I Heard It Through The Grapevine

Posted on July 16, 2014 by howesdubai

mall-of-the-world-dubaiHH Sheikh Mohammed bin Rashid Al Maktoum stunned everybody with his latest announcement – the world’s largest (covering 48 million sq ft) and first temperature-controlled city – Mall of the World. There will be many components to the new US$ 6.8 billion project including the world’s largest shopping mall, at 8 million sq ft, the world’s largest indoor theme park, with a dome that can be opened in the winter months, 100 hotels and serviced apartments (comprising 20k rooms), a cultural area and a Wellness District.

The proposed location on SZR will not do much for traffic flow, the timing may be a problem, especially with all the work that Expo 2020 will entail, and funding such a massive project will tax the minds of financing gurus. Apart from these potential problems, this can only be a tremendous boost, in the long run, for the Dubai brand.

Another property update – this time by Asteco – confirms that Q2 prices were flat (by Dubai standards), with 6% growth for apartments and half that for villas. Current hotspots include Dubai Marina, Downtown and Jumeirah Village that have posted annuals gains of 62%, 52% and 46% respectively.

The owners of Lamcy Plaza, Lals, and Regal Group, a textiles company, have formed Signature Developers in a surprise move to enter the burgeoning residential and hospitality sector. Their initial foray will be a 220 metre tower block, located near Dubai Mall, and priced at the luxury end of the market whilst the second will be a mixed-use 44-storey building in JLT, including a 170-room 5-star hotel.

Construction has already started on two residential developments in Al Furjan which are expected to be completed by the end of next year. The 11-storey buildings were initially planned prior to the GFC but have now been unveiled again by Azizi Developments.

The 4th MasterCard Global Destinations Cities Index sees Dubai move into the top five as it sees a 7.5% rise in overnight visitors to 12 million. Only London, Bangkok, Paris and Singapore will have more visitors. Last year data from the Department of Tourism and Commerce Marketing showed a 10.6% rise in visitor numbers to 11 million.

According to the Sunday Times, there is a consortium, headed by Dubai’s Khalaf Al Habtoor, planning to spend US$ 1.7 billion buying iconic hotels in the UK capital. Although no specifics have been revealed, it is known that the Al Habtoor Group is keen to expand their hotel ownerships in Europe, especially London and Paris.

Having recently cancelled a US$ 16 billion order for 70 Airbus 350s, Emirates has finalised a US$ 56 billion order for 150 Boeing 777s, with purchase rights of a further fifty. With this order, the 777 fleet will have 208 planes making the Dubai-based airline its largest operator in the world.

As part of their 2012-2016 plan, the RTA have completed work, valued at US$ 109 million, on 193 km of internal roads in Al Quoz, Barsha, Khawaneej and Hatta. Further work on roads in Al Warqaa and Muhaisnah should be completed by the end of the year. Despite all this, the highways are as busy as ever – testament to the booming economy and influx of people.

This is borne out by official H1 figures from the General Directorate of Residency and Foreigners Affairs in Dubai which issued 571k new residency visas – up 30.6%. With 515k residency visas renewed and 382k cancelled in this period, it indicates that there is a big increase in people living in the city.

In H1, Dubai Auto Zone – part of the government’s Economic Zones World – recorded a 64.0% increase in trade to US$ 1.48 billion. DAZ currently houses 420 companies, with its key trading partners being found in Russia and Africa.

The Dubai Multi Commodities Centre has reported a 30% annual hike in the number of companies to 8.9k, of which just over 1k have established over the past six months. The free zone is the largest in the region and currently comprises some 65 tower blocks and this does not include the Burj 2020 which will become the world’s tallest commercial tower; work is expected to start next year.

Nakheel reported a 54.2% jump in H1 profits to US$ 504 million. The company announced that it would repay an outstanding US$ 1.5 billion debt four years earlier than scheduled – a sure sign that the government-owned developer considers that the good times are back.

DP World, which operates some 65 ports all over the world, is involved in a spat with Djibouti authorities who have failed in court attempts to stop the port operator operating Doraleh Container Terminal in that country. The dispute is all about how the initial 2000 contract was awarded and how payments were made.

Troubled Gulf Navigation, Dubai’s only listed crude oil shipper, has cut its capital base from US$ 452 million to US$ 150 million in a move to solve its debt difficulties. By a reverse stock split (three former shares now equal one share), the company has managed to write off US$ 300 million in losses. The sale of two vessels and the issue of a US$ 130 million convertible bond will help cash flow.

With an additional capital inflow, Emaar Economic City – a consortium of Emaar Properties and Saudi investors – now holds 50% (or US$ 693 million) of Port Development Company, with Huta Marine Company holding the balance. The cash injection will be used to internally finance the second phase of work on the King Abdullah Economic City port, located on the Red Sea. The facility has a capacity of 1.3 million teus (twenty-foot equivalent units), set to rise to 4 million by 2016.

Limitless has confirmed that its Vietnamese JV partner, Sovico Holdings, had received an investment certificate from the Quang Ninh state which now allows the Dubai developer to move a step closer to start infrastructure work. The Halong Star project, in the country’s north-east , includes housing, retail and a hotel.

Dubai-based Metito Holdings has signed a partnership agreement with three Japanese companies – Mitsubishi Corporation, Mitsubishi Heavy Industries and Japan Bank for International Corporation. The Japanese triumvirate will invest heavily in the water management solutions company as the bank will provide funds of US$ 92 million and the two other companies have purchased 38.4% of the shares for an undisclosed amount.

Not surprisingly after the recent stock market mini-crash, the authorities are planning to tighten up procedures and supervision to avoid “another” Arabtec. The Securities and Commodities Authority will set up a technical committee to look into share trading integrity and preventive stock manipulation measures.

The DFM, opening on Sunday at 4400 points, had another eventful week to close Thursday up 4.0%, or 175 points, at 4575. Emaar and Arabtec, ended the week on US$ 2.62 and US$ 1.14 respectively.

Two recent studies – from the IMF and Bank of America – indicate that Dubai’s economy has gained traction and is heading to growth levels in the region of 5%. The usual drivers – tourism, high oil prices, a turnaround in the realty sector and trade – play a big part in this positive and solid outlook. Although there has been some welcome restructuring in the GRE debt, this still needs close monitoring, as does property speculation – if it starts to get out of hand again.

Meanwhile, the IMF has again lowered its French growth forecast to 0.7%, only three months after its previous revised estimate of 1.0%. There is no doubt that Europe’s second largest economy needs major structural reforms, as unemployment hits a new high of 3.39 million and the Hollande government struggles to cut the country’s public deficit to 4.0% – as opposed to 3.0% as laid down by eurozone rules. Whether the government will be able to slash public spending by US$ 68 billion, within the next three years, remains to be seen – if not, any future growth plans and reduced unemployment go out of the window.

Even the once mighty German economy is under the cosh as its industrial output dropped for a third consecutive month. This comes after the latest ECB’s warning that a prolonged period of low inflation in the bloc will hamper any meaningful recovery. The odds are increasing that the central bank will loosen its monetary policy sooner rather than later in a bid to reverse the worrying downward inflation spiral and the low patchy growth.

With inflation nudging upwards and its QE program tapering downwards (now at US$ 35 billion per month from its January total of US$ 85 billion), there is no surprise to see pressure on the US dollar. Because Q1 saw the GDP contract by 2.9%, it seems highly unlikely that the Fed’s 2014 target will be met unless the US economy can show 5% quarterly growth over the next three quarters. The Fed has a difficult balancing act – if they were to end QE, there is every chance the economy would fall into recession and if they continue with QE, at current levels, inflation would inevitably rise.

The UK largest drug conglomerate – GlaxoSmithKline – is having a bad time in China. There is a possibility that the company could be thrown out of the country if the massive bribery case, now going on, goes against GSK. Former country head Mark Reilly, and Peter Humphrey, GSK’s own internal investigator, are in detention.

The SCA (Securities and Commodities Authority) has advised investors to ignore rumours about Arabtec Holding. This warning could be of use in many cases as Dubai sometimes seems to thrive on rumours spread mainly though the social media. Obviously, interested stakeholders will look after their own interests and may spread rumours that a certain market is going up or down, a certain company (or individual) is in trouble etc. Even General Sheikh Mohamed bin Zayed Al Nayahan has come out about the President’s health rumours and urged all citizens to validate the transfer of information.  Hopefully there will come a time in Dubai when we can rely on fact and not I Heard It Through The Grapevine.

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A Hard Rain’s Gonna Fall

Posted on July 6, 2014 by howesdubai

nakheel-deira-islandsIt seems that the government has been successful in its aim to take the heat out of the burgeoning property market. A mere 1% hike in Q1 prices indicates that the introduction of a mortgage cap, along with the doubling of transfer fees to 4%, has had the desired impact. Q2 is likely to see similar returns but, with current demand outstripping new supply, H2 may well see higher price hikes.

Although local commercial rents continue to escalate so much so that Dubai is now the costliest regional market, CBRE’s latest report indicates that Dubai is still relatively cheap on the global scale. The emirate is ranked 23rd, with costs of US$ 92.56 per sq ft – a long way behind the likes of London’s West End, Hong Kong and Beijing with rates of US$ 277, US$ 242 and US$ 194 respectively.

