investment. However, with signs of the economy gaining some sort of traction – quarterly company profits and wages up 2.4 and 1.0% – it is unlikely that the RBA will risk tinkering with interest rates in the short-term.

A new report indicates that over the next four years, the Australian economy will be over US$ 27 billion worse off because of the Chinese economic slowdown. The main cause of the US$ 3.8 billion increase in the current budget deficit to US$ 29.0 billion is down to China. Furthermore, it is expected that economic growth will also dip from Its May forecast of 3.0% to 2.7%.

The ECB’s moves to boost the flagging eurozone economy – by cutting deposit rates to minus 0.3% and extending the monthly US$ 65 billion QE strategy a further six months to March 2017 – seems to have been a damp squib. Even the faltering euro gained over 2% reaching 1.08 to the US$, whilst markets were left unimpressed falling over 2% on the news. More needs to be done by Mr Draghi and urgently – perhaps by lifting the monthly stimulus amount to say US$ 90 billion and cutting rates further to minus 0.5%.

On the other hand, Fed Chair, Janet Yellen, seemed to rubber stamp the first US rate increase in 9 years, expected later in the month.

With the Olympics fast approaching, the Brazilian economy continues in the doldrums with a Q3 1.7% contraction. South America’s largest economy, reeling from spiralling inflation, rising unemployment and sinking domestic demand, is being hamstrung by the massive Petrobas corruption scandal. It is expected that, over the next nine months, benchmark rates will stay at around the 14% mark, whilst the recession will continue well into 2016, following a 3.2% fall this year.

There was more disappointing news out of China – this time its PMI fell from 49.8 to 49.6 in November, indicating another downturn in its manufacturing sector which fell to a 3-year low. The world’s second largest economy is heading for a growth level of less than 7.0% which would be its lowest since 1990. The government, in actively trying to change to a consumption-based economy from its traditional export-driven one, has cut interest rates six times over the past year.

Conversely, India is heading in the other direction, as Q3 returns show an annual growth rate of 7.4%, making it the fastest growing major economy. Both domestic demand and manufacturing have increased, buoyed by lower oil and gold prices and the recent 50-point cut in interest rates to 6.75%.

In a bid to make the emirate a global centre for clean energy and a green economy, HH Sheikh Mohammed bin Rashid Al Maktoum has launched the US$ 13.6 billion Dubai Clean Energy Strategy 2050. Its main target is to ensure that clean energy sources contribute over 75% of Dubai’s energy requirements to make it the city with the least carbon footprint in the world. At the launch, HH also revealed plans for the Dubai Green Zone, to attract industry research and development expertise, as well as establishing a US$ 272 billion Dubai Green Fund. Over the next 15 years, the Dubai ruler expects every building in the emirate to have solar panels on their roofs, connected to the local grid. Let The Sun Shine In!

Move On!

Posted on December 5, 2015 by howesdubai

HH Sheikh Mohammed bin Rashid Al Maktoum donated his riding helmet to a fundraising auction organised by the Al Jalila Foundation. The charity, founded in 2013 and named after his daughter, benefitted by a massive US$ 6.5 million – probably making it the most expensive ever headgear.

On Tuesday, the Dubai ruler also launched a US$ 544 million fund to provide for the country’s innovators. Its main aim is to support an innovation environment by financially assisting it to transform ideas into projects. All applicants will be considered but priority will be given to the seven sectors outlined in the last year’s national innovation strategy – education, health, renewable energy, space, technology, transport and water.

in5 Media is a US$ 16 million start-up concept, launched by Tecom Business Parks, to be located in International Media Production Zone. The purpose-built facility will house as many as 200 entrepreneurs for a 5-month period, during which time all types of media facilities, along with mentoring and advice, will be made available. This is another part of Tecom’s US$ 1.2 billion innovation strategy that started in 2014, with its in5 innovation hub in Dubai Knowledge Village.

With a 70% forecast growth in the global urban population within 15 years, Dubai Municipality has finalised a blueprint that covers the possibility of the emirate expanding four-fold to 9.5 million. No timeframe has been given but the aim of the authority’s plan is to ensure that whatever the future it can be properly implemented. Meanwhile, DM is going ahead with plans for Desert Rose – a new sustainable city, housing 160k.

In a bid to penetrate the Saudi market, Jumeirah Group has signed an MoU with Shuaa Capital to develop hospitality projects. The deal would see the Dubai-based asset manager, which already operates a US$ 143 million Saudi Hospitality Fund 1, assisting Jumeirah with funding for land acquisition and project development. The government-owned hotel management company already operates 23 properties worldwide, with a further 25 in the pipeline.

Khansaheb has won a US$ 109 million, 2-year contract to build 250 Palm Jumeirah units for Palma Development. This is part of the US$ 409 million Serenia Residences project, designed by Hazel Wong, the architect behind Emirates Towers.

Cluttons’ latest property report has noted marginal falls in Q3 villa prices (0.5%) and apartments (0.8%), with the forecast of prices dropping a further 3% – 5% before bottoming out by Q4 next year. Interestingly, the company anticipates supply to increase by only 7.4k, 10.3k and 13.6k units over the next three years; that being the case – and with the onset of the Expo construction boom – there is every chance that demand will be greater than supply.

Furthermore, the firm’s office rental report sees a softening market, with rents remaining stable. In the current environment, rents in Al Garhoud and Bur Dubai reported annual increases of up to 10% to US$ 30 per sq ft and Bur Dubai 20% to over US$ 16 per sq ft respectively. Prime locations such as Emirates Towers and The Gate District still command premium rentals of US$ 84 and US$ 61 per sq ft.

On the rental side, Bayut.com has reported that October apartment rents rose 1.1%, as demand edged the supply curve, with reports indicating that the Dubai government had issued over 200k work permits in H1. An Emirates NBD study also showed a slowing in the pace of Q3 price declines – a possible sign that normality may be returning to the realty sector.

The Jebel Ali-based Conares is to spend US$ 25 million to expand its current US$ 200 million factory which currently produces 500k tonnes of steel rebar and 250k tonnes of steel pipes and tubes. Although local steel prices have fallen 14% this year, the company expects to see an 18% jump in 2015 revenue to US$ 260 million, as new lines (and new export markets) come on stream.

In a 5-year deal, Emirates has taken over as the premier partner of the ATP World Tour, having become a platinum partner to the men’s tennis organisation in 2013. It will also continue being the official airline partner. The carrier will be involved in about 60 tournaments a year in 32 countries, 90% of which are currently serviced by Emirates.

In a bilateral agreement, the two UAE airlines – Emirates and Etihad Airways – will operate a further 14 weekly flights to Australia which would bring the total weekly number to 161. It is estimated the Dubai carrier has 25% of the traffic between Australia and Europe – well ahead of Qantas and Singapore, each with a 15% share.

Dnata has entered the South American market by taking a majority shareholding in the 11-year old RM Ground Services, with operations in 24 Brazilian airports. The ground handling company employs over 2.1k staff, manages 400 flights daily and will be rebranded under the Dubai operator’s name.

Dubai-based Citymax Hotels, owned by the Landmark Group, opened its first overseas location – Alexandria, Egypt. The 156-key hotel and 46-serviced apartment project is the company’s 7^th property – with the other six already operating in the UAE.

After at least five years of deliberation, it does seem that a new arbitration and mediation law could become reality by mid-2016. This could be an alternative to the current time-consuming cases of bounced cheques and debts which often lead to high legal fees, excessive court time and prison for far too many. The new legislation will see cases being dealt with almost immediately by arbitration lawyers, helping to solve cases without having to go to court.

Serco has renewed its US$ 573 million contract with Nakheel to operate and maintain the Palm Jumeirah Monorail System for another five years. The same company has a similar contract with the RTA for the Dubai Metro.

Many retailers have already signed up with Dubai’s latest entrant in the mushrooming food delivery service sector. London-based Deliveroo has also launched in four other cities outside Europe – Hong Kong, Melbourne, Singapore and Sydney.

Following on from Standard Chartered cutting back on local staff, HSBC has announced the retrenchment of 150 employees in the country. This is part of the bank’s plan to reduce its global payroll by up to 50k over the next two years. The country’s 3^rdlargest bank, FGB, is reportedly shedding 100 jobs, as market conditions deteriorate because of low oil revenue and public spending cuts.

December fuel prices are set to drop again – this time Super 95 will fall 1.2% to US$ 0.46 per litre. Despite this drop in local pump prices, taxi fares have risen for the second time in a year, with passengers having to pay an additional 6.4% to US$ 0.50 per km for regular taxis and 12.0% to US$ 0.53 for airport trips.

Just as China has “Singles Day” and the western world “Black Friday” and “Cyber Monday”, UAE online retailers will be “celebrating” White Friday this week. Dubai entities such as Souq.com, Namshi.com and Crazy Deals.com will be hoping that their heavily discounted deals on that day are rewarded by a massive increase in sales.

In its bid to become the most energy efficient business hub, Economic Zones World, owner of JAFZA, has signed an MoU with DEWA to energy retrofit its 157 staff buildings, by replacing all 31k water tanks, 5k a/c units and 85k lights The 7-year project hopes to achieve a 30% reduction in operating costs, equivalent to US$ 36 million.

According to its MD, Ahmad bin Byat, the Dubai ruler’s investment company, Dubai Holding, is expected to post a 17.2% increase in 2015 profit to US$ 1.5 billion. Furthermore, the company will invest US$ 1.2 billion in local infrastructure and will be able to repay all debts on time – the last one, a US$ 760 million bond, being due in January 2017. Among its assets are Dubai Properties Group (with nearly 25k residential units), Jumeirah Group and Tecom.

Much-troubled Drake & Scull has won a combined US$ 36 million MEP contract for two Dubai district cooling plants and an Abu Dhabi tower. This brings its total of contracts won this year to US$ 654 million.

As widely expected, Abraaj Group finally divested its 49% share in Network International to General Atlantic and Warburg Pincus. The Dubai-based private equity firm acquired its shareholding four years ago in the 21-year old payments operator for about US$ 550 million but no sales figures were made available. The company, along with International Finance Corp, also exited their 30% stake in Saham Finances, a leading African insurer, for US$ 375 million.

Next week, the IMF will decide whether to include the Yuan in its global reserves whilst the Dubai Gold and Commodities Exchange has already decided to open a trade in the Chinese currency futures. This move was inevitable following Qatar’s similar move in April and the fact that the country became the UAE’s largest trading partner – recently overtaking India.