Another report by Knight Frank shows that there was a 6% increase in residential prime rentals in Q1 – the fastest rate anywhere in the world. There are some estimates that put rental increases over the past two years at 45% and, if this trend were to continue, it could mean a mini-exodus, as residents move to other emirates for more affordable property.

Three Dubai developers have joined forces to build a major development that will have 2k residential units, a hotel, office buildings and retail outlets. Aristocrat Star Real Estate Development, PAL Developments and Pacific Ventures have yet to announce the complex’s location or price but hope to start work in September.

RSP Architects have won a US$ 10.9 million design and supervision contract for Nakheel’s 620k sq mt entertainment hub on Deira Islands. When completed, the 15.3 sq km site will have added 21 km of new beach and is set become a world-standard resort.

Following a slight decline the previous month, May has seen a further drop for Dubai’s hotel occupancy rates from 84.3% to 82.2%. This fall was compensated by a 4.6% jump in profitability to US$ 309 and a 3.5% increase in RevPAR (revenue per available room) to US$ 248.

Sheikh Hamdan bin Rashid Al Maktoum, deputy ruler of Dubai, has ordered that landowners, who have suffered property damage caused by Dubai Municipality expansion work in the CBD, can now claim damages. Depending on the size of the claim, compensation can take the form of cash up to a value of US$ 545k, the option to have an additional floor built on their building or a new plot of land.

This week, Emirates increased its fuel surcharge to reflect recent rises in oil prices. In its latest annual accounts, for the year ending 31 March 2014, the airline had seen its fuel bill up 10.4% to US$ 8.4 billion, accounting for 39.2% of its total operating costs of US$ 21.3 billion.

With still another three weeks before the 80-day runway maintenance is completed, it was not surprising that May passenger numbers dropped 2.5% to just over 5 million; airport movements reduced by 26.6% to 22.9k. Dubai Airport has announced that trial runs will start next month for Concourse D. This new terminal, linked by train to Terminal 1, will be used by 100 airlines and will help to increase the airport capacity to 90 million passengers.

Although global air cargo in May showed a 4.7% expansion, year on year, the Middle East growth was almost double at 9.3%. This is a sure indicator that the regional economic climate and business confidence are improving at a much quicker rate than say North America, Europe and the Asia Pacific where growth rates were much lower at 2.4%, 3.4% and 5.3% respectively.

The RTA is planning to spend a further US$ 10 million on ten footbridges with the aim of reducing pedestrian accidents.Over the past seven years, fatality rates have dropped from 9.5 per 100k to 1.2k. as footbridges have increased sevenfold to 100 over the same period.

Following their move two years ago, introducing formal assessments and licensing of all real estate agents, RERA have now announced annual testing. In future, all property brokers have to pass an exam set by the Dubai Real Estate Institution (DREI) for annual renewal purposes.

Surprisingly, 7-Eleven convenient stores – with almost 53k outlets worldwide – will make their Dubai début next year. The local company, Seven Emirates Investments, expects to roll out a further 100 stores in the UAE by 2017.

Already with a US$ 100 million Indian order book, Dubai-based Drake & Scull International has won a US$ 83 million contract to build a  400 kV 152 km transmission line for the Uttarakhand Project.

Local developer, Eagle Hills has announced a US$ 5.5 billion investment that will see the regeneration of the run-down Belgrade Waterfront. The project in Savamala, due to start next year, will include a 200 mt tower and is set to become the residential and commercial hub for the Serbian capital. With Emaar’s chairman, Mohamed Alabbar, an executive director, there is every chance that the 1 million sq mt project will be a success.

Following the April acquisition of Dubai-based National Petroleum Services, for a reported US$ 500 million, Abu Dhabi’s Waha Capital has acquired 20.56% of the company for US$ 76 million. NPS employs over 1,300 and is primarily involved in oil well servicing and testing in several countries in the Mena region and Malaysia.

As a result of a major improvement in its liquidity following the February the issue of a 5-year, US$ 300 million sukuk, S&P have upgraded Dubai Investment Park Development Company’s rating to BB+. DIP, wholly owned by Dubai Investments, is a 23 sq km mixed-use complex comprising residential, commercial and industrial interests.

Amlak Finance, 45% owned by Emaar, is proposing to restructure up to US$ 2.7 million in debt by which if agreed, by the stakeholders, will see the Islamic mortgage provider make an immediate cash payment of US$ 545 million and repay the balance over a 12-year period. Depositors have been given two months to agree to this proposal.

Another company, Limitless, part of Dubai World, is requesting creditors for a two year deferral on the first tranche of a US$ 1.2 billion loan due in December. The debt was initially restructured some three years ago since when rates have dropped and more favourable terms are now being requested.

Q2 had promised so much and delivered so little for the local bourse. Having started the period at 5059, it recorded its first quarterly loss in three years to drop 22.1% to close on 3943 with Arabtec the big loser shedding 59.2% to US$ 0.71 whilst Emaar was down 12.2% at US$ 2.32. Apparent lack of transparency, profit taking, margin trading, even unsubstantiated rumours and certain banks actively encouraging loans for local stock trading are some of the reasons espoused for this bloodbath.

The DFM, opening on Sunday at 4223 points, had another turbulent week to close Thursday up 4.2%, or 177 points, to 4400. Although the market is 30.6% up on its 01 January opening of 3370, it is 18.1% down on its 2014 high of 5374 recorded on 06 May. Bellwether stocks, Emaar and Arabtec, ended the week on US$ 2.05 and US$ 0.96 respectively.

Whilst not performing to its expected high standards, the Argentine football team is in better shape than the country’s economy. Its diminishing foreign reserves have declined to US$ 30.4 billion despite the de Kirchner government introducing measures such as a 35% tax on overseas credit card transactions and a 50% tax on overseas online purchases. The country is in recession and is expected to remain so, well into next year, as is its high inflation rate, currently running at over 25%.

Short-term, the Latin American country is facing a bigger threat emanating from its financial collapse at the turn of the century when it reneged on US$ 100 billion of sovereign loans and devalued the peso. Following two restructuring schemes in 2005 and 2010 the majority of bondholders accepted a 66% haircut on payments. However “vulture funds” – NML and Aurelius – bought some of the remaining distressed debt at a heavily discounted rate and now a New York  court has agreed that they should receive a US$ 1.5 billion down payment. This is in addition to a US$ 800 million interest payment due to the creditors who had settled previously.

In contrast to Argentine’s high inflation, the eurozone is concerned with the possibility of deflation as rates still hover around 0.5% – well below the 2.0% target. This figure is at its lowest level in almost six years – at that time, inter-bank lending almost ground to a halt, causing recession in the some of the bloc. The ECB has to stop the vicious downward spiral that can occur which may see falling demand, arrested growth, increased unemployment and reduced investment. The bank’s president, Mario Draghi, does not see too much improvement in the short-term and there is a possibility that a quantitive easing programme could be introduced that would mean an injection of cash into the economy and an upward movement in prices.

The French, keen to secure a stalled major defence order with India, are quick off the blocks and are proposing a US$ 1.4 billion soft 3-year loan for major infrastructure projects. Foreign Minister Laurent Fabius is the first of many overseas politicians trying to curry favour with the new Narendra Modi government. The French need every assistance to maintain its position as the second largest economy in the eurozone as all indicators point to the country lagging further and further behind its European partners.

In the US, both the Dow Jones Industrial Average and the S&P 500 are testing record levels with the former breaking through the 17000 mark for the first time ever. Meanwhile, the S&P is nearing the 2000 level – an all-time high. No doubt the US economy is in recovery mode as unemployment rates – at 6.5% – are at their lowest since the collapse of Lehman Brothers in September 2008. Undoubtedly, the market has been aided by low interest rates and economic stimulus measures but the times are changing. As the market is now heading for a major correction downwards, what we are seeing is the calm before the inevitable storm. As Dubai swelters in the summer heat, elsewhere A Hard Rain’s Gonna Fall!

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Down, Down (Deeper and Down)

Posted on June 30, 2014 by howesdubai

arabtec-ceoFollowing his May US$ 2.2 billion endorsement for Dubai Holding’s Jumeirah Group’s expansion plans, HH Sheikh Mohammed bin Rashid has approved the addition of a further 350 rooms for the 15-year old Jumeirah Beach Hotel. The complex, due to open in 2018, will have the usual recreational and retail outlets.

Further adding to its burgeoning hotel portfolio, Al Habtoor Group has purchased the 400-room InterContinental Budapest for an undisclosed sum, two years after buying Le Méridien in the same city. The Group is currently building three hotels on its Al Habtoor City site – St Regis, W and The Westin – which will double the number of hotels it owns and manages in Dubai.

Although there has been limited progress on The World Project to date, a further six islands – known as The Heart of Europe – are being developed by Kleindienst Group. It is expected that Drydocks World will be employed to provide offshore marine management – including provision of power, water and sewerage – as well dredging facilities to the Austrian enterprise.

By August, Nakheel plans to clear all of its bank debts, totalling US$ 1.5 billion – some four years ahead of schedule. The company has generated the cash internally and has not received any financial assistance from its owner, the Dubai government. However, it still has outstanding balances with its numerous trade creditors and this sukuk is due for repayment in 2016. Over the next three years, the government-owned developer plans to bring 2,900 hotel rooms into the market as it aims to concentrate more on recurring income-generating assets.

At the top end of the housing ladder, Damac Properties has launched the sale of 34 Fendi-styled villas with prices starting at US$ 9.8 million. The Italian-styled villas will be located in the Akoya development, overlooking the Donald Trump golf course, and will be ready to move in within three years.

Dubai Properties is releasing a further 200 apartments in its Remraam development, located between JAFZA and the new Al Maktoum airport.

Dubai Investments has sold a 66% share in Goldalpharma to Sanofi for an undisclosed amount but it will equate to a 26% IRR over a ten-year period. The French drug-maker will manage and promote the company’s generic drugs at a time when these can cut up to 85% of costs of patented medicines that can have a competition-free run of ten years or more, charging premium prices.

A week after cancelling its 2007 US$ 16 billion order for 70 A350s, Emirates has announced that it will hold talks with both Boeing and Airbus to discuss which model, the Dreamliner or the A350, it will select to add to its fleet.

Ducab, partly owned by Investment Corporation of Dubai, has won a contract to supply fire and halogen cables for a major US$ 27 billion project for the Grand Mosque in Mecca. There was no indication on the value of the order.

Dubai will have to wait another year before UNESCO decides whether to include The Creek as a World Heritage Site. The organisation has requested further details, as it noted that many of the old architecture had been demolished and then reconstructed in places. A final decision is expected next year.

The RTA has announced that the new Dubai Tram system is 93% complete and will be ready for its scheduled November opening. The tramway will have eleven stations along its 10.6 km circuitous route covering JBR, Al Sufouh and three Metro stations on SZR. Phase 1 will have cost US$ 1.09 billion and is expected to carry 27k passengers a day.

Latest data from the Federal Customs Authority reports a 5% increase in the value of goods passing through the country’s ports; the total of 198.3 million tonnes had a value of US$ 430.5 billion. 2013 imports jumped 5.6% to US$ 264.6 billion with gold, phones and vehicles being the three leading items. Reexports surged by 10.9% to US$ 120.8 billion – a sure indicator of the growing importance of the country’s status as a commercial hub for international trade. Non-oil exports saw a disappointing 8.0% fall to US$ 46.6 billion.

Last year, there was a 15.7% increase, to 79.5k, in the number of Dubai police cases involving bounced cheques, of which only 25.2% were resolved before further action was taken.

It is reported that a CBD employee, with his wife and 11 others, have been charged with defrauding the bank of US$ 9.5 million. The scam, which involved contriving false trades, had been on-going for the past eight years.

The DFM, opening on Sunday at 4593 points, had another turbulent week to close Thursday 8.1% down, or 370 points, to 4223. Although the market is still 25.3% up on its 01 January opening of 3370, it is 21.4% down on its 2014 high of 5374 recorded on 06 May.

The seven-year old Borse Dubai – the holding company for the emirate’s two stock exchanges, DFM and NASDAQ Dubai – is set to refinance a US$ 500 million loan on more favourable terms. This three-year loan – at 90 basis points – is a better deal than the previous facility priced at 220 bps over LIBOR. The company, with a reported 20.6% shareholding in the London Stock Exchange and 16.0% in NASDAQ, saw its Q1 net profit surge more than eightfold to US$ 58.6 million.

Yet again, Barclays finds itself in trouble with the authorities. This time New York prosecutors are investigating fraud charges against the bank in relation to so-called “dark pool” operations in which it “showed disregard for its investors in a systematic pattern of fraud and deceit.” The bank should have protected its clients from aggressive high speed trading firms but seemed to do the exact opposite. Over the past two months, the financial institution has been fined US$ 280 million, for its shady role in dealings with Fanny Mae and Freddie Mac, and US$ 26 million for fixing the gold price. This could be a lot more serious  and penalties could be in the same league as BNP.

The French bank will apparently be hit with a massive US$ 8.9 billion fine for its violation of international sanctions against countries such as Iran, Cuba and Sudan, between 2002 – 2008. Earlier in the year, the bank had set aside a US$ 1.1 billion provision but now will have to slash proposed dividends and issue bonds to make up the shortfall. No doubt senior managers would have picked up huge bonuses from this illicit trade but it is the shareholders and clients who eventually pay for their misdemeanours.

Mining conglomerates, Anglo American, Lonmin and Impala have finally settled with the unions to end a damaging seven-month strike in South Africa’s platinum mines. The end result is that the lowest paid workers will see their pay increase by US$ 55 a month over the next three years, along with additional benefits.

Moody’s has put a negative outlook on Russia whilst keeping its bond credit rating at Baa1 – at the low end of the investment spectrum. The agency cites the lack of positive economic reform, the recent cut in the 3-year growth forecast, from 3.0% to 1.7%, and the possibility of further international sanctions, if the Crimean crisis worsens, as the main drivers for their warning.

It seems that the era of low interest rates may be coming to an end as the governor of the Bank of England, Mark Carney, hinted higher rates could come sooner than markets expect whilst the US Fed is facing increasing pressure to do likewise. Two factors are in play here – falling inflation and asset bubbles.

Japan is a good example of the problems that can arise when a country is experiencing low inflation – as is now the case in the eurozone and the US. A slowdown in growth will result in higher unemployment which, in turn, leads to a reduction in consumer and investment spending, a dampening of business confidence and a cut back in government tax receipts, allied with an increase in social spending. When inflation is low, companies will face difficulties raising prices so they turn to cost-cutting measures, including retrenchment of staff and lower wages, as well as seeing lower growth levels. The end result is that the troika of government, companies and consumers have less money to spend and for those who have will probably hold off as prices will continue to fall. It is thought that a 3% inflation level is probably the best scenario for economies – that being the case the US at 1.5% and the eurozone at 0.5% have a lot of catching up.

Already the eurozone authorities have introduced negative interest rates, whereby banks have to pay the central bank 0.1% for holding their money, and a US$ 545 billion targeted lending programme, to entice banks to lend money to its stakeholders. The ECB might soon have to purchase private sector asset-backed bonds (rather than government securities as favoured by the Fed and the Bank of England) to get the inflation level back on track.

Dubai-based Arabtec Holdings is still the big news-maker as its share value continues to plummet. It has been reported that following the departure last week of its CEO, (and 28.85% shareholder), Hasan Ismaik, there have been subsequent dismissals of a raft of senior managers and other employees. This comes on top of its then major shareholder, Aabar Investments, reducing its stake earlier in the month.

By 14 May, the company had seen its 2014 share price skyrocket by 361%, from a 01 January opening of US$ 0.56 to US$ 2.02. Following this record high, its price has crashed to close on Thursday at US$ 0.84 – down 29.1% on its week’s opening of US$ 1.19, down 53.7% on its 01 June opening of US$ 1.83 and 58.2% down on its 14 May close.

The company is in turmoil and this has had a negative impact for the local bourse, as other listed companies have been affected. The market is well off its 2014 06 May peak of 5374 and the lack of communication and transparency both from the company and the SCA (Securities and Commodities Authority) is not being well received by investors. Any damage has been exacerbated by the fact that DFM has just been upgraded from frontier to emerging status by the MSCI and international fund managers will not take kindly to seeing the Arabtec drama being played out as the market takes on casino-like status, being driven by speculation and rumours rather than market fundamentals. If nothing positive arises by early next week, Arabtec shares – and the DFM’s credibility – will continue to go Down, Down (Deeper and Down).

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The Circle Game

Posted on June 29, 2014 by howesdubai

magic-roundaboutThe following article was written over nine years ago and serves to show the cyclical nature of Dubai’s economy.

Looking beyond short-term gains

By Tim Howe, Special to Gulf News
Published: 12:00 April 17, 2005

There is no doubt that greed and ignorance continue to be factors that will affect the fortunes of Gulf-based investors. A check on various segments within the local economy bears witness to what can best be described as a feeding frenzy.

Just look at the price of freehold property and rentals. Again it would appear that landlords are really skimming the cream so that their short-term gains may result in long-term losses and not only for themselves. Dubai will lose its competitive edge if rentals and other associated costs continue to escalate at current levels.

In the global market place, business tends to gravitate to where costs are lower and if Dubai’s employment rates continue to climb upwards then some international business organisations may consider pastures new.

Even developers are jumping on the bandwagon whether it be delivering to customers a finished product that may be inferior / smaller than what had been promised or excessive hikes in service / maintenance charges. This sort of behaviour may prove beneficial at a micro level but could have a negative impact on the macro economic development in the longer term.

Too many people are investing in the real estate market, solely to speculate. This leads to a skewing in the balance of buyer occupier / buyer speculator ratio followed by the inevitable bubble. Economic history is strewn with examples of what happens when a bubble bursts. Everybody wants to double their investment even before the ink has dried on the sales contract and obviously there is no way that this can continue ad infinitum.

Gulf stock market investors seem to have forgotten what happened to the dotcom market barely five years ago. Some fortunes were made then but a lot more were lost mainly through the twin forces of investor greed and ignorance.