It is reported that Saeed Al Mehairbi is taking over as Arabtec’s chief executive, replacing Mohamed Al Fahim, who has been in an acting role since June 2015. Mr Al Fahim will stay on the board and remains head of finance at IPIC, the parent company of Aabar which has a 36% shareholding in the troubled construction company.

The DFM opened Sunday at 3273 to close 2.2% down at 3204 by the end of the week (26 November). Of the bellwether stocks, Emaar Properties lost US$ 0.08 to US$ 1.60, whilst Arabtec fell US$ 0.02 to US$ 0.31. Trading volumes on Thursday were down and still very weak, at only 165 million shares, valued at US$ 54 million changing hands, (cf 219 million shares for US$ 91 million, the previous Thursday).

After a month of falling prices, Brent crude reversed the trend trading up US$ 1.28 on the week to US$ 45.46, whilst gold continued to disappoint, dipping yet again by US$ 7 to US$ 1,070 at Thursday (26 November) close.

The slump in oil prices has seen a 250k global decline in employment numbers in the sector, with more on the way. According to industry consultant, Graves & Co, costs have been slashed with capex expenditure cut by more than US$ 100 billion, with over 1k rigs made idle.

Having been fined US$ 260 million last week for the dam collapse at their Brazilian Samarco mine, BHP Billiton and Vale have been accused of not taking preventative steps to cause environmental damage. The UN has compared the flood to 20k Olympic swimming pools of toxic mud, with the country’s water agency claiming that it had found arsenic levels, ten times over the legal limit.

The latest Gartner report confirms Apple’s continued expansion in the premium smartphone segment, as total Q3 market sales of 353 million units were 15% up on the corresponding 2014 period. Samsung is still the leading company at 83.5 million phones but has seen its market share fall 0.2% to 23.7%, whilst Apple posted a 0.5% increase to 46 million. Although only 3^rdto Apple and Samsung, Huawei reported an almost doubling of sales to 17.2 million units, to see their market share increase from 5.2% to 7.7%.

A massive US$ 150 billion deal will see the creation of the largest global drug maker, as Pfizer and Allergan prepare to merge. The terms include 11.3 Pfizer shares for each Allergan share, with the US company reincorporating in Ireland, a country with a lower tax regime (12.5%); known as an “inversion”, this tax saving strategy will not please US legislators.

In Australia, the NSW government has indicated that its Transgrid electricity grid will be leased for 99 years to a consortium for over US$ 7.5 billion. The Australian fund management company, Hastings, will head up the venture that will include Gulf participation by way of the Abu Dhabi and Kuwait investment funds, each with 20% stakes.

SE Asia’s 5^th biggest economy grew 6.0% year on year and 1.1% on Q2. The Philippines has benefitted by an increase in infrastructure projects, which has tripled in the past five years, since the election of President Benigno Aquino, and a growth in the services sector. Despite the progress being made, the country still suffers from lack of investment in utilities and infrastructure, with delays estimated to be costing the economy at least US$ 60 million every day.

UK public spending borrowing in October rose 15.5% month on month to US$ 12.5 billion, bringing the YTD total to US$ 82.5 billion – this represents the gap between its spending and income. In the first seven months of the tax year, government spending is up 1.1% to US$ 612 billion. This means that if Chancellor George Osborne wants to meet the Office for Budget Responsibility’s (OBR) annual forecast of US$ 105.5 billion, his borrowing over the next five months will have to be lower than US$ 23.0 billion. Currently, the UK national debts stands at US$ 2.3 trillion, equating to 80.5% of the country’s economic output.

Even though the fall in the price of oil is the leading driver for the low 0.1% inflation level, there is urgency for increased measures to stimulate the rate towards its ECB target of 2.0%. The obvious solution is to expand the ECB’s on-going US$ 1.2 trillion QE (asset purchase) program; it could also charge more for banks’ deposits, thus encouraging these institutions to lend more to industry and households. This is at a time when it seems inevitable that the US Federal Reserve will raise their rates next month.

US Q3 growth figures have been revised up to 2.5% but annual GDP was well down from previous figure of 3.9%. However, stronger returns from house building and investment, as well as growth in other sectors, point to a Fed December rate hike.

It was only three months ago that Seb Coe was elected president of the International Association of Athletics Federations, taking over from the 16-year reign of the disgraced and allegedly corrupt 82-year old Lamine Diack. At the time, the former Olympic gold medallist made light of his own six-figure ambassadorial role with Nike and chairmanship of CSM – a leading sport and entertainment agency. There are reports accusing him of lobbying for the Oregon city of Eugene (with close ties with Nike) to host the 2021 World Championships that was granted earlier in the year, without a bidding process taking place.

It has to be remembered that he was also vice president to the Senegalese for the previous eight years and referred to him as the IAAF’s “spiritual leader”. This is the same person who is now charged with taking millions of dollars to cover up positive doping tests and was reprimanded by the IOC 4 years ago for his role in a FIFA scandal.

There are similarities between the British athlete and a French footballer, as can be gleaned from an August blog, . .

”Platini has been on the FIFA executive committee for 13 years and surely association must have tainted his credentials, at least. It is obvious that a new independent leadership, untainted by past practices and corruption, is required. For the Frenchman and the rest of the senior executives, who apparently have done little to improve corporate governance, transparency and accountability at the scandal-ridden organisation, It Is Time To Say Goodbye”.

Surely, Lord Coe should now be considering his position and perhaps it is time for him (and others in the IAAF) to Move On!

Posted in Finance | Tagged Arabtec, Damac, DFM, Drake & Scull, Dubai, Dubai Financial Market, Emaar, Emirates, emirates airline, Emirates NBD, HH Sheikh Mohammed bin Rashid Al Maktoum, Nakheel, UAE | Leave a comment

Halleluiah!

Posted on November 23, 2015 by howesdubai

Austrian developer, Kleindienst is set to complete its St Petersburg project, part of the 300-island The World, by October 2016. This 3rd phase will comprise the 109-room Tzar Hotel and 40 ‘Floating Seahorses’ – floating villas including 269 sq ft of underwater glazing. This location will be the focal point of the developer’s Heart of Europe resort including adjacent islands – Germany, Monaco, Sweden and Switzerland. The first two phases, encompassing 51 similar villas, have already been sold out, with the first scheduled for handover next month.

A Saudi / Qatari US$ 545 million venture on Palm Jumeirah sees the Al Sharq Group and Al Mana Global development including a ‘W’ hotel and 104 Alef luxury apartments, with prices ranging between US$ 3.3 million and US$ 13.6 million. The project, covering 46.8k sq mt and with a 475 mt beachfront, will be ready within 18 months and is already 30% complete.

The first of three Starwood properties being built on the old Metropolitan Hotel SZR site is opening on Friday. The 358-room W in Q1 and the larger 1k-room Westin will join the 234-key St Regis Dubai, including 54 suites and the US$ 33k per night Royal Suite, by the end of June 2016. The Khalaf Al Habtoor hotel group will also see a fourth Starwood property by the end of next year – St Regis Dubai Al Habtoor Polo Resort.

Dubai-based and much-troubled builder Arabtec is hoping to win a contract for 13k housing units in Egypt; this figure is a long way off from the 1 million it was expecting to build earlier in the year. The contractor, 36%-owned by Aabar, has seen its share value plummet 85% over the past 18 months, whilst its annual losses to 30 September hve broached US$ 561 million.

Next month, Emirates will introduce its two class A380 and, with the absence of first class, its capacity will rise to 615 passengers – well above Air France; that airline has the current highest configuration for an A380 with 538 seats. The initial routes to be used will be Bangkok, Copenhagen and Kuala Lumpur.

The RTA will spend US$ 59 million in upgrading internal roads at Nad Al Sheba 4 and Al Khawaneej 2 that should be completed by early 2017. This is part of the authority’s 5-year, US$ 282 million plan to improve road infrastructure in a number of Dubai residential districts. It has already spent US$ 150 million for work in 13 different areas.

Drake & Scull, 12.8% owned by Emirates Investment Bank, made a Q3 loss of US$ 268 million, compared to a small US$ 3 million profit last year. The main driver behind this setback was the increase in impairment provisions.

The Jassim Al Ali Group has acquired the daily deals site, Nail the Deal, from Cosmos Group for an undisclosed sum. This is another indicator of the rude health of Dubai-based e-commerce sites, with the sector attracting both local and overseas investment activity and interest.

DP World’s BBB- issuer default rating agency has been raised by Fitch from stable to positive, based on improved cash flows (although still negative because of increased capex) and acquisition completions for Fairview Container Terminal and EZ World. With a 9% share of the global market, the company is the 4^th largest container operator in the world and expects to improve this position by capex spending US$ 5.3 billion over the next three years.

It is estimated that UAE expats remit over US$ 30 billion every year to their home countries, with India being the main beneficiary accounting for more than 40% of that total. The cost of remittances can be as high as 10% but the UAE is one of the lowest countries at under 3%. This figure is set to grow, as the population forecast is a further 20% ahead of Expo 2020.

This population growth – along with increased tourism and rising incomes – are the main factors behind Knight Frank’s latest finding that the local retail sector has a healthy future. Its UAE Retail Focus Autumn 2015 report noted that there is a move towards local community centres which now account for 12% of total retail supply space. However, with recent expansions to the Mall of the Emirates and Dubai Mall, along with the planned 80 million sq ft Mall of the World, the mega centres still dominate the sector.

A new Deloitte report has estimated that Dubai receives a US$ 670 million economic benefit from sport-related events, with a spend of nearly US$ 1.8 billion. Of this total, 40% is spent on the emirate’s “magnificent 7” – Dubai Rugby 7s, Dubai World Cup, Dubai Marathon, Dubai Desert Classic, DP World Tournament, Dubai Duty Free Tennis and the Dubai Tour (cycling). 14.0% of the total is spent on facilities and 9.8% on the14.5k employed in the sector.

Dubai’s October inflation rate eased to 3.3%, helped by a fall in transport costs to 1.2% (from 5.5% in September) and housing by 0.4%; however, according to latest UBS Prices and Earnings study, housing remains a major cost driver with Dubai rated the 4^th most expensive city in the world (after Geneva, Zurich and New York).