Further, hoteliers are raking in extraordinary revenue, what with their rates, occupancy levels and returns that could only be imagined some two years ago. The end result is that there is a chance that Dubai will price itself out of the global tourism market. If the visitor considers Dubai an expensive place then there are always alternatives elsewhere.

Not to be outdone, the educational institutions are also jumping on the bandwagon with school fees continuing to escalate at an alarming rate.

Recent weeks have seen the reporting season for both petroleum-related companies and banks. Some would consider that in many cases profits reported have been obscenely high. It does not take a Rhodes scholar to work out who ultimately pays – the customer.

Economists may argue that these are typical textbook cases of the Law of Supply and Demand in action. As demand rises in the short-term, prices will do likewise until the increased demand is satisfied by an increase in supply with the market returning to equilibrium. By this time, however, the damage to the economy may have already taken place.

It is about time that all consider the impact that greed will have on the local economy. The quest for a quick dirham now will inevitably harm the longer term future of Dubai. The storm clouds are beginning to appear and all involved should be aware of the possible consequences of becoming too greedy.

The only differences between 2005 and 2014 can be seen form the following table:

19 June 2005

19 June 2014

DFM General Index

5987

4593

Arabtec

US$

0.43

1.19

Emaar Properties

US$

8.95

2.51

Gold

US$

437.50

1,315.50

Oil

US$

59.18

110.26

Otherwise Dubai illustrates so well what Joni Mitchell meant when she sang that you go round and round and round in the Circle Game.

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Baby – What A Big Surprise

Posted on June 19, 2014 by howesdubai

sepp-blatterThe 80-day on-going maintenance work at Dubai International has cut the facility’s capacity by 20% and, as a result, London Heathrow will maintain its number one position as the world’s busiest airport in 2014. But by this time next year, Dubai will take over that slot according to the Centre for Asia Pacific Aviation. In Q1, Dubai traffic, at 18.4 million passengers, was 14.75% greater than its European rival and its growth of 11.4% was also so much better than the 0.5% of LHR.

Emirates surprised the market, as well as Airbus, by cancelling their 2007 order for 70 A350 planes – a deal that seven years ago would have increased the plane maker’s revenue by US$ 16 billion and would be worth US$ 22 billion at today’s prices. The new model is scheduled to start commercial flights next year although Emirates was not going to bring them into service until 2019. Whatever the story, this is a major financial blow to two European companies – Airbus and Rolls Royce.

With new destinations – New Delhi, Kochi and Thiruvananthapuram – flydubai has doubled its presence in India which will prove a further boost for bilateral trade and tourism.

Q1 saw Dubai’s foreign trade at US$ 87.8 billion, with imports of US$ 54.9 billion, exports – US$ 7.2 billion and reexports – US$ 25.7 billion. China continued to be the emirate’s leading trading partner at US$ 10.5 billion – an impressive 27.1% rise compared to Q1 2013. Not surprisingly, India came in second, at US$ 7.2 billion, followed by US, Saudi Arabia and Switzerland. Trade with the EU jumped 18.4% to US$ 14.0 billion.

It is reported that the country’s economy grew by 5.2% last year, compared to 4.4% in 2012. It is expected that this year’s growth will be not much changed so long as the average oil price remains in the region of US$ 105 – US$ 110 per barrel and output at 2.8 million bpd. The economy grew at its fastest rate since 2007 as consumer confidence rockets, with leading economic drivers such as property, transport and trade growing 8.7%, 7.3% and 2.4% respectively. The IMF has estimated that the debt owed by the Dubai government and its related entities amounts to US$ 142 billion or 141% of its GDP.

As Dubai 2004 realty transactions reach in excess of US$ 27.5 billion, the Central Bank has expressed concern that the property market could be overheating, as rental yields drop below historic averages. House prices for the year ending 31 March 2014 registered a 27.7% surge according to a Knight Frank report, with rents increasing at a slightly higher rate. Although bank lending has increased by US$ 3.5 billion, or 12% over the year, their exposure – at US$ 78.2 billion – is considered manageable, representing less than 23% of total loans, whilst cash buyers still account for 70% of purchases. The main difference between the exaggerated growth prior to the GFC and now is that the former was driven by speculation, and a debt-inflated asset bubble, whilst today the main drivers are spectacular economic growth and a booming population.

The dairy industry is another economic success story with figures suggesting an annual growth rate of over 8%. The Dubai-based Al Rawabi is one of the three main regional players, along with Al Ain Dairy and Saudi’s Al Marai, who together account for 85% of the local market. Al Rawabi currently has 12k cows and is looking to adding a further 7k to the herd.

By the end of 2016, Dubai will have its own 2,000-seat opera house. Being built by Consolidated Contractors Company, it will be the centrepiece for the Opera District, located in Downtown, which will become the cultural centre for the emirate.

Plans for the Burj 2020 moved a step nearer with DMCC announcing that it had listed four companies to design what would be the world’s tallest commercial tower. The free zone is the largest in the country with 8,700+ companies and over 85k people living and working in its 66 tower blocks.

It appears likely that the first Mandarin Orient hotel in Dubai will be built by Wasl Properties and be located on Jumeirah Beach Road. With enabling work almost completed, tenders for the 235-room hotel will probably occur later in the year. The developer has already entered the hospitality sector with two Hyatt Palace hotels and serviced apartments and is currently building two Garden Hilton Inns in the emirate.

Nakheel has appointed Shangri-La Hotels and Resorts to manage the Palm Tower, located on Jumeirah Palm. The 52-level tower will have a 290-room hotel – occupying the first 18 levels – along with 504 furnished apartments with the highest 360 degree infinity pool in Dubai on the 50th floor. (Nakheel has also paid a profit payment of US$ 60 million on its trade creditor US$ 1.2 billion sukuk).

Damac Properties has rushed forward the sale of 500 units in its NAIA Hotel and Apartments to be located on the 1.3 km shopping strip in the Akoya development. Starting prices are US$ 185k with the company forecasting double digit returns for investors in the 28-storey building as they will be entitled to 40% of room revenue, with zero utility and service charges.

At last, there was some good news for Tanmiyat investors with the announcement that handover of Living Legends villas, in Dubailand, will commence by the end of the year. The US$ 1.9 billion Saudi-backed development has been beset by delays following its launch seven years ago. (Consequently, Tanmiyat has not appeared on this week’s Dubai Courts listing of 26 cancelled projects, involving 18 developers).

Schön Properties has reportedly tied up with Xanadu Real Estate Development and secured US$ 92.4 million to complete its long-delayed Dubai Lagoon project. The massive development, covering 5.7 million sq ft, was a victim of the GFC when many of its investors defaulted on payments. Now that confidence has returned to the market, the company has awarded a US$ 185 million contract to PGS Gulf Contracting to finish construction work within two years.

Only 18% of the 154 private schools in Dubai will not be raising their fees for the next scholastic year. The size of the increase is limited to a maximum of 3.48% for schools considered outstanding by the Knowledge and Human Development Authority (KHDA), 2.61% classed as good and 1.74% for those rated as either acceptable or unsatisfactory.

April saw a noticeable 3.5% increase in money supply aggregate M1 (banks’ current and call accounts) to US$ 116.2 billion whilst M0 (currency in circulation and at banks) fell marginally to US$ 17.8 billion, as did money supply aggregate M2 to US$ 306.2 billion. There were increases in both bank deposits – 1.0% to US$ 366.5 billion – and bank loans and advances – 0.6% to US$ 357.3 billion – whilst total bank assets dropped 0.2% to US$ 592.8 billion.

The DFM, opening on Sunday at 5101 points, had a turbulent week to close Thursday 5.2% down, or 265 points, to 4836. Although the market is 43.5% up on its 01 January opening of 3370, it is 10.0% down on its 2014 high of 5374 recorded on 06 May. Bellwether stocks, Emaar Properties and Arabtec, closed on US$ 2.68 and US$ 1.36 respectively.

The UAE continues to offer economic aid of almost US$ 5.0 billion to troubled Egypt and among the numerous projects is the construction of wheat silos that will help with cutting that country’s huge food import bill. On completion, the 25 silos, to be built by Arab Organisation for Industrialisation, an army-affiliated company, will be able to store 1.5 million tonnes of the grain.

Now the election process is over and Abdul Fattah Al Sissi has become the new president, Egypt can expect a continuation in negotiations with the IMF regarding a US$ 4.8 billion bailout package. This comes after discussions were curtailed last year following the ousting of the then leader Mohammad Mursi.

Not before time, the European Commission is set to examine the tax arrangements of Apple, Fiat and Starbucks in three member nations – Ireland, Luxemburg and Netherlands. The aims of the exercise are to ascertain whether the companies are breaching EU rules on state aid and whether they are paying their fair share of tax.

US expatriate residents will undoubtedly be aware of the US Foreign Account Tax Compliance Act which basically requires financial institutions to provide information, on request, relating to US citizens and companies. At least 70 countries – including the UAE – have signed up and for those that have not, the US Treasury has the power to levy a 30% withholding tax on payments made. To date, 77k banks have joined as Uncle Sam tries to hone in on money stacked away in overseas vaults by their citizens.