As noted in a recent blog, banks are taking a major hit from absconding owners of failed SMEs. It has been estimated that, so far this year, US$ 1.4 billion could be the potential impairment, as the low oil prices and declining liquidity take traction. Even at this total, it is less than 0.4% of the banks’ total outstanding debt balance of US$ 381.4 billion. It is a Catch 22 for the financial institutions because SMEs form a major client base sector, accounting for 60% of the UAE’s GDP.

With an investment group, led by Al Ramz Capital, acquiring 82.4% of the shares in Dubai Development Company, the company resumed trading on the DFM on Thursday. With 10 million shares, DDC has a market value of US$ 12.4 million at US$ 1.24 per share.

The DFM opened the week at 3265 and, after a disastrous Sunday, managed to close 8 points up at 3273 by Thursday (19 November). Of the bellwether stocks, Emaar Properties lost US$ 0.06 to US$ 1.68, whilst Arabtec crept up US$ 0.01 to US$ 0.33. Trading volumes on Thursday were down and still comparatively weak, at only 219 million shares, valued at US$ 91 million changing hands, (cf 264 million shares for US$ 87 million, the previous Thursday).

After a month of falling prices, it was a flat week for both oil and gold – by Thursday (19 November), Brent crude was up US$ 0.12 to US$ 44.18, whilst gold dipped US$ 4 to US$ 1,077.

There was disappointing news for those hoping that the price of oil – which has more than halved over the past 18 months – would increase in the short-term. According to the International Energy Agency, oil stock piles have reached 3 billion barrels – an all-time high. Although daily demand has risen 2 million barrels over the past five years, supply is not in equilibrium, since OPEC has failed to cut quotas and US production of shale oil has risen. Consequently, with a slowdown in global growth, demand will inevitably decrease – and even if the US shale producers close operations, there will be continued downward pressure on prices.

Australian explosives maker, Orica managed to turn an annual 2014 profit of US$ 436 million to a loss of US$ 917 million this year because of a massive US$ 1.22 billion write down. Its 1% reduction in revenue to US$ 4.1 billion has been attributed to lower Australian ammonium nitrate volumes aligned with reduced demand.

Springleaf, the second largest personal loan provider in the US, is set to acquire OneMain from its parent company Citigroup for a reported US$ 4.25 billion. Following approval from the Department of Justice and state regulators, the new entity will have 1.8k branches, dealing mainly with low cost loans under US$ 6k.

Intercontinental Hotels, with 5k hotels, will lose their number 1 spot as Marriott International has agreed to buy Starwood Hotels for US$ 12.2 billion. The new entity will boast 5.5k properties and its 1.1 million rooms will generate US$ 2.7 billion in revenue. Only US$ 300 million cash will change hands, as the rest of the deal will be equity financed.

In the UK grocery sector, German discount supermarket chains, Aldi and Lidl, now hold 10% of the market segment, as the likes of Tesco Morrisons and Asda see revenue continuing to fall by 2.5%, 1.7% and 3.5% respectively. The two relative newcomers have doubled their market share over the past 3 years. To add insult to injury, Lidl has become the “official supermarket” to England FC – along with Wales and Scotland – in multi-million dollar deals.

The UK government is to sell US$ 19.8 billion worth of the former Northern Rock mortgages to investment firm Cerberus. Following this sale, which values the asset at US$ 426 million above its current book value, the UK government has managed to sell 85% of assets of the Newcastle-based lender which collapsed in 2007, but was then bailed out by taxpayers.

The world’s 3^rd biggest economy fell back into recession in Q3 for the 4^th time since the GFC. Japan recorded a 0.8% contraction on an annualised basis – after a 0.7% fall the previous quarter. There is the urgent need for the government to take action to boost the flagging economy, as business spending fell 1.3%.

The Chinese Yuan’s rise as a global currency took another step forward with news that it will join the IMF’s basket of reserve currencies, having met its criteria of being “freely available” and “widely used”.

The weekend’s G20 meeting in Turkey was overshadowed by terrorist attacks in both Beirut and Paris. However the 2-day meeting did pledge to use all available policy tools to address uneven economic growth and to endorse the “BEPS” measures to overhaul the global tax system.

Eurozone Q3 economic growth slowed from 0.4% to 0.3%, probably signifying the extension of the QE programme by the end of the year. Whilst Germany and France recorded 0.3% growth, the other two main economies – Spain and Italy – saw figures of 0.8% and 0.2% respectively. Portugal, Greece and Finland fared even worse at 0%, minus 0.5% and minus 0.6%. The most recent data indicates the eurozone inflation rate at zero – some way off the target of 2.0%!

Since January, the ECB has pumped in US$ 64 billion monthly and is committed to continue the same until next September all in a bid to boost growth and avoid deflation. On both counts this has not worked and hence the need for further monetary action.

Following recent strong employment figures, if the US Fed wanted a further sign that a December interest hike is on the cards, it came with a rise in the country’s October consumer prices by 0.2%, with the core CPI up 1.9% on the year.

This could be yet another case of the all too cosy relationship between government and big business. The executives, who ran HBOS into the ground in 2006, will not face prosecution because of the six-year statute of limitations. It has taken banking regulators so long that their report into the financial institution’s demise will see senior management escaping any financial penalties. As the UK’s biggest mortgage lender collapsed, taxpayers – in a US$ 31 billion capital injection into Lloyds TSB – bailed it out. It will be interesting to hear why the enquiry took so long! It is heartening to read that ex-Chief Executive James Crosby subsequently relinquished his knighthood and took a cut in his US$ 880k annual pension. Halleluiah!

Games People Play!

Posted on November 19, 2015 by howesdubai

September was another disappointing month for the hospitality sector as average room rates in the 4/5-star category dropped 2.3% to US$ 208. Although occupancy levels at 76.6% remained flat, all other indicators headed south – including total revenue per available room (8.1% to US$ 283) and gross operating profit per available room (8.7% to US$ 85).

UAE-based MAN Investments has signed an agreement with easyHotel to build properties in the ME. The first one planned is a 300-key hotel in Bur Dubai which is slated for a 2017 opening.

The latest MPM Properties report indicated an 8.6% drop in Q3 Dubai apartment sales to US$ 1.15 billion as prices fell 9.0% over the twelve month period.

Damac returned a healthy 44.4% jump in Q3 profit to US$ 278 million, despite a 4.7% fall in revenue to US$ 550 million. The cumulative 9-month returns see revenue at US$ 1.84 billion, with a 43.0% surge in profit to US$ 1.0 billion.

On the other hand, troubles continue for Arabtec with a Q3 loss of US$ 257 million, compared to a US$ 19 million profit over the same period in 2014; Q3 revenue also fell 24.0% to US$ 436 million. YTD figures prove depressing reading with both revenue and profit sinking – down 10.0% to US$ 1.42 billion and a loss of US$ 529 million following a US$ 84 million profit over the same period in 2014. It was no surprise then to see that when the news broke, the developer’s share price fell 9.4% to US$ 0.34 – its lowest level in 30 months.

With less than a year to its opening, Dubai Parks and Resorts reported total assets of US$ 2.1 billion, with cumulative capex of US$ 1.3 billion. So as to ensure that the October 2016 deadline is met, the project now has over 11k workers on site, with structure work 73% complete. The theme park expects to pull in US$ 654 million in revenue over the first year of operations, as well as generating 5k new jobs.

This week saw the opening of Nakheel’s Dragon Mart 2 at a cost of US$ 272 million; the 1.4 million sq ft development has almost doubled the size of the existing facility. The extension will add 600 kiosks, 500 outlets and a multi-storey car park, along with a cinema and a 250-key hotel.

Dubai World reportedly indicated that there are no plans to scrap the 50-year old QE2. The liner was bought by Istithmar seven years ago for US$ 100 million and has been left in Dubai since then despite previous reports to be refurbished in a Chinese shipyard.

Dubai Healthcare City and Nshama have formed a JV to build Al Fursan – a mixed use development with apartments, hotels and outlets. The development, covering 2.9 million sq mt, is part of Phase 2 of DHC’s ambitious expansion plans which aim to position the emirate as one of the top global medical tourism destinations; according to the latest Medical Tourism Destination Index, Dubai is currently ranked 17^th in the world.

Local entities, Al Tayer Group and Dubai Investments, are equity partners in a new venture that will see King’s College London opening a hospital and several clinics in Dubai. The planned US$ 200 million, 100-bed hospital will be located in Dubai Hills and is slated for opening by 2018.

The former CEO of Dubai-based GFH Capital, and ex-MD of Leeds United FC, David Haigh, is due to be released from a Dubai jail early next week, following a two-year sentence for “breach of trust”. He was accused of misappropriating US$ 5 million from his former employer but has always maintained his innocence.

As one leaves another one enters. MM Ramachandran, the 73 year old owner of the Dubai-based gold and jewellery retailer Atlas Group, has reportedly been sentenced to three years in jail for issuing bounced cheques worth USD$ 9 million.

Nakheel wishes to expand Indian interest in its developments as it participates in the Dubai Real Estate Show in Mumbai. The Dubai developer estimates that Indians have already invested over US$ 681 million when buying over 4.4k of its property units, equating to 11.0% of its total output to date.

Emirates Flight Training Academy has paid US$ 39 million for five twin-jet Embraer Phenom 100Es and 22 single-piston engine Cirrus SR22s. From 2017, all training for future Emirates pilots will be carried out in Dubai in a new 500-cadet facility, currently being built at Dubai South.

In order to pay off maturing debt and help with the financing of 30 new aircraft in 2016, it seems likely that Emirates will issue up to US$ 1 billion in bonds. 60.9% of the airline’s total debt of US$ 1.82 billion is payable next year.

GE Aviation received a massive boost at this week’s air show with the announcement of a US$ 16 billion maintenance, repair and overhaul (MRO) order. This is the Dubai carrier’s largest ever such contract, covering its fleet of 150 Boeing 777s until 2027. (Coincidentally shares in its engine rival, Rolls Royce plunged 16% on Wednesday, when a profits warning indicated a further fall of US$ 1 billion as a result of sharply weaker demand).

An Indian and Italian venture – comprising Haveus Aerotech, Air India Engineering Services Ltd and AIitalia Maintenance – is building a US$ 100 million, 9k sq mt MRO facility in the same area. When operational, in mid-2017, the company will service 100 engines a year and generate 2k new employment opportunities.

At a private meeting with Sheikh Ahmed bin Saeed Al Maktoum, on the fringes of this week’s air show, Boeing has also agreed to build its ME headquarters in Dubai South. This is a major boost for the emirate in its drive to establish itself as a major global aviation hub.