The patchy US recovery continues as latest jobs data indicate that unemployment levels have now dropped to 6.3%, as the country’s part-time workforce increases to 27.2 million. However, there has been a sizeable drop in the number of working-age with jobs down from 62.7% six years ago to 58.9%. 70% of the population is no better off, after adjusting for inflation, than they were at the turn of the century, with an estimated 30% lower and the next 40% unchanged. Consequently, since the GFC, median household income has fallen 6.4% to US$ 53k.

The World Bank has once again cut its 2014 growth forecast from its January estimate of 3.2% to 2.8%, citing various reasons including political unrest in the Ukraine, bad weather in the US and the Chinese slowdown. Furthermore, growth in developing countries was cut from 5.3% to 4.8% – which would mean the third straight year of less than 5.0% expansion – and from 2.2% to 1.9% in high income developed countries.

With the start of the World Cup on Thursday, the beautiful game has been tarnished yet again by the suits, led by Sepp Blatter, that run the organisation like a Middle Age fiefdom. Allegations of bribery and corruption are taking centre stage instead of the spectacle of the opening ceremony in Sao Paulo. To prove their innocence and to assuage the concerns of their major sponsors, FIFA has conducted an internal investigation. Maybe an external independent enquiry would have been more appropriate. When this charade – and with it the reign of the Swiss president who has been in charge of an organisation that has been beset by scandal – will end remains to be seen. The Garcia report is evidently completed but will not be released until after the World Cup final next month. It will not include any of the findings of a recent Sunday Times enquiry. And guess what? Mr Blatter wants another term as president, despite saying, last time in South Africa, this would be his last. Baby – What a Big Surprise!

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Fernando

Posted on June 10, 2014 by howesdubai

dubai-frameAlthough relatively quiet by recent Dubai standards, annual property price rises, at 27.7%, are still the highest in the world. However, according to the latest Knight Frank’s Global House Price Index, Q1 increases at 3.4% were 63% down on the same period of 2013 but still nearly six times the global average of 0.6%.

To help with the increased demand for holiday accommodation, the Dubai Department of Tourism and Commerce will consider applications from operators, with a portfolio of more than 20 properties. Even individual homeowners will be able to rent out their residences but will have to utilise the services of a licensed operator.

Following Q1 results, Dubai has become the second most expensive global city for hotels, after Geneva. The latest Bloomberg Index indicates that the average Dubai hotel room costs US$ 273, US$ 31 less than the Swiss city. Surprisingly, Dubai’s 5-star hotels, at US$ 304, are much cheaper than the likes of Geneva (US$ 614), Los Angeles (US$ 481) and Tokyo (US$ 440).

The Al Futtaim Group signed an agreement with Kayannat Real Estate to buildthe US$ 1.6 billion Al Diriyah Festival City in Riyadh. Due for completion within two years, the complex will cover 250k sq mt and will include a 500-room hotel and serviced apartments.

Arabtec is planning to float 50% of its Egyptian unit which would garner in the region of US$ 5 billion. No float date had been set but will be likely to take place on the Cairo exchange within the next two years, or later, if that country’s economic and political environment remains turbulent.

According to latest Dubai Customs data, trade in auto parts has risen 8.1% to US$ 10.9 billion, with imports up 4% to US$ 6.3 billion and exports / re exports increasing by 13% to US$ 4.6 billion. Japan was the biggest source market at US$ 1.6 billion – or 24.8% of total imports.

With over sixty educational institutions already in the country, the Varkey Group is moving into the tertiary educational sector by buying into AHC GCC Investment. This holding company includes the one-year old International Horizons College, based in Business Bay, which caters for high school leavers by offering them a two year course following which they will transfer to one of three nominated Indian universities.

Over the next 18 months, Landmark Group is planning to hire a further 2.5k staff, as it opens an extra 50 outlets, for its UAE stores. The Dubai-based retailer’s expansion plans will see its portfolio of outlets increase to over 600.

The Al Basel Group has launched the Tuwaiq Travel Agency with the opening of nine GCC branches. The company has already hired fifty travel specialists, along with support staff to take advantage of the current boom in the travel sector.

Nakheel is another company on the recruitment drive. The Dubai-based developer and Engel & Völkers are to form a real estate company to market local property under the E & V banner. The new JV will be hiring up to 250 agents, with plans to open the Dubai office in October.

With at least US$ 8.8 billion required for 2020 Expo infrastructure projects, it is interesting to note that the country has improved its ranking by three places to 11th in the world for foreign direct investment. In 2013, its FDI rose by 24.7% to US$ 9.6 billion as several local companies – including Dubai Investments and Mashreq – increased their foreign ownership levels. The AT Kearney report indicated that US, China, Canada, UK and Brazil were the top five countries.

A new virus, Gameover Zeus, is causing havoc around the world, having infiltrated over a million computers, resulting in losses of tens of millions of dollars. Once infected, the malware can take over financial transactions and redirect payments away from the legitimate payee. Unfortunately, it is estimated that the UAE is rated the third most affected country with 8% of all attacks – only behind USA (13%) and Italy (12%).

The country’s largest Islamic Bank, Dubai Islamic, is reported to have bought a 24.9% shareholding in Indonesia’s only listed sharia compliant lender, Bank Panin Syariah, for US$ 21.3 million. It is expected that the majority shareholder, Bank Panin Indonesia (64.0%), and DIB will jointly manage the operation.

The UAE becomes the first country in the world that will see all its banks introduce the Mobile Wallet. Under the direction of HH Sheikh Mohammed bin Rashid Al Maktoum – and part of his initiative to introduce Smart Government – the aim is to implement a digital payment system for use by everybody in the country to pay for any government service online. The UAE Banks Federation is coordinating the project which will be rolled out in several phases over the next twelve months.

Having gained 4.58% the previous week, the DFM, opening on Sunday at 5087 points, posted a modest 0.2% increase to close Thursday on 5101. Although the market is 51.4% up on its 01 January opening of 3370, it is 5.1% down on its 2014 high of 5374 recorded on 06 May. Bellwether stocks, Emaar Properties and Arabtec, closed on US$ 2.77 and US$ 1.75 respectively.

Most expats complain about the rise in Dubai’s cost of living but one thing they cannot whinge about is the price of petrol. Bloomberg have estimated that the country has the sixth lowest pump price in the world. At US$ 1.77 per gallon, it is only bettered by Venezuela (US$ 0.04), Saudi (US$ 0.45), Kuwait (US$ 0.81), Egypt (US$ 1.01) and Iran (US$ 1.52). At the other end of the scale comes Norway (US$ 9.79), Netherlands (US$ 8.46) and Italy (US$ 9.34).

Hopes of a quick recovery in the US economy were dashed as manufacturing slowed last month with demand for new orders slowing. Furthermore even though annual construction spending rose by 0.2% to US$ 954 billion, it highest level in five years, it was still less than the expected 0.6%. Because of the extremely cold winter, the economy contracted 1.0% in Q1 but the 4.0% Q2 growth expectation now seems highly unlikely. Another problem was the trade deficit which jumped 6.9% in April to US$ 45.2 billion – with exports at US$ 195.4 billion and imports climbing to US$ US$ 240.6 billion.

Indonesia, a member of the G20, reported their second biggest trade deficit (US$ 2.0 billion) in five years dampening expectations that the country’s economy was gaining traction.  April exports fell by 3.2% whilst imports were down by 1.3% – a lot worse than analysts’ expectations of a 3.5% increase and a 7.7% drop respectively. All the signs – lower inflation, a narrowing current account and an improving rupiah – indicated that the country was heading in the right direction. The economy will not be helped by reduced commodity prices, weak manufacturing data and slowing foreign direct investment as consumer confidence flags.

It looks that Spain is slowly coming out of their long-term recession with recent data indicating that the economy is recovering with Q1 GDP growing by 0.4%. To try and quicken the recovery, the government has announced a US$ 8.6 billion stimulus package, including a reduction in corporation tax from 30% to 25%. Nevertheless with unemployment rates of almost 26% (and youth unemployment at twice that level), it will be a long time before a sustained recovery takes place.

The UK recovery continues on the back of increased consumer spending and an upsurge in the housing sector as the lure of low interest rates takes hold. As the recent expansion in the manufacturing sector continues, the government will have to take measures to encourage increased business investment and wean the country off its current consumer-led recovery. It is almost certain that the Bank of England will be the first central bank to start lifting interest rates later in the year, in direct contrast to the eurozone.

Meanwhile manufacturing growth in all nations of the eurozone slowed with the exception of the Netherlands whilst France was the only country to record contraction in this sector, as their domestic demand weakens and exports fall. This latest news was the tipping point for the European Central Bank who were forced to take action, after months of dithering.

Although better late than never, the ECB has finally reduced its deposit rate to MINUS 0.1% as well as its benchmark interest rates from 0.25% to 0.15%. The two main problem areas are the risk of deflation and the on-going weakness in the bloc’s lethargic growth. Whether these measures are enough to boost consumer spending, improve private investment and get banks lending more money remains to be seen. If they fail, the consequences could be catastrophic.