At the air show, the Ministry of Defence announced two orders – with Saab and AgustaWestland. The first was a US$ 1.27 billion order for two Saab Global 6000 jets, together with upgrading two existing Saab 340s of its turboprop fleet. The Italian order covered 3 AW609 tilt-rotor aircraft, for search and rescue operations, with an option for a further three helicopters, with delivery by 2019.

The two biggest aircraft orders of the week came from Jet Airways and Vietjet. The Indian airline confirmed its purchase of 75 Boeing 737MAX, worth US$ 8 billion, whilst the Vietnamese carrier’s US$ 3.6 billion order was for 30 Airbus A321s. Total orders placed throughout the week came to just under US$ 40 billion.

Following a record Q3, which witnessed a stellar 36.0% growth in trading volumes to 4.1 million contracts, the Dubai Gold and Commodities Exchange reported a 30.0% jump in October metal trades to 58.6k contracts.

Emirates NBD has released its October Dubai Economy Tracker which indicates the slowest business expansion in over five years. There was a massive monthly dip of 4.2 to 51.4, with a marked slowdown in the travel and tourism sectors, which at 49.0 actually dipped into contraction; any reading of over 50 signifies growth.

With Abraaj planning to sell its 49% stake in local payments provider, Network International, it seems that two private equity firms are interested in a deal. General Atlantic and Warburg Pincus could link up with the 51% shareholder Emirates NBD to become owners of the region’s largest payment processor.

Meanwhile Abraaj expanded its North African portfolio by acquiring major stakes in two Moroccan oncology centres – Al Kindy and Menara. Over the past 12 years, the Dubai-based asset manager has invested over US$ 1 billion in the global healthcare sector. Abraaj was also involved in the infusion of US$ 60 million for Careem, as the Dubai-based car-booking service seeks further MENA expansion

Dubai-listed Marka announced a Q3 US$ 4 million loss due to the impact of its significant acquisition activity. The retailer currently manages 39 retail outlets and has acquired the likes of Reem Al Bawadi and the franchise rights of the luxury ice-cream brand Morelli’s.

The local healthcare and education company, Amanat Holdings, reported a 9-month profit of US$ 2 million, with operating expenses at US$ 5 million. In August, the company had acquired a 35% stake in Sukoon International Holding Company. On Thursday, its shares were trading at US$ 0.21.

Emaar Malls reported a Q3 17.2% profit hike to US$ 103 million, as its nine month profit figure surged 27.9% to US$ 327 million. Both quarterly and YTD revenue were up – by 12.0% to US$ 198 million and 15.2% to US$ 597 million. Dubai Mall accounted for 87.4% of the total tenant sales of US$ 3.7 billion. The Emaar Properties subsidiary also recorded a 6.2% increase in its assets to US$ 6.5 billion.

The DFM opened Sunday at 3451 and fell a worrying 5.4% to 3265 by the end of the week (12 November). Of the bellwether stocks, Emaar Properties lost US$ 0.01 to US$ 1.74, whilst Arabtec fell US$ 0.08 to US$ 0.32. Trading volumes on Thursday were up but still comparatively weak, at only 264 million shares, valued at US$ 87 million changing hands, (cf 106 million shares for US$ 42 million, the previous Thursday).

Oil and gold prices both fell this week so that by Thursday (12 November), Brent crude had closed 8.0% down on the week at US$ 44.06, whilst gold continued heading south, falling US$ 6 to US$ 1,081.

Although it is sad to see people lose their job, there will not be too many tears shed by those who had their Standard Chartered accounts unceremoniously closed a year ago. As part of their global restructuring, the bank is cutting 15k jobs, including 25% fewer senior staff, in a bid to save US$ 2.2 billion by 2018.

BHP Billiton saw its share value dive to its lowest level in ten years in the wake of weak commodity prices, a strengthening local currency, a royalties dispute with the Queensland government and the recent Brazilian mine disaster. The Rousseff government has fined the Australian miner – along with its Brazilian partner Vale – US$ 66 million, after a mud slide at its Samarco iron ore mine killed eight with another 19 still missing. Both companies have pledged a further US$ 100 million for relief efforts but some estimates of the final cost point to over US$ 1 billion.

Macy’s returned disappointing quarterly figures as its Q3 net income plunged 45.6% to US$ 118 million. The US department store, which also owns Bloomingdales, has cut its 2015 profit outlook and saw its share value lose 14% following the news. Meanwhile US October retail sales at 0.1% disappointed the market as growth slowed to an annual 1.5%.

The Chinese company, which last year paid US$ 2.9 billion for Motorola, plans to save a further US$ 1.4 billion, as a result of 3.2k job cuts announced earlier in the year. The world’s largest PC maker and 4^th biggest smartphone seller, Lenovo, recorded a US$ 714 million quarterly loss.

On 11 November, the 6^th Singles Day, e-commerce giant, Alibaba recorded a 53.8% increase in online trading to US$ 14.3 billion, compared to the same day in 2014. There was further good news for the maligned economy, with October retail sales jumping 11%, its quickest gain this year – an indicator that the economy is moving towards a consumption and services base. However, this was tempered by industrial production increasing 5.6%, compared to a year earlier – a return that disappointed the market and a sign that the economy continues to face downward pressure.

Egyptian authorities estimate that the country’s beleaguered tourism sector could lose US$ 280 million every month because both Russian and the UK have suspended flights, following the Sinai Peninsula crash. Those two countries account for 67% of all traffic to Sharm al-Sheikh.

After a four-month hiatus, Greece returns to its old normality with its first general strike since Prime Minister Alexis Tsipras and his Syriza party came to power in January. The unions are fighting against the terms of the country’s third eurozone bailout in which it would receive US$ 91 billion in return for unpopular tax hikes and public spending cuts.

In the September quarter, UK unemployment levels fell by 103k to 1.75 million. Although regular pay growth slipped 0.3% to 2.5%, it still indicates good news for the wage earner as inflation still hovers around the zero mark; in real terms, pay growth is still up and employees have increased spending powers. Although encouraging, the figures are not strong enough to justify any early rate hikes. Two problems that could damage growth prospects are the inflation rate being a long way off the BoE’s target of 2% and the likelihood of a property bubble in certain parts of the country, notably London.

The Bank of England governor, Mark Carney has indicated that public faith in financial markets has been shaken by “widespread misconduct”. It seems that the public are becoming increasingly disillusioned with the large scale graft and corruption in all walks of life.

Unfortunately, this is not confined to just the financial sector. On the sporting side, football, athletics and cycling have been in the headlines for all the wrong reasons. There is no doubt that such corruption and incompetence is endemic and will not only be confined to these three sports.

Activision Blizzard is acquiring King Digital Entertainment, the brains behind mega games such as “Call Of Duty” and “World Of Warcraft”, for US$ 5.9 billion. Interestingly, the latest Call of Duty: Black Ops 3 video game recorded sales in excess of US$ 550 million in the first three days of its Saturday release – more than any other game, film or music debut in 2015. There is money to be made from the Games People Play!

Posted in Finance | Tagged Arabtec, Black Ops 3, Call of Duty, DFM, Drake & Scull, Dubai, Dubai Financial Market, Emaar, Emirates, emirates airline, Emirates NBD, HH Sheikh Mohammed bin Rashid Al Maktoum, Nakheel, UAE | Leave a comment

No Good For You!

Posted on November 15, 2015 by howesdubai

Nakheel has announced its latest development for Deira Islands – a JV with Centara Hotels & Resorts for a 550-key resort, complete with a waterpark. This would bring the Dubai developer’s room portfolio on the man-made location to 1.8k whilst it will be the Thai company’s first venture in the country. Also this week, Nakheel opened its Golden Mile Galleria – a 400k sq ft development on Palm Jumeirah, with numerous retail and eating outlets and room for 1.2k vehicles.

Deloitte have released its latest tourism report for 2014 confirming that the number of Russian visitors had fallen by 15%, whilst the top three visitors were from Saudi Arabia (1.5 million), India (0.9 million) and UK (0.8 million). On the plus side, the number of Iranian and Chinese visitors grew by 41% and 24%.

It is estimated that Dubai has 369 hotels with an inventory of 75.6k rooms, with an expected 6.7% increase in supply as demand dips to 5.1%. Consequently, it is expected that both occupancy levels and average daily rates will fall slightly.

Al Ahli Holding Group is to build a Twentieth Century Fox-branded theme park over an area of 4 million sq ft. Work will start in 2018 and is slated for completion prior to Expo 2020. The designer and operator of the facility will be the US-based Rethink Leisure and Entertainment and, if successful, Al Ahli has secured the option to build three similar projects which could be in Latin America, India and East Asia.

It appears that the Al Habtoor Group is planning to hive off its shareholding in construction company, Habtoor Leighton Group. The decision to split with its Australian partner was made so that the local conglomerate can focus on its core businesses, including real estate, hotels, schools and car distributorships.

According to the latest Phidar Advisory Report, villa and apartment rentals in Dubai have fallen by 1.5% and 0.5% whilst sale prices dipped 3.4% and 3.6% respectively. Consequently, yields are now 4.8% (villas) and 7.5% (apartments). These figures differ from those that an earlier Cavendish Maxwell report espoused – 2.0% Q3 falls for both property types (the same as recorded in Q2), whilst Q3 rents had stabilised. Interestingly, over the next five years, Phidar estimates that Dubai annual demand will be at 5.8%, whilst supply could range from 2.8% – based on actual starts – and 6.7%, if all launch projects were to be included.

Of the 22.4k transactions, totalling US$ 50.7 billion, recorded by the Dubai Land Department for the first nine months of the year, 50% were mortgages (US$ 25.6 billion) and 42% cash. The Land Department also refuted rumours that it would be doubling the current 4% transfer fee.

Next week will see two major biennial events – the Dubai Air Show and Dubai International Motor Show. The latter comes on the back of UAE vehicle sales increasing by 13.0% last year and with strong H1 figures of 890k units. This year, the event, which is 30% bigger than in 2013, expects to have over 100k visitors. H1 figures show that automobiles account for 5.3% of all Dubai trade, equating to US$ 9.5 billion – a sure sign of the healthy state of this sector.

For the third year in a row, UAE has been ranked as the leading GCC country in the World Bank Group’s Annual Ease of Doing Business Report. However, its global 31^st listing was slightly lower than in 2014.

The latest Prosperity Index from the Legatum Institute ranks Norway, Switzerland and Denmark as the top three with the UAE at 30^th – ten places lower than the 2014 report. Its position fell mainly because of low oil prices and regional instability but it still remains the leading country in the MENA region.

Dubai Silicon Oasis Authority posted increases in both H1 revenue and profit – 16% to US$ 67 million and US$ 26 million respectively. Furthermore the number of operating companies increased by 11.6% to 1.2k over the same period.

DP World announced that it has acquired the remaining 49% stake in Southampton terminal and has extended its licence agreement there with Associated British Ports until 2047.

Zodiac Aerospace Services will launch its 4.5k sq mt facility, located in Dubai South. The French supplier of aircraft systems and equipment expects to generate 100 new jobs.

Largely because of the strong greenback, Emirates’ H1 revenue dipped 2.3% to US$ 12.6 billion but the airline still posted a stellar 65.0% growth in profit to a tad over US$ 1.0 billion. Over the period, manpower within the group, including Emirates and dnata, rose 4.0% to 87k. Not surprisingly, fuel prices were 45% lower than the corresponding 2014 period and although this was still the prime cost drag, at 28% of total operating expenditure, it was well down compared to the 38% figure last year.
Emirates’ subsidiary, Transguard reported a 20% increase in business over the past year. Established in 2001, to provide facilities management services, including security, recruitment and cargo handling, the company now employs 30k staff. It also manages the cash for more than 80% of Dubai’s ATMs.

H1 figures from Dubai Customs indicate that the emirate is performing well despite the slide in oil prices. Its H1 non-oil foreign trade reached US$ 177.7 billion, with imports, exports and reexports recording US$ 109.6 billion, US$ 17.7 billion and US$ 50.4 billion respectively. Surprisingly, phones accounted for 14.6% of all commodities traded, totalling US$ 25.9 billion. China (US$ 24.5 billion), India (US$ 13.6 billion) and US (US$ 10.7 billion) were the three main trading partners carving up 27.5% of the total.

The latest Emirates NBD UAE Purchasing Managers’ Index indicates a slowdown in business conditions as it drops 2 points to 54.0 in October. Although still in positive territory (signified by any reading over 50), output and new orders expansion dipped.

With the continued softening of the local market, banks are reporting an increasing amount of debt defaults by individuals and SMEs. It is estimated that over the past quarter, defaults have increased by up to US$ 1 billion, resulting in many banks having to increase their impairment losses. It seems that the smaller financial institutions are taking the hit but it is only a matter of time before the contagion impacts on the bigger banks.

The Dutch bank ABN Ambro received a slap on the wrist from Dubai authorities when it it received a US$ 640k fine for breaching anti-money laundering rules. The Dubai Financial Services Authority noted that the bank’s failings were widespread and subsequently nine employees have been reportedly terminated and 80 client accounts closed.

It is reported that venture capital firm Beco Capital has acquired a 14.8% shareholding in JadoPado for US$ 4.0 million, effectively valuing the Dubai-based online market place at US$ 28 million; the additional funding will be used for ambitious expansion plans. Beco has already invested in two other similar local entities – Careem and Propertyfinder.

As its international revenue fell and expenses rose, Etisalat recorded an 8.5% fall in Q3 net profit to US$ 531 million, as total revenue also dipped 1.0% to US$ 3.5 billion. Operating expenses were 5.4% higher at US$ 2.3 billion.

Telecom operator Du saw a 12.3% dip in Q3 profits to US$ 133 million, with revenue flat at US$ 831 million. One of the main reasons for this was a 16.6% jump in government royalty payments to US$ 131 million. The telecom operator, established in 2007, is taxed on two fronts – 12.5% on regulated revenue and 30% on regulated profit – both of which have risen this year from 10% and 25% in 2014.

Aramex reported a 7.3% increase in Q3 profit to US$ 20 million on the back of a 2.0% rise in revenue to US$ 255 million. The Dubai-based courier expects at least two acquisitions over the next six months and has already secured a US$ 150 million bank credit line to cover these purchases.

Emirates Investment Bank posted a 27.9% fall in nine months profit to US$ 80 million as at 30 September. There were marginal increases in both client deposits (1.0% to US$ 823 million) and total assets (0.8% to US$ 2.12 billion).

Q3 profits for Dubai Investments rose 30.2% to US$ 67 million, as its total assets and net worth balances rose to US$ 4.1 billion and US$ 2.8 billion. However, the company’s nine-month profit fell 24.4% to US$ 205 million because of a one-off gain of US$ 129 million from the sale of Globalpharma in the corresponding period in 2014.

Despite announcing a 123% rise in nine-month profits to US$ 4.3 million, on a 11.0% increase in revenue to US$ 28.5 million, shares in troubled Gulf Navigation fell 4.0% on Sunday to US$ 0.136.

Although Emaar Properties reported a 30.7% hike in Q3 profits to US$ 230 million, on a 56.0% jump in revenue to US$ 899 million, the figures were below market expectations. The profit figure for the first nine months of the year headed north – by 16.4% to US$ 831 million – with assets totalling US$ 42.5 billion and a land bank covering 195 million sq mt.

The DFM opened Sunday at 3503 and fell a further 1.5% to 3451 by the end of the week (05 November). Of the bellwether stocks, Emaar Properties was flat at US$ 1.75, whilst Arabtec fell US$ 0.04 to US$ 0.40. Yet again, trading volumes on Thursday were wafer thin, at only 106 million shares, valued at US$ 42 million changing hands, (cf 174 million shares for US$ 73 million, the previous Thursday).

Oil and gold had mixed weeks so that by Thursday (05 November), Brent crude had closed 1.9% down on the week at US$ 47.88, whilst gold continued heading south, falling US$ 60 to US$ 1,087.

Two international banks returned Q3 profits. HSBC posted an unexpectedly high 32.6% hike in pre-tax profit to US$ 6.1 billion. Although market conditions were tough and revenue was 4% off at US$ 14 billion, major cost reduction measures – including job cuts and selling loss-making businesses – ensured a healthy bottom line for Q3.

Due to a US$ 1.7 billion gain RBS, 73% owned by the UK government, was able to post a 6.3% increase in Q3 profit to US$ 1.5 billion. However the bank did see a 15.6% slide in revenue to US$ 4.7 billion, whilst restructuring costs rose to US$ 1.3 billion.

Toyota reported an 11.8% hike in H1 profits to US$ 10.2 billion, buoyed by a weakening yen – with a double whammy of making its export prices more attractive and inflating the value of incoming overseas profits. The world’s largest carmaker saw a marginal fall in unit sales to 4.97 million and although it is going through a major cost cutting exercise, it still has plans to build a US$ 1 billion plant in Mexico.

General Electric has finally acquired the energy assets of the conglomerate, Alstom for US$ 10.6 billion which includes three JVs – electricity grids, nuclear power and renewable power. As part of the deal, the French company bought a rail signalling division for US$ 800 million from GE.

Mainly because of the low fuel prices, eurozone inflation returned to zero in October. In the 28-member EU bloc, unemployment fell to its lowest level in almost four years by 0.1% to 9.3%, with a wide range from Germany’s 4.5% to an estimated Greek figure of 21.6%. There are still discussions in the corridors of power that the ECB may extend its QE programme to boost the sagging economy.

Just as indicators point to a US interest rate hike next month, the Bank of England has signalled that the UK rate will probably remain static at least for the next 12 months. The current rate will thus remain flat at 0.5% – the longest unchanged period in more than 65 years. At the same time, it is unlikely that it will be out in the market selling the US$ 577 billion bonds it bought via its recent QE programme until rates rise to above the 2% mark. The Bank also marginally lowered its 2015 growth rate and also forecast that the immediate inflation rate will hover around the zero level – in the long term this is No Good For You.

A Change Is Gonna Come!

Posted on November 4, 2015 by howesdubai

The big retail battle between Apple and Samsung is on in Dubai. This week, Samsung completed a major overhaul and expansion of its 9.2k sq ft flagship store in Dubai Mall ensuring that it was the electronics company’s largest global store outside of Seoul. Meanwhile on Thursday Apple launched its first ME store in the Mall of the Emirates.

Latest data shows that the world’s largest smartphone maker is losing market share, at the quarterly rate of 11.5%, whilst its American rival is expanding sales of its iPhone units by 35% a year. Q3 results indicated a 30% jump in profit to US$ 11.1 billion, on the back of the sale of 48 million iPhones; with the recent introduction of the 6S and 6S+, Q4 sales may see a record 75 million units being sold. (As an aside, Sharp is expecting to report a US$ 970 million six-month loss at the end of September, as demand for its smartphone screens dries up).

Recent estimates indicate that there are over 29k serviced apartments in Dubai, with a further 18% increase to 34.2k expected before 2020. Colliers also estimate 36% of that total is managed by international brands, the same ratio unbranded and the remaining 28% managed by local brands. 2014 occupancy rates fell by 3.3% but still registered a creditable 79.0%.

Accor Hotels and the Manazil Group are planning three new Dubai properties, and 1.1k rooms, for completion by 2019. The three hotels will be built in Jumeirah Village Triangle, being a Majlis Grand Mercure hotel, a Mercure hotel and an Adagio aparthotel.

Damac announced that it expects to open its 1k-key Damac Towers by Paramount in Q4 2016. Three of the four towers will be serviced apartments, whilst the other will be known as the Paramount Hotel & Resorts; all four structures will share a common central podium / reception area.

The 3-day Gulfood Manufacturing 2015 opened on Tuesday, attracting an estimated 1.5k exhibitors (a 35% increase on last year) and over 30k visitors, most of whom will be from overseas. As usual, the hospitality, retail and travel sectors will benefit from this influx which shows the benefit of a strong and vibrant MICE sector for the economy.

The UAE ranks 5^th in the Global Built Asset Wealth Index. The Arcadis index measures the value of built assets for every citizen with the UAE, recording a figure of US$ 141k, behind Qatar’s US$ 198k, Singapore, Hong Kong and Japan.

Emirates reached a major milestone this week when it celebrated its 30^th anniversary. Although Dubai is now the world’s largest international airport, HH Sheikh Mohammed bin Rashid Al Maktoum’s vision so long ago was not this target but to build “the aviation capital of the world”. Furthermore his strategy for the airline is one of continued innovation so that aviation can be reinvented with “new products, technologies and services”.

September passenger numbers at Dubai International increased 8.2% to 6.4 million, with YTD traffic up 12.0% at 58.7 million. Even though much of the freight traffic has been transferred to Al Maktoum International, the “old” airport still saw freight traffic up 0.3% to 207k tonnes.