There are reports that the architect of Dubai Frame, Fernando Donis, is not happy with Dubai Municipality changes to his design of the 150m tall and 100m wide structure. The Mexican’s design was selected from 926 others in the 2009 ThyssenKrupp Elevator Architecture Awards but he apparently claims that the subsequent DM changes are in conflict with the competition rules and his intentions. He has written an open letter to the Dubai Ruler raising his concerns. Yes, If I had to do the same again I would my friend, Fernando.

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Red Red Wine

Posted on June 4, 2014 by howesdubai

alex-fergusonTo be connected to the mainland by a 300 mt bridge, developer, Meraas Holding, has announced that Bulgari will manage its new 100-room luxury island hotel and twenty residential villas. The development, along with a marina, is located off Jumeirah 1 andis slated for opening late next year.

Union Properties aims to fill a huge gap in the hospitality sector by targeting the budget traveller. The developer is to build four hotels, bringing an extra 1k rooms into this segment of the market. Currently, it is estimated that 42% of the existing room inventory is taken up by 5-star hotels, with this percentage set to grow to almost 50% over the next three years.

Following previous sales of 111 properties of the Anantara Residences on Jumeirah Palm, Seven Tides released its third phase of a further 47 apartments, ranging in price from US$ 1.2 million to US$ 3.0 million.

Local firms, United Engineering Construction and Acto General Trading have been awarded the US$ 327 million contract to build Nakheel Mall on Palm Jumeirah. Covering an area of 418k sq mt, with five floors of retail space and three levels for parking, it will be constructed by New Mall Limited on a BOT (Buy, Operate and Transfer) structure and will be managed by Nakheel until the transfer date.

Emaar is selling another raft of properties – 55 villas overlooking the golf course – in the Arabian Ranches. No doubt, there will be crowds congregating at the Emaar Pavilion on Saturday morning for these off plan residences.

Repair works at Dubai International are ahead of schedule with the southern runway opened four days ahead of schedule; nevertheless capacity has been reduced by more than a quarter over the 80-day maintenance programme. Consequently, the growth levels seen in April – 6.1 million passengers, up 13.7% year on year – will be pared back over the next two months.

It is not only Dubai International breaking records with RTA announcing a massive 22.8% surge in April Metro passenger numbers to 13.9 million. (Despite this increase, there does not appear to be any reduction in vehicle traffic).

Dubai contractor, Habtoor Leighton Group, has won a big chunk of the US$ 817 million work to be carried out on the Jewel of the Creek development.  The latest contract is valued at US$ 395 million for five mixed use tower blocks of between 15 -19 storeys.

It has been a good year to date for Drake & Scull International with news of yet another successful bid for MEP services. The US$ 30.0 million contract is for work on the Plaza View in Abu Dhabi which has proved to be a valuable market for the Dubai-based company which has total projects of over US$ 1 billion.

Dubai Aerospace Enterprise (DAE) has leased two Airbus A319s to Libyan Wings – a new airline based in Tripoli. The Dubai–based company signed a long term deal for delivery this year.

Imdaad is planning to spend US$ 27 million on a material recovery unit in Dubai’s TechnoPark. The facility will be able to recover up to 1k tonnes of recyclable waste daily which will more than double its current capacity.

Ducab is expanding and building its sixth plant in the country in KIZAD (Khalifa Industrial Zone Abu Dhabi). Due to be in operation by the end of next year, and producing mainly aluminium rods and conductors, the plant will cost US$ 60 million.

DEWA seem to be having some success in reducing utility usage with news that, on a per capita basis, demand for both electricity and water has declined over the past three years, with the former down 4.2% to 15,346 kW and the latter by 8.6% to 40.8k gallons. There is still some way to go to reach the target of a 30% reduction by 2030, per the Dubai Integrated Energy Strategy.

Dubai entities are making best use of the favourable environment in the global debt capital market as interest rates remain at historical low levels and Dubai’s credibility heads northwards. Investment Corporation of Dubai’s 10 year 3.51% US$ 700 million sukuk, along with a conventional 4.63% US$ 300 million bond, were three times oversubscribed. Another to make use of the current situation is Emaar Properties that has taken up a US$ 1.5 billion, seven-year sharia-compliant loan facility to restructure its debt portfolio. The current rate of 175 basis points above Libor is a lot better than its original of plus 350 bps. Over the past twelve months, Dubai Duty Free and the RTA have managed to refinance on better terms.

Having lost 6.12% in value the previous week, the DFM opened on Sunday at 4864 points and recovered most of these losses climbing 4.58% to close Thursday on 5087. (On Tuesday, Arabtec accounted for 61.5% of the total daily trade of US$ 708 million; opening the day, the stock fell 2.8% to US$ 1.63 before rallying 11.8% to US$ 1.83, all within the first three hours of trading).

There was bad news for two of Africa’s larger economies. South Africa saw a 0.6% contraction in Q1 following a 3.8% growth in the previous quarter. As the slump in the mining industry deteriorated even further, with activity dropping an annualised 25%, not surprisingly the rand took a beating. Manufacturing also fell – by 4.4% – whilst unemployment levels continued around the worrying 25% level.

Meanwhile, the incoming Egyptian president, Abdul Fattah al Sisi, takes over a depressing economy and a turbulent political climate. One of his main targets would be to reenergise the faltering tourism industry which has seen numbers drop by 35.4% to 9.5 million – and revenue by 53.6% to US$ 5.8 billion – over the past three years alone.

It seems that it is not only many of its customers who are critical of the banks but also Christine Lagarde, head of the IMF. She has reiterated that one of the major threats to the global economy is banks that are considered “too big to fail”. The banks appear reluctant to tighter supervision and stronger regulations and, with implied European government subsidies of US$ 175 billion, there is an urgent need for such institutions to be reined in. However, as the feisty French lady noted that the bonus-motivated industry still prizes short term profit over long-term prudence.

The former Manchester United boss managed to raise US$ 3.8 million when selling some of his wine collection at a Hong Kong auction with one bottle, a 1997 methuselah going for US$ 155k. Because of his fame and popularity – and the fact that some bottles carried his signature – sale prices were between 30% – 50% higher than expected. Sir Alex Ferguson goes well with Red Red Wine

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Desert Rose

Posted on May 28, 2014 by howesdubai

desert-roseThe Ruler launched the World Free Zones Organisation, attended by representatives from fourteen global free zones. The new body, with Dr Mohammed Al Zarooni as its first chairperson, will have its HQ in Dubai and will be open to any member nation of the UN.

According to a recent study by Frost & Sullivan, the UAE logistics sector accounts for almost 6% of the country’s GDP, with the market expected to expand from US$ 23.4 billion to almost U$ 27.0 billion over the next year.

Another sector expected to grow in the coming years is the often-maligned timeshare market. From an almost zero base now, the sector could well mushroom, as Dubai continues to establish itself as a world class business and tourist destination.

Currently the country has nearly 16.8k hotel rooms under construction, with roughly the same amount forecast to be completed by 2018. Most of the building is scheduled to be Dubai-based with the likes of the 863-room Westin Habtoor Palace, Damac Towers by Paramount (753 rooms) and Sheraton SZR (474 rooms), due to open within the next two years.

Dubai’s hospitality market is still strong with latest Q1 figures indicating 88%+ occupancy rates, along with rises of 7.5% to US$ 285 in ADR (Average Daily Rate) and 6.7% to US$ 251 in RevPAR (Revenue per Available Room). The results are even more impressive when comparing these with the region’s Occupancy – 75.1%, ADR – US$ 220 and RevPAR – US$ 165 as this was the best performing in the world.

Having recently announced its first foray into the hospitality sector with The Atria – a hotel and residential development in Business Bay – Deyaar has bought a 70k sq ft plot of land in Dubai Maritime City. The local developer will build a beachside project in the Marina District – an area designated for leisure and entertainment.

Meanwhile Standards and Poor’s has surprised nobody with news that the current property prices are almost in sync with 2008 levels. However, some may disagree with the rating agency’s finding of no major correction expected in the short term.

Marnum Dairy Farm, part of Dubai Investments, released plans for its expansion into the GCC market and subsequent doubling of its turnover over the next five years. The thirty year old company has seen a 133% growth over the past decade and  now manufactures not only milk but also yoghurt and juices,  with a 100 hectare facility on the Al Ain Road, housing over 3.5k Holstein cows.

It is reported that the former Chief Executive of GFH Capital Limited, David Haigh, has been arrested by Dubai Police for allegedly embezzling US$ 6.5 million. The company gained sporting fame with its December 2012 purchase of Leeds Football Club; not much later it sold 75% of the club to the flamboyant Italian businessman, Massimo Cellino, who subsequently fired Haigh, after he had resigned from GFHC.

Emirates REIT has paid US$ 32 million for Le Grande community mall in Dubai Marina. This comes a month after the sharia-based investment trust’s IPO which saw its valuation jump to US$ 354 million.

Etisalat has given up on plans to buy further shares in Maroc Telecom, only weeks after paying Vivendi US$ 5.7 billion for a 53% share in the Moroccan company. Interestingly, the company has listed its US$ 7 billion Global Medium Term Note on the Irish Stock Exchange with a Fitch stable rating of A+.