It is reported that flydubai will record a 35.2% jump in the number of passengers this year to 9.8 million, despite seeing flight disruptions because of regional conflicts. Last month, the airline received the last of its 50 737s, ordered seven years ago and has a current backlog of 111 outstanding from an order made at the 2013 Dubai air show.

DP World announced a 3.2% rise in gross container volumes to 46.5 million TEUs (twenty-foot equivalent units) for the nine months to 30 September. Growth areas were the UAE (up by 4%) and Europe.

Empower has won a US$ 34 million contract to supply the US$ 1.6 billion Bluewaters project with 25k refrigeration tonnes for the island’s residential and commercial units.

Majid Al Futtaim has launched a 10-year, US$ 500 million sukuk at 255 basis points over midswaps. The wakala Islamic bond was more than three times oversubscribed.

According to a Deloitte & Touche report, the UAE design sector – including fashion (the largest contributor at 74%), architecture and furniture design – is valued at US$ 27.6 billion, ahead of Saudi (US$ 21.9 billion) and Qatar (US$11.9 billion). Over the next four years, it is expected to grow a further 30.4% to US$ 36 billion. In an attempt to rival the likes of London, Paris and New York, Dubai has already completed phase 1 of d3 (Dubai Design District) – comprising 11 buildings, 500 companies and 10k professionals. Phase 2 will be completed by 2017.

Since the beginning of August, when the petrol subsidy was abolished, fuel prices have been amended every month in line with global trends. In the first month, prices jumped 24.4% to US$ 0.58 per litre but since then, they have been pared back so that November prices will be lower than they were when the subsidy was in place. September and October saw prices fall 8.4% to US$ 0.53 and to US$ 0.49 respectively whilst November prices for Special 95 have been cut by a further 5.0% to US$ 0.46.

UAE’s oil production in September rose 0.8% to 2.9 million bpd as a US federal review indicates that the country could expand production by a further 30%. Currently, the country is the third largest producer within the OPEC cartel.

On Sunday, the federal cabinet approved the 2016 US$ 13.2 billion federal budget, with a zero deficit. Despite the low oil price, the government is still keen to go ahead with major projects in key sectors such as education, social development, public services and healthcare; these four areas accounted for 55.6% of the 2016 spend, being allocated US$ 2.8 billion, US$ 2.0 billion, US$ 1.5 billion and US$ 1.0 billion respectively.

The UAE and UK are looking at doubling bilateral trade, to US$ 25 billion, over the next five years – an ambitious programme considering that five years ago this figure was only US$ 7.5 billion; more business, such as the recent US$ 9.2 billion order for Rolls Royce engines for 50 A380s, will help achieve this target.

Union Properties is arranging a 50:50 JV with the Saudi company, Naif Al Rajhi Investment Company. Based in Riyadh, the new entity will make use of the Saudi’s company huge land bank, with the first project likely to be mixed-use, including 210 town houses and 16 apartments.

Emirates NBD reported a 7.1% rise in Q3 profits to US$ 455 million, with a 27.6% increase, to US$ 1.36 billion, for the first nine months of the year. Dubai’s largest lender, 55.6% owned by the Investment Corporation of Dubai, saw increases in loans and advances plus deposits – of 5.6% to US$ 71.3 billion and 8.0% to US$ 73.3 billion respectively. Its related bank, Emirates Islamic, announced a 109% jump in net profit to US$ 145 million.

Emaar Malls, 85% owned by its parent Emaar Properties, recorded a 17.1% hike in Q3 profits to US$ 102 million. The remaining 15% shareholding was hived off in a US$ 1.6 billion IPO last September.

This week, there were also disappointing Q3 results. Deyaar Development reported a 37.7% slump in Q3 profits to US$ 13 million, which brings its nine months’ earnings figure to US$ 52 million. Meanwhile Dubai Financial Market saw quarterly profits sink 70.4% to US$ 12 million, on the back of a serious slowdown in trading activity.

The DFM opened Sunday at 3588 and fell 2.3% to 3503 by the end of the week (29 October) and for the month, the index fell 90 points. Of the bellwether stocks, Emaar Properties was down US$ 0.05 to US$ 1.75, whilst Arabtec fell US$ 0.02 to US$ 0.44. Yet again, trading volumes on Thursday were dismally low, at only 174 million shares, valued at US$ 73 million changing hands, (cf 148 million shares for US$ 80 million, the previous Thursday).

Oil and gold had mixed weeks so that by Thursday (29 October), Brent crude had closed 0.9% up on the week at US$ 48.80, whilst gold continued heading south, falling US$ 19 to US$ 1,147. By the end of October, oil and gold were trading at US$ 46.39 and US$1,141 respectively – down US$ 2.31 and up US$ 27 on the month.

BP reported woeful Q3 profit figures as it announced a slump of 48.1% to US$ 1.23 billion and that it was cutting a further US$ 1 billion off its already reduced 2015 capital spending to US$ 19 billion. It also has to take a further US$ 426 million hit, in relation to the 2010 Deepwater Horizon accident, which brings its total cost to a staggering US$ 55 billion. Meanwhile, Shell joined BP with Q3 figures that both would like to forget – a US$ 6 billion loss following a US$ 5.3 billion profit over the same period in 2014. The company took a US$ 8 billion impairment charges after failing to find oil in the Alaskan Chukchi Sea.

To add to VW’s troubles, it has lost its top spot to Toyota in global vehicle sales for the first 9 months of the year. The Japanese carmaker recorded 7.5 million sales to the German’s 7.43 million (with GM coming in 3^rd with 7.2 million sales). The gap will be greater by the end of the year as the full impact of the emissions scandal comes into play.

With a marked slowdown in global trade, the world’s largest container carrier has trimmed its 2015 profit forecast by 15% to US$ 3.4 billion. The Danish shipping line, Maersk blames low capacity utilisation and competitive pricing which has resulted in loss-making rates on some routes.

IBM is reportedly facing investigation by regulators in three countries – US, UK and Ireland. The probe is apparently related to the way the tech company accounts for certain of its revenue transactions.

It is reported that five major banks – Barclays, BNP Paribas, Goldman Sachs, HSBC and RBS – will be fined a total of US$ 1.2 billion by US regulators. The penalty is in relation to their involvement in the foreign exchange rigging trading scandal and is the latest in a string of claims by affected stakeholders.

Despite there being no change for some time in Australian benchmark rates, most of the banks, including ANZ, CBA, NAB and Westpac, have decided to raise mortgage rates. This will cost consumers US$ 400 pa, as the average rate rises to 5.6%. Next Tuesday, the country is on holiday for the Melbourne Cup and this is always a good time for the RBA to tinker with rates – this time downwards.

Growth in the UK fell in Q3 from 0.7% to 0.5%, with the service sector, accounting for almost 80% of the economy, up 0.7% over Q2. However, construction has decreased 2.2% whilst manufacturing is in recession, having fallen in the previous two quarters. Despite the global slowdown gaining traction, the UK is still in comparatively good shape and will see a 2.3% expansion this year whilst next year may prove a little more difficult.

Any country that has cut its benchmark interest rate six times already this year is in a financial quagmire. At the beginning of the week, China shaved a further 25 points off the index to 4.35%, as well as cutting the amount of local currency banks have to maintain. The government is treading a fine line between stimulating consumer confidence and creating another higher level of debt which could easily turn into a major financial headache. In China, the latest Westpac MNI indicator – measuring consumer sentiment – fell by 7.25% to its lowest level in 8 years.

However, this week China did sign a US$ 17 billion deal with Airbus for 100 A-320s and 30 A-330s – a sure indicator that at least the travel sector in the country is booming. A recent Boeing report indicated that, over the next 20 years, Chinese airlines will need to spend US$ 950 billion buying 6.3k new planes.

Although the global slowdown has hit some of the country’s exports, including carmaker Hyundai, South Korea’s economy is now growing at an annual rate of 2.5% – its highest level in over five years. Although hamstrung earlier in the year because of the negative impact of the Mers virus on tourism and weak consumer confidence, latest figures beat analysts’ estimates.

In February, the second largest US carrier will stop flying between Atlanta and Dubai because of “unfair” competition from “heavily subsidised” Gulf carriers, particularly Emirates. Delta will use the extra capacity to fly where it “where it can compete on a level playing field that’s not distorted by subsidised state-owned airlines”. Delta is one of three major carriers lobbying the US government to take draconian action against the local airlines, claiming they have been the beneficiaries of US$ 42 billion in government subsidies. As this route has a reported 85% average seat load, it would appear that Delta’s chief executive, Richard Anderson, has no economic argument to cut this link – only political reasons to keep Emirates’ presence in the US to a bare minimum. No doubt A Change Is Gonna Come!

Posted in Finance | Tagged Apple, Arabtec, Delta, DFM, Drake & Scull, Dubai, Dubai Financial Market, Emaar, Emirates, emirates airline, Emirates NBD, HH Sheikh Mohammed bin Rashid Al Maktoum, Nakheel, Samsung, UAE | Leave a comment

Don’t Let Me Be Understood!

Posted on October 25, 2015 by howesdubai

If you thought that Dubai had enough shopping malls, think again! Nakheel has awarded contracts, totalling US$ 627 million, for three retail projects – Deira Islands Night Souk (US$ 319 million), Warsan Souk (US$ 211 million) and The Circle Mall (US$ 97 million).

United Engineering Construction will build in Deira Islands with the project having 5.3k shops and 100 dining outlets, whilst stretching over 2 km on the man-made waterfront. Due for completion by 2018, all 1.2 million sq ft of leasable space has already been let. Warsan Souk, covering 650k sq ft of retail area, will have 1.2k shops and form part of a 930-home gated community. The Circle Mall – to be built by Gulf Technical Construction Company, a division of Drake & Scull – will comprise 235 shops in its 432k sq ft of retail space.

Jumeirah Golf Estates has awarded Al Habtoor STFA Soil Group the contract to build its Alandalus collection of 54 townhouses and 674 apartments. Work will start immediately.

Emaar will launch phase 2 of its Maple townhouses on Saturday. The project, with 666 townhouses at starting prices of US$ 545k, is located within Mohammed bin Rashid City.

Nakheel was one of the first of Dubai’s big companies to announce their 9 month results – an impressive US$ 983 million profit, equivalent to a 39.0% hike on the corresponding 2014 figures. No other details were released.

Business Bay is the initial location for Dubai’s first 7-Eleven convenience store, with bold plans to introduce a national chain of 800 outlets over the next decade. The master franchise holder, Seven Emirates Investment, will have 40 stores open by the end of 2016 and is recruiting 600 new employees, mainly from the Philippines and India.

Tecom has announced that DuBiotech (Dubai Biotechnology and Research Park) and En Park Energy (Environment Park) will combine to form DSP (Dubai Science Park). The new facility will continue to offer SMEs and international companies a regional hub and facilitate innovation strategy.

A Dubai car dealer is planning to sell the Batmobile, featured in the Dark Knight Trilogy, for a reported US$ 1 million. Although it will not fly, the 5.7 litre vehicle, with a top speed of 250 kph, could soon be seen on Dubai roads.

Lower Russian demand, a strong greenback and suspended flights to Ukraine, Yemen and Syria are the main reasons why flydubai reported a US$ 40 million H1 loss, compared to a US$ 14 million profit for the same period in 2014. The airline, with a 17.2% jump in passenger numbers to 4.2 million, posted a healthy 8.7% increase in H1 revenue to US$ 599 million, although capacity had jumped 33.6% over the same period, resulting in a 12% fall in yields. Nevertheless, CEO, Ghaith Al Ghaith, has indicated that, with strong Q3 results, the budget airline is now back in the black.

This week sees the GITEX Technology Week with one of the highlights being the announcement of Yvolv, a JV between Meraas Holding and the Alibaba Group. The new IT consulting company will be an industry leader in cloud computing solutions for MENA-based enterprises.

At long last, it seems that Etisalat and du will compete directly in fixed-line business and television services. This follows on from July’s announcement that allows consumers a choice, when selecting fixed phone line and broadband services.

Dubai-based Aster DM Healthcare now has a 97% stake in Riyadh’s Sanad Hospital, after acquiring a further 57% shareholding for US$ 245 million. With five other hospitals in the GCC, the healthcare company also operates in Jordan, India and the Philippines.

TaskSpotting, a 2014 Dubai-based start-up, is already looking at expansion plans and has raised US$ 1.2 million funding from MENA Venture Investments and numerous individuals. The app gives local businesses the ability to access directly customer experiences and already has 35k users.

Aramex’s plans for setting up five Egyptian logistics sites with Orascom Telecom Media and Technology have been put on hold for the foreseeable future. The US$ 126 million proposed JV would have seen the Egyptian partner holding a 51% majority shareholding.

The Italian export credit company, Sace has granted a US$ 1.1 billion credit facility to help with the development of the emirate’s new city, Dubai South. The funding agreement was signed at the site of the Milan 2015 Expo and will help Italian companies seeking a business presence in the UAE. Dubai South – a 145 sq km new city with a US$ 32 billion mega airport being built along with a US$ 25 billion residential area – will provide a lucrative source of revenue for many companies as it gears up for Expo 2020.

As H1 bilateral trade between Japan and the GCC sank 41.7% to US$ 50.4 billion, UAE trade figures at US$ 16.3 billion were down 37.2%, with falls in both exports (9.5% to US$ 3.3 billion) and imports (43.2% to US$ 12.1 billion). The declines are attributable to a combination of low oil prices – with fuels accounting for 76% of all trade – and the weak yen.

Dubai’s September inflation rate rose slightly to 4.28% as housing costs, utility charges and beverage prices for the first nine months of the year jumped by 8.0%, 7.25% and 6.68% respectively. However for the month, the rate fell marginally to 3.9%.

Marka, the retailer that listed on the Dubai bourse twelve months ago, currently operates 38 regional stores, with the latest addition being House of Dinh Van. Its ambitious expansion plans will see a further 26 stores added over the next 15 months. Q3 returns are expected to be an improvement on Q1 losses of US$ 2.3 million and Q2’s US$ 583k.

Mashreq reported a 7.6% fall in profit to US$ 150 million – a sure indicator that lower oil prices is taking an inevitable toll on local business and that banks are beginning to suffer, with lower fees and commission income.

The DFM opened Sunday at 3698 and fell 3.0% to 3588 by the end of the week (22 October). Of the bellwether stocks, Emaar Properties was down US$ 0.07 to US$ 1.80, whilst Arabtec fell US$ 0.05 to US$ 0.46. Yet again, trading volumes on Thursday were dismally low, at only 148 million shares, valued at US$ 80 million changing hands, (cf 200 million shares for US$ 57 million, the previous Wednesday).

Oil and gold had a bad week and by Thursday (22 October), Brent crude had closed lower again, down on the week 2.8%, at US$ 48.36, whilst gold lost some of its lustre, after recent weekly gains, falling US$ 21 to US$ 1,166.

FBI staff are investigating claims that East European hackers infiltrated Dow Jones to extract sensitive market information, prior to general release. The data was then sold on to investors who make money from unpublished embargoed financial information. Also this week Talk Talk, a UK telecoms firm, has been hit by cyber criminals who have may have accessed personal and banking details of up to 4 million customers. The Met Police are carrying out investigations.

It is expected that over 8.5 million VW vehicles will be recalled in the 28-member state EU following the diesel emission scandal. Next week Q3 results are expected to show that Europe’s largest carmaker has made a US$ 3.9 billion operating loss, whilst making a US$ 7.2 billion provision in relation to this self-inflicted problem. The potential financial damage could run as high as US$ 40 billion.

In line with its peer group, Morgan Stanley returned disappointing Q3 figures, as net sales fell 13.0% to US$ 7.77 billion and profits nosedived 42.4% to US$ 939 million.

Apple has lost a case against the University of Wisconsin and has been ordered to pay US$ 234 million in damages. The Californian tech company was found guilty of infringing mobile chip technology already patented by the educational facility in 1998; it is set to appeal the verdict.

The EU Competition Commissioner has ordered both Starbucks and Fiat Chrysler to pay back up to US$ 30 million in taxes, having decided that tax deals with Netherlands and Luxembourg respectively were state aid. It found that any measures to artificially reduce a company’s tax liability are illegal and not in line with EU legislation. These two decisions represent the tip of the iceberg and could see other companies such as Amazon and Apple falling foul and ultimately left with huge tax bills.

A mega e-commerce delivery business tie-up is expected to get the green light from the EU. The deal will see FedEx pay US$ 5.0 billion to acquire its Dutch rival, TNT Express, and could be finalised early next year.

Hugo Boss has blamed the double whammy of US and Chinese economic slowdowns, along with weakening Asian consumer confidence, as it revised its Q4 profit forecast downwards to as low as 3%. As news of a 1% fall in Q3 sales reached the markets, its shares fell by almost 10%. Last week Burberry shares sank 8% on the back of poor Asian data and particularly from China where trading had become “increasingly challenging”. The slowdown in China’s economy will continue to hit demand for many luxury brands.

The Australian housing market is beginning to flat line with a marked decline in the rate of realty price growth in both Sydney and Melbourne. The quarterly growth in median house prices more than halved in both cities to 3.2% (from 7.7%) and 2.8% (from 6.0%) respectively. This slowdown comes after annual increases of 21.7% and 15.6% in these two locations, as prices in Brisbane remained flat whilst Perth and Adelaide headed south.

Despite the Chinese economic slowdown, Australian miner, Rio Tinto, recorded a 17% increase in Q3 iron ore shipments – well on its way to meeting its annual target of 340 million tonnes. This is despite the massive fall in prices, over the past 18 months, which on Thursday (22 October) stood at US$ 54.17.

China is expected to invest over US$ 46 billion in the UK, including a 30% investment in a nuclear power plant to be built by a consortium comprising France’s EDF and the Chinese state company CGN. This could produce 25k new jobs and, when completed in 2025, will provide all the energy requirements for 6 million homes. China’s investment splurge and trade deals were announced during President Xi Jinping’s 4-day state visit. (In a bid to boost the number of Chinese tourists, David Cameron’s government is considering a move to cut two-year visa costs by 74% to US$ 130. How about doing the same for UAE applicants?).

As widely expected, Chinese Q3 growth fell below 7% in Q3 – the 6.9% return was the lowest since the GFC. (There are doubts whether this figure is correct and, when other factors are considered, this could easily be halved). There is an urgent need of structural changes as the world’s second largest economy continues to soften with major indicators – including manufacturing, imports and inflation – heading south. Continuing volatility in the stock markets, following the summer collapse, only adds further pressure on Premier Li Keqiang to introduce measures to shore up the flagging economy. To further exacerbate the problem, there is the huge debt bubble to consider, allied with the country’s highly unregulated shadow banking sector.

Talking of wonky figures – for some time this blog has questioned the veracity of some data emanating from the local realty sector – be it from so called consultants, financial institutions, agents, brokers or other interested stakeholders, often with a vested interest! This year, for example, some reports were indicating over 25k units would be handed over in the Dubai supply chain – it seems that less than 10k will be nearer the mark as the two major developers – Emaar and Damac – will only be releasing 2.3k units in 2015.

Over the past two years, Dubai’s population has grown at an annual rate of 7.6%, with official data indicating that the number of Dubai households at the end of last year stood at 448k. If the construction labour content (say 800k) were taken out of Dubai’s current population of 2.4 million, a 7.6% increase would see an additional 122k new residents. At that rate, Dubai would need to find an extra 30k residences a year. Don’t Let Me Be Understood!

Posted in Finance | Tagged Arabtec, DFM, Drake & Scull, Dubai, Dubai Financial Market, Emaar, Emirates, emirates airline, Emirates NBD, Etisalat, HH Sheikh Mohammed bin Rashid Al Maktoum, Nakheel, UAE | Leave a comment

Fast Car

Posted on October 20, 2015 by howesdubai

Civil Engineering and Contracting has already started work on The Rosemont Hotel & Residences, located in Tecom. The 47-storey twin tower project will not only have 450 hotel rooms and 280-serviced apartments but will also boast an artificial beach and a rain forest environment on the top of its 5-storey podium.

The building of the Emerald Palace Kempinski Hotel on Palm Jumeirah will definitely take place now that Sunrise Properties has obtained finance for the deal. A US$ 140 million Islamic loan has been secured but no other details have been made available.

Dubai Industrial City is expanding at a fast rate, with latest YTD figures indicating a 28% rise in revenue and an even bigger 59% jump in gross profit. The 55 sq km development – located adjacent to Al Maktoum International Airport and JAFZ – has welcomed an additional 700 new companies so far this year.