Two leading local property developers are considering listing on the Dubai Financial Market. Emaar is planning a listing of 25% of its highly successful malls business which will be worth in the region of US$ 2.5 billion. There are reports that Damac may well follow suit with a separate listing for its malls’ units.  Although this is good news for the local bourse, it may be an indication that international investors are still coy, when it comes to the local realty sector.

Last week, the DFM reported that foreign investors owned shares in the bourse totalling US$ 30.3 billion, with weekly purchases and sales running almost in tandem at around US$ 1.5 billion. The market itself had a roller coaster ride with shares up and down more than 5% on three separate days. The DFM opened on Sunday at 5181 points, finally falling 6.12% to close Thursday on 4864. Despite this correction, the exchange is still 47.48% up in 2014.

It was a difficult week for eBay as it suffered a major cyber-attack that affected 145 million of its users in February but only released details on Wednesday. Consequently the company will be facing the wrath of authorities on both sides of the Atlantic.

Barclays Bank is in the news again for all the wrong reasons. This time, one of its former traders, Daniel Plunkett, has been fined US$ 160k by the UK’s Financial Conduct Authority (FCA) and the bank US$ 43 million for trying to fix the price of gold. Incredibly, because they both settled their fines early, they were given a 30% discount! The trader booked a US$ 1.75 million profit for the bank by creating fake orders that saw the 28 June price of gold drop below US$ 1,558.96 thereby saving the financial institution from paying out US$ 3.9 million to a customer. One wonders if this was the only time the bank had carried out such fraudulent practice. (Barclays is one of four banks – along with HSBC, Scotiabank and Société Générale – that is involved in fixing the price of gold on a daily basis).

It seems that the Chinese are getting serious about fraud with this week’s death sentence on the ex-head of Sichuan Hanlong Group, Liu Han. Furthermore, US$ 14 billion of his family assets were seized by the court. The fact that he had  close links to Zhou Yongkang, China’s former security chief, could signal a wider and more serious crackdown by the authorities. Only last month, two leading party members from Sichuan were being investigated for corruption.

One of the biggest trade deals in history was signed this week between Russia and China – a 30 year, US$ 400 billion contract by which China will receive 38 billion cu mt of natural gas. Both countries will benefit from this arrangement – one by finding a new customer after their recent troubles in the Ukraine and the other by replacing its coal power stations with a much cleaner alternative. Any improvement in Sino-Russian dealings will have the opposite effect for both countries’ relationships with the West. That can only be bad news for the global economy as the balance of power shifts inexorably east.

Short-term, the political crises in Ukraine and Thailand will ensure that the global markets remain jittery. Economists will also be keeping a close eye on the new Indian administration of Narendra Modi and how the polls turn out in the European elections – both with the potential to have a negative economic impact on the world economy.

A week after endorsing the US$ 545 million Creekside development, HH Sheikh Mohammed bin Rashid Al Maktoum approved plans for Desert Rose – a sustainable city shaped like the flower it is named after. The smart residential city will be connected with the Dubai Metro by an electronic train and will have air conditioned pathways.  Two years after appearing at Meydan, Sting’s lyrics come to mind “I dream of rain, I dream of gardens in the desert sand” – Desert Rose.

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Blue Moon

Posted on May 19, 2014 by howesdubai

mancity-cakeThe Dubai Ruler has approved a US$ 545 million Creekside development by Meraas Holding, along a 1.8km stretch in the Al Fahidi area. The exciting project will take two years to complete and will include art galleries, a floating market, local handicrafts and restaurants. There is no doubt that this will become a cultural hub for the artisan community and will go some way towards Dubai’s target of becoming the most visited city in the world.

HH Sheikh Mohammed bin Rashid Al Maktoum has also sanctioned a US$ 2.18 billion, three-year expansion plan for the hospitality unit of Dubai Holding, Jumeirah Group. The hotel management company, already operating 22 hotels in eleven countries, expects to see a further 4.3k rooms  added to its portfolio before 2017, with a particular focus on GCC, Chinese and other Asian markets.

Jumeirah was also in the news when it was announced that the hotelier will manage the new 5-star 206-room hotel in Oman’s upcoming US$ 600 million tourist complex, Saraya Bandar Jissah. Another Dubai company, Leighton Middle East Contracting, will build the US$ 78 million hotel.

As part of its 28k sq mt Ibn Batuta expansion plan, which will add a further 150 outlets to the mall, Nakheel is building a 372-room hotel to be managed by the UK-based Premier Inn. The hotel will open within two years and will be linked by a pedestrian bridge to the Metro. The developer is also planning to build a further nine hotels in Dubai over the next five years.

Nakheel reported a 79.5% hike in Q1 profits to US$ 210 million, as revenue almost doubled to US$ 436 million. This year alone, it expects to deliver in excess of 4k units into the Dubai residential market.

It was announced earlier in the week that China State Corporation had won a US$ 105 million contract to build phase 2 of the Dubai Water Canal Project which will include two bridges over Al Wasl Rd and Beach Rd; these should be completed by the end of 2016. Work has already started on phase 1 which will see a sixteen lane bridge over SZR.

There is every possibility that Emaar and Dubai Municipality will develop a 53-hectare beachfront site in Al Mamzar – if a detailed feasibility study proves that the project would be viable. The development will be mixed use with residences, hotels, retail and restaurants built around water-based attractions.

Dubai Properties has launched the sale of 200 apartments in its Dubailand Remraam project, which ranges from studios to 3-bedroom units.

The same week it declared a 27.1% decline in Q1 net profit to US$ 12.5 million, Dubai-based Drake & Scull International has won a US$ 600 million Egyptian contract for construction and civil work on the US$ 5.0 billion Tahir Petroleum Corporation project, located at the Suez Canal entrance. On completion, the country’s first naphtha cracker will have the capacity to produce 1.4 million tonnes per annum of polyethylene and 0.9 million tonnes of propylene.

US equity firm, Clayton Dubilier & Rice has finally agreed terms with Dubai International Capital for the purchase of the German packaging company, Mauser, for US$ 1.7 billion. If the deal goes through, it will be one of the largest disposals by a government-related entity in recent times.

Investment Corporation of Dubai is again planning to make use of a favourable debt market by raising a further US$ 1 billion by way of a US$ 700 million sukuk and US$ 300 million 10-year conventional bond. In April, ICD raised US$ 750 million.

If the figures from Nissan are anything to go by, the local auto business is in rude health. The company claims that it has a 16% market share in the UAE and that its annual sales for the year ending 31 March were up 20% to 60k units. Based on these estimates, this puts total auto sales at 375k, beating the best ever year of 2008, when sales peaked at 350k.

Late Wednesday, the UAE was officially reclassified, by the MSCI, as an Emerging Market, from its former category of Frontier Market. In the global MSCI Emerging Markets Index, UAE accounts for 0.85% of its total which is expected to increase local market liquidity by over US$ 1 billion. In the MSCI UAE Index, Emaar Properties has a weighting of 20.08% with Aldar (16.02%) and DP World (13.84%), the other big players.

Prior to this news, the DFM had a flat week closing Wednesday on 5319 points having opened on Sunday on 5302. Bellwether stocks, Emaar and Arabtec, were trading at US$ 2.97 and 2.02 respectively. So far this year, the best performing global stock market has skyrocketed 57.83% from its January opening of 3370.

It seems that China may be facing the same problem that is causing concern in the eurozone – deflation. The country’s annual inflation rate dropped alarmingly in April from a March figure of 2.4% to 1.8% – much lower than the government target of 3.5%. The possible danger to the economy is that growth will slow as consumers tend to save rather than spend and companies pull back on future investment decisions.

There appears to be a banking crisis looming in Iran as reports indicate that the bad debt level in the banking system is 15.6% – or the equivalent of some US$ 33 billion. Most of the problems seem to have arisen during the eight years that Mahmoud Ahmadinejad was in power as the bad debt level in 2005 was less than US$ 3 billion. The incumbent president, Hassan Rouhani, has been left to clear up the mess.

The lucky country, that had survived the GFC better than most, appears to have run out of luck as the Australian government finally wakes up to some modicum of reality. This week’s budget plans to cut the public deficit by US$ 19 billion to US$ 28 billion by upping taxes and slashing spending, including inevitable job losses in an already bloated public sector. However, US$ 10.7 billion have been allocated to major infrastructure projects and almost US$ 20 billion will be spent in medical research funding.

Despite protestations to the contrary, it seems that the expected growth level in the US has yet to gain traction. The latest disappointing data sees April retail sales grow by only 0.1%, compared to 1.5% in March. This is an important indicator as nearly 70% of economic activity emanates from consumer spending.

This week saw the blue half of Manchester partying as the club, owned by HH Sheikh Mansour bin Zayed Al Nayahan won the EPL for the second time in three years. It was interesting to note that the Manchester City team were wearing bibs, before the game with West Ham, highlighting Dubai’s Expo 2020. And the celebration continued in Abu Dhabi with the pre-cabinet meeting photo of the three sheikhs – HH Sheikh Mohammed bin Rashid Al Maktoum, HH Sheikh Mohammed bin Zayed Al Nayahan and Sheikh Mansour – cutting the football cake.  Blue Moon.