Dubai Duty Free has announced that it will sponsor golf’s Irish Open for a further three years, following the success of its initial involvement, earlier in June. Consequently, 2016 prize money will jump 60% to US$ 4.5 million, making it one of the more lucrative purses on the European tour. Rory McIlroy will again host the tournament on behalf of his charity, the Rory Foundation.

Buroj Property Development is planning to invest US$ 1 billion in the first phase of a US$ 4.9 billion Bosnian tourist resort project. Located near Sarajevo, the Dubai-based developer will start work on the 1.3 million sq mt ‘Buroj Ozone’ in H2 2016 and estimates that the entire project will be completed within 8 years.

The RTA is set to increase the number of operating taxis by 34.4% to 12.8k vehicles over the next five years, so as to meet the expected increased demand.

DEWA will be spending over US$ 16 billion over the next five years to meet increasing consumption; it is expected that water and power demands will see annual growth levels of 6.8% and 6.4% respectively.

The first phase of DEWA’s US$ 1.8 billion Hassyan contract – a 1.2k mw clean coal power plant – has been awarded to a syndicate, led by China’s Harbin Electric and ACWA Power from Saudi Arabia. The bulk of the financing – US$ 1.6 billion – will be shouldered by consortium members, with DEWA investing the remainder; however, the utility provider will maintain a 51% shareholding. Phase 1 should be finalised by 2021, with phases 2 and 3 – bringing on line a further 2.4k mw – will be introduced at a later stage.

Hadeed Emirates Contracting Company has won a DEWA contract to construct the Solar Innovation Centre at the MBR Solar Park. To be opened within 18 months, the facility will be an exhibition centre for solar and renewable energy – attracting academics, tourists and other interested stakeholders.

UK-based Brand Finance has ranked “Brand UAE” as the third in the world after Singapore and Switzerland, with a value in excess of US$ 400 billion. The 2015 list sees the country move up 18 places and measures countries’ global brand and strength, taking into account factors such as quality of life, security and the ease of doing business. Emirates continues to be both the region’s – and the airline industry’s – most valuable brand. This year, it has jumped 38 places to 196, with its value increasing by 20.4% to US$ 6.6 billion.

Restructuring discussions have restarted in London between creditors (owed US$ 2.3 billion) and Dry Docks World; 35% of this debt falls due in 2018, with the balance nine years later. The six-man steering committee, comprising three persons chosen by the banks and three hedge fund investors, represents about 70% of the outstanding balance, with the hedge funds owning a large portion of the debt. This is the second restructuring plan, subsequent to the first in 2012, when the company was having financial problems, following large-scale expansion, mainly in SE Asian shipyards.

The DMCC (Dubai Multi Commodities Centre) – housing 11k companies and 85k people in offices and apartments – has been named as 2015’s “Global Free Zone of the Year” by the FT’s fDi Magazine. The award serves as a confirmation of its prime position as a global hub.

According to the latest Emirates NBD UAE PMI, there has been a slowdown in business growth, with the September index falling from 57.1 to 56.0; as any reading over 50 equates to expansion, there should not be much need for concern. However, indicators to watch over the coming months will include the relatively high inflation rate (which has seen output charges increase), foreign orders, growth of new work and the rate of hiring.

The Dubai International Financial (DIFC) Court has seen a massive 482% hike, to US$ 1.44 billion, in the value of cases heard in the first nine months of the year. The average value of claims rose by 137% to US$ 26 million.

On Sunday, trading in the Saudi telecom, Mobily, 27.5% owned by Etisalat, was again suspended by that country’s market regulator. The Capital Market Authority was awaiting details about shareholders’ compensation claims, arising from losses because of last year’s accounting irregularities, before deciding to allow trading to continue on Tuesday. Following revelations last year that the company’s earnings had been misstated, Mobily has seen more than US$ 5 billion wiped off its market value.

Following an 11.6% month on month slide in August, the DFM market capitalisation dropped a further 0.7% in September to US$ 89.0 billion. The DFM opened Sunday at 3706 and slid 8 points to 3698 by the end of the shortened week (14 October) because of the Islamic New Year. Of the bellwether stocks, Emaar Properties was down US$ 0.02 to US$ 1.87, whilst Arabtec fell US$ 0.01 to US$ 0.51. Yet again, trading volumes on Wednesday were desperately low, at only 200 million shares, valued at US$ 57 million changing hands, (cf 134 million shares for US$ 64 million, the previous Thursday).

Oil and gold had mixed weeks and by Thursday (15 October), Brent crude had closed noticeably lower, down on the week 6.3% at US$ 49.73, whilst gold continued its recent upward trend, jumping US$ 43 to US$ 1,187.

IATA has noted that the average global airfare has fallen by 13% in the first 7 months of the year. Although low oil prices are the main downward driver, the strong greenback and increased capacity are other factors at work.

Further disappointing September trade figures emanating from China showed annual exports and imports down 1.1% and a worrying 17.7% respectively. The country is in the throes of a fundamental economic shift to a consumer-led economy from being an export driven one. China recently downgraded its annual growth forecast to 7.3% but this could turn out to be lower come the end of the year.

Largely because of an annual 14.9% decline in the cost of fuel – and a smaller fall in food prices of 2.5% – the UK returned to negative inflation (-0.1%) in September. In the short-term, at least, this is good news for the average person, as the consumer can buy more for the same amount of money. It also reduces the possibility of an interest hike this year. The country’s September jobless rate at 5.4% is the lowest in seven years.

The OECD recently reported that laws allowing companies to move from high to low tax regimes resulted in the loss of global tax revenues of up to US$ 240 billion. Now it seems that Facebook, with advertising revenue of US$ 3.6 billion and global profits in excess of US$ 2.9 billion, only paid US$ 6.6k UK corporation tax; this was after having made a US$ 44 million loss and paying staff bonuses of US$ 54 million. No wonder that the likes of Google, Amazon and Starbucks (which between 1998-2012 paid US$ 13 million tax on revenue of US$ 4.6 billion!) are subject to on-going EC investigations.

Following the collapse of the Anglo Irish Bank in 2009, which cost the Irish taxpayer US$ 34 billion in bailout funds, its boss David Drumm fled to the US, where he filed for bankruptcy. With the failure of his bid in the Boston courts, he could be liable for debts of US$ 12 million and has been arrested on an extradition warrant from Ireland.

Last week, Deutsche Bank’s Q3 results showed a US$ 1.3 billion provision for legal fees. This week, JP Morgan Chase did exactly the same as it reported a 23.6% hike in net profits, to US$ 6.8 billion, despite a 6.0% decline in revenue to US$ 23.5 billion but helped by a US$ 2.2 billion tax credit.

It is reported that the Malaysian Central Bank has recommended criminal action against the state investment fund 1MDB which has invested over US$ 1.8 billion overseas, without formal documentation. Strangely enough, it seems that the fund, set up in 2009 by Prime Minister, Najib Razak, has recently been mired in controversy when it was discovered that some US$ 700 million had been transferred to his personal account from entities linked to 1MDB. Furthermore, the fund has alleged debts of US$ 11.5 billion.

It seems that the major Petrobas fraud in Brazil could top US$ 5.4 billion. The scandal is estimated to have cost the state-owned oil company at least US$ 1.7 billion, over a ten-year period, as it paid out a combination of bribes, fake invoices and inflated contracts to politicians, executives and suppliers. Over time, the corrupt practice extended into other sectors resulting in the implication of many senior people. Dilma Rousseff was the chair of Petrobas at the time, prior to becoming the country’s President.

A strain of malware, known as Dridex, has allowed East European cyber criminals to steal at least US$ 33 million from UK bank accounts. Their modus operandi is to initially infect computers and then harvest on-line bank details to steal money from unsuspecting victims.

The world’s biggest luxury goods giant, LVMH Moët Hennessy Louis Vuitton, reported an 18.0% surge in revenue to US$ 28.7 billion for the first nine months of the year, boosted by a weaker euro. The French company recorded growth in both Europe and the US but its standout market was Japan.

VW is cutting next year’s investment programme by US$ 1.1 billion, as it starts to come to terms with the consequences of the diesel emissions scandal, involving at least 11 million vehicles. The disgraced German car-maker has already made provisions of US$ 7.2 billion but with the prospect of huge penalties, from various governments, numerous lawsuits and possible criminal cases, the ultimate figure could be higher than US$ 40 billion. To make matters worse for ‘Das Auto’, it appears that Leonardo DiCaprio is considering a Hollywood film about the German debacle.

Troubled Glencore is set to shed 1.5k jobs as its cuts both its lead and zinc production – in Australia, Kazakhstan and South America – by 33%. Ironically, the price of zinc climbed 12%, to US$ 1,875 per tonne, on the news that the Swiss conglomerate was to reduce output by 500k tonnes, equivalent to 4% of global supply. In order to reduce its US$ 30 billion debt burden further, the company is also selling two of its copper mines – in Australia (Cobar) and Chile (Bayas).

There were two massive corporate deals and two minor ones this week. In the largest ever technology acquisition, Dell has paid US$ 67 billion for EMC Corp. Consequently there would be synergy between the buyer’s second position in servers with EMC’s supremacy in storage data devices.

Meanwhile it appears more likely that Anheuser-Busch InBev, with 20.8% of the global beer market, will take over the world’s second brewer SABMiller (9.7%) in a US$ 70 billion tie-up. The enlarged company will have a dominant market share (30.5%) compared to the 21.2% of its three remaining rivals combined – Heineken – 9.1%, Carlsberg – 6.1% and China Resources Enterprise – 6.0%.

This week, Melbourne boutique brewer, Mountain Goat Beer also sold out – to the Japanese-based Asahi for an undisclosed amount. However Australia’s Treasury Wine Estates – which includes Penfolds, Rosemont Estate and Wolf Blass in its portfolio – has acquired a majority shareholding in the UK’s Diageo’s wine business. TWE is the biggest global publicly listed winemaker. Last week Diageo sold two of its brewing companies to Heineken for US$ 780 million.

Fiat has announced that it is planning a New York IPO for the sale of about 9% of Ferrari. It is expected that 17.2 million shares will be on offer, at a price of between US$ 48 – US$ 52, valuing the issue in the region of US$ 825 million – US$ 894 million. At this level, Ferrari would be valued at just under US$ 10 billion for a company which only sold 7.2k vehicles last year and whose latest figures indicate an annual profit of US$ 787 million. This IPO represents a lot of money for a Fast Car!

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