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Flying High Again

Posted on May 10, 2014 by howesdubai

emirates-planeEmirates’ annual revenue grew by 13.0% to US$ 22.5 billion, as the airline saw its profits jump 42.5% to US$ 887 million, forming a large part of the Group’s overall profit of US$ 1.1 billion. With a 13.0% increase in passenger numbers to 44.5 million, its major cost continued to be fuel, which accounted for US$ 8.4 billion. According to IATA data, the Dubai-based carrier will make over 40% of the total profits of  US$ 2.2 billion emanating from the ME aviation industry. Parent company, Investment Corporation of Dubai, received a dividend of US$ 272 million.

The annual Arabian Travel Mart is expected to have had a record 2,500 exhibitors, and over 22k visitors, when it closes on Thursday; of this total, 17k are expected from overseas which should prove another profitable period for Dubai’s hospitality sector.  As usual, a raft of announcements has come out from ATM.

Marriott International already has links with Emirates providing crew accommodation on a global scale as well as managing the tallest hotel in the world, JW Marriott Marquis, plus the Marriott Harbour Suites in JBR. RDK Tourism will manage its  312-room  Renaissance Dubai Downtown, due to open next year, which will be followed by two more – Dubai Marriott Hotel Citywalk and Marriott Executive Apartments Dubai City Walk.

Emaar Hospitality currently has twelve hotels under its banner encompassing three brands – The Address, Vida and Dubai Inn (in a JV with Meraas Holding). The first of five Dubai Inns – which will add a further 1.75k rooms – will be built in Zabeel and is scheduled for opening next year. It has announced that Manzil will become its fourth flagship brand and will be at the luxury end of the market, having a noticeable Arabic influence. The first hotel is to be known as Manzil Downtown Dubai (formerly Al Manzil).

As the Hilton Garden Inn brand gains Dubai traction, MAF Properties has signed a management agreement for the hotelier to manage its new 370-room hotel in Mall of the Emirates. Hilton expects two other establishments – in Al Mina and Al Muraqabat – to open by the end of next year.

Damac has launched its latest project, Constella serviced hotel apartments, claimed to be the first Sharia compliant of its kind in Dubai; this will entail separate swimming pools and gym facilities for men and women with dedicated floors and dining facilities for females. The luxury tower will be built in Jumeirah Village and will be financed by an Islamic bank.

With 90% + occupancy rates in Q1, the four Dubai properties managed by Hospitality Management Holdings recorded a 10.0% rise in Revenue per available room (RevPAR) and a 7.2% increase in average room rates (ARR). HMH was the first local chain to be alcohol free.

The Taj Group reported that the 296-room Taj Dubai, located in Downtown, will open by year end.

So as to encourage the construction of more three and four-star hotels, Dubai Holdings has announced attractive incentives to potential investors. The government-owned entity, currently hosting 14 properties, has listed forty potential plots, located in areas managed by Tecom and Dubai Properties Group. It is hoped that, if fully taken up, this will add a further 8.5k hotel rooms in time for Expo 2020. (A recent report has indicated that the UAE will have an additional 120 new hotels, with a portfolio of 32k rooms, over the next five years).

Even with two years to prepare, it is disappointing to note that only one of the country’s forty six banks has found the time to finalise their clients’ two-year credit history to assist with the setting up of Al Etihad Credit Bureau. When established, it will prove a boon for the UAE economy, as valid credit ratings and other financial information will reduce the potential for bad consumer loan debts and could well bring down the cost of borrowing. Currently, banks cannot access data from other financial institutions so are unable to obtain complete credit data on individuals or companies who have accounts with other banks.

This week Emirates NBD issued a five-year AUD 400 million fixed 5.75% rate note, with a Fitch rating of A+. 2006 was the only other time, Dubai’s largest bank has been involved with an Australian dollar bond.

They say the Brits are the biggest whingers and, if that is the case, the Lufthansa senior management must be running them a close second. Now that the airline’s former CEO, Christoph Franz, has left, his replacement, Carsten Spohr, has continued claiming that Emirates, along with other Gulf airlines, operates at an unfair advantage. The German carrier wants to limit the expansion plans claiming that imbalanced subsidies are being made to Gulf carriers, in finance deals, which reduce their overall costs. Maybe they should spend more time on improving their efficiency and quality levels to Emirates’ standards.

It seems highly likely that the fifty-year old Dubai Refreshments Company will merge with its Abu Dhabi counterpart. Both companies distribute Pepsi Cola drinks and would appear that a merger would reduce costs and improve operational efficiencies.

Assuming that Etisalat’s recent purchase of Vivendi’s 53% in Maroc Telecom goes through, the UAE telecom provider will sell its operations, in several W African countries, to the Moroccan company for a reported US$ 650 million.

Dubai Investments recorded a 25.6% jump in Q1 profit to US$ 72 million and, at the same time, indicated that it would soon be divesting itself of some of its assets which would boost future profits.

As widely expected, Arabtec reported Q1 results with a 39.0% hike in revenue to US$ 586 million which generated a 115.9% growth in net profit to US$ 37.6 million. With all the hype surrounding the company, this does not seem to be such a high return.

Union Properties seems to have recovered from its dark days, following the GFC, with Q1 profits up from US$ 6.0 million to US$ 49.0 million, year on year; this follows on the trend from its 2013 results, where the annual profits showed similar upward movement from US$ 47.9 million to US$ 430.5 million.

It is reported that the proposed UAE rail network, Etihad Rail, is planning four stations in Dubai – Jebel Ali Port, Dubai World Central, Meydan and Dubailand. Phase 1 of the US$ 11 billion project covers freight and will be open within the year whilst the second 620km stage will link Mussafah and Jebel Ali and could be operational by 2017.

The IMF has once again issued a warning about Dubai’s real estate sector, indicating that more needs to be done to curb increased speculation that could lead to the formation of an asset bubble. In some locations, property prices have jumped more than 40% over the past twelve months.

The latest IIF forecast sees the Dubai economy growing at an impressive 5.6% this year with the three ‘Ts’ – trade, travel and tourism – being the main drivers. At the same time, it forecasts a jump in inflation rates from its current 2.0% level to 3.6% by this December.

The gold industry is another sector that is set to grow in Dubai with news that Kaloti Precious Metals is planning to build a US$ 60 million refinery in the emirate. Although a major player in gold trading, Dubai lags behind the West when it comes to refining. For example, the UAE refines about 800 tonnes of the precious metal every year, compared to say Switzerland’s 3k tonnes. The new refinery will have a capacity of 1.4k tonnes and will help Dubai move up the refinery ladder.

The DFM recovered from its 0.2% fall the previous week and surged 4.41% from its Sunday opening of 5078 points to close on Thursday at 5302. Bellwether stocks, Emaar and Arabtec, were trading at US$ 2.76 and 1.84 respectively. So far this year, the best performing global stock market has skyrocketed 57.32% from its January opening of 3370.

Despite the likes of Tesco and Ikea persevering in the regulated Indian market, it seems likely that the world’s second largest retailer, Carrefour, is planning to move out. It seems that the next government will not permit foreign direct investment in the multi brand retail sector. Undoubtedly, the traditional family-owned shops still hold sway in the world’s third largest economy.

Pakistan will receive a further five-year 2% US$ 14 billion loan from the World Bank which is expected to be spent on the four ‘Es’ – economy, education, energy and extremism. Struggling to collect taxation receipts, the government has had to borrow more money than expected to pay the costs of the public sector. (In its latest report, Transparency International, ranked Pakistan 127 out of 171 countries in its listing of corrupt countries – how much of this money will be used for the benefit of the populace remains to be seen).

Sony Corp has warned that operating profits will be slashed as it revised its forecast down from US$ 783 million to US$ 255 million. Its electronics revenue is haemorrhaging badly and its DVD and CD-ROM will take a US$ 245 million impairment hit because of disastrous sales in Europe. Now looking at a US$ 1.3 billion overall loss, there is little good news on the horizon for the former electronics conglomerate whose once iconic TVs have now managed to lose over US$ 7.8 billion in the last decade. It is very odd to note that the Sony stock was up 90% in 2013 and has lost only 1% this year!

This loss pales into insignificance compared to Tokyo Electric Power Co’s US$ 15 billion – the single biggest loss recorded by a non-financial company in Japan. The power company is still recovering from the fallout from the Fukishima nuclear plant disaster.

The EC issued its latest forecast indicating that the 18-bloc eurozone will see a 1.2% growth this year, whilst the 28-country EU will perform slightly better at 1.6%. However the likes of Italy, France and Spain continue to lag behind with expected growth rates of 0.6%, 1.0% and 1.1% respectively. However, a low inflation rate (0.8%), high unemployment levels (11.8%) and continuing public deficits (Spain 5.6%, France 3.4% and Italy 2.6%) are potential risk factors that could continue to hold back economic progress.

Dubai’s economic indicators are all heading northwards; for example, over the past year, the local bourse is up 151%, property prices have risen up to 40%, Dubai tops the HSBC global trade confidence index at 141, corporate earnings are showing massive increases and inbound tourism is at an all-time high. Then with the latest results from Emirates, there is no doubt that Dubai is Flying High Again!

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