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We Can Work It Out

Posted on August 11, 2014 by howesdubai

The Indian-based Hiranandani Group has signed a management agreement with Accor to develop a 350-room Ibis hotel in Downtown Dubai. This is yet another indicator that Dubai’s hospitality sector is in need for hotels in the budget price range, as the 5-star bracket continues to dominate the market. The hotel – slated for a 2016 completion – will be the French Accor’s 16^th property in Dubai.

SKAI Holdings has announced that it has sold all 234 hotel rooms, 234 apartments and 33 penthouses in its recently launched US$ 306 million Jumeirah Village Circle project. The Dubai-based developer reported that sales proceeds were US$ 253 million and that it would retain the likes of 17k sq ft of retail space, restaurants and spa facilities. The project will take three years to complete, with work commencing next month.

Dubai’s move into the health and fitness market received a timely boost with the opening of the Hayemaker Gym, with the support of Dubai Investment Development Agency, in liaison with David Haye, the ex-world boxing champion. The new centre of excellence for sports and performance coaching will help the emirate’s push to becoming a global health tourism destination.

Meanwhile it is reported that Dubai may well submit a bid to host the 2024 Olympics but will probably bid for the Youth Olympics and / or the Asia Games earlier.

Further apparent good news for Dubai Investments with H1 profits more than doubling to US$ 219 million from US$ 101 million, in the same period last year. However, it has to be noted that US$ 129 million of the profit came from the May sale of its 66% share in Globalpharma to the French pharmaceutical company, Sanofi. The company is expecting that its credit rating will soon be lifted to BBB, a move that would help it raise future funds at more favourable rates.

According to OAG, Emirates is ranked first globally when it comes to a premium class capacity ranking known as ASKMs (available seat kilometres) having recorded a weekly 876 million in April, with 191k seats available in business and first class.

Having already launched thirteen new routes this year, flydubai is to start flying to destinations in Iran – Tehran and Mashhad.

Emaar Properties reported a 40.6% rise in H1 profit to US$ 472 million, on revenue figures of US$ 1.38 billion. 52.3% of total revenue, equivalent to US$ 721 million, came from the company’s malls, leisure and hospitality businesses. Furthermore, revenue from international operations came to US$ 205 million, contributing 14.9% to the company’s top line. The Dubai developer has indeed come a long way from its origins, as a builder of villas, in new Dubai, some fourteen years ago.

Shuaa Capital saw Q2 revenue and profit weaker than in Q1. Revenue at US$ 14.2 million was 18.75% down whilst profit at US$ 1.7 million was off 24.4%. The main reason for this was the fall-out from the Q2 22.1% drop on the Dubai bourse.

Dubai International Capital racked up a tidy profit with the sale of Mauser Group to Clayton, Dubilier & Rice for a reported US$ 1.7 billion. Owned by Dubai Holding, DIC bought the German packaging company for US$ 1.1 billion in 2007.

It will come as no surprise to many to see that Gems Education has reported a 78.6% jump in annual profit to US$ 75 million although its cash holdings dropped 8.6% to US$ 24.6 million. Bloomberg reported in May that Fajr Capital and Investcorp were considering a minority stake holding in the parent company which would have valued it in excess of US$ 1.5 billion.

The Department of Economic Development renewed 31.3k licences in Q2 and issued 5.8k new licences in H1 – a 17.0% increase on last year – of which 74.2% (or 4.3k) were trade licences.

With 8.7k new companies joining in H1, the Dubai Chamber of Commerce can now boast a staggering 160k members. The Chamber, the largest in the MENA region, is planning to shortly open a further three international offices – in Erbil (Kurdistan), Ghana and Mozambique.

The importance of SMEs to the local economy was highlighted by figures from the Dubai Economic Council which estimated that 42% of Dubai’s workforce is employed by that sector. The biggest hurdle facing SMEs is the lack of finance and unfortunately they do not seem to get too much help from the banks here.

Ventures Onsite estimates that new 2014 GCC infrastructure projects will be in excess of US$ 86 billion – a massive 78% increase over 2013 returns. The company expects to see a fivefold surge in UAE projects to US$ 15.2 billion, only topped by Saudi Arabia (US$ 29.3 billion) and Qatar (US$ 26.2 billion).

Empower provided 174.3 million refrigerating tonnes per hour (RTH) in July – a 9.5% increase compared to 2013. The largest district cooling service provider in the world has a capacity for 1 million RTH, following its January acquisition of Palm District Cooling and is building a third district cooling plant in Business Bay.

Following July’s recovery that saw the bourse gain 22.6% in the month, the Dubai Financial Market General Index opened on Sunday at 4833 – and closed the week 2.0% down at 4735. Bellwether stocks, Emaar and Arabtec were trading at US$ 2.66 and US$ 1.12 respectively.

Following its buy-out of Autonomy in 2011 for US$ 11.1 billion, and then finding out that it had bought a lemon, Hewlett Packard is to sue the UK company’s former chief executive, Michael Lynch, and CFO, Sushovan Hussain, for fraud. This is after HP had to write down US$ 8.8 billion of the company’s value within a year of the sale. So much for due diligence!

Almost on the same subject, some may consider F1 supremo, Bernie Ecclestone, a lucky man.The 83 year old had admitted making a payment to German banker, Gerhard Gribkowsky to facilitate the sale of a major stake in his F1 business. The German banker is currently in jail whilst Mr Ecclestone has agreed to pay US$ 100 million as settlement to end his trial on bribery charges. This could be considered one law for the rich and one for the poor.

HSBC has a lot to thank this region for as MENA (Middle East and North Africa) accounted for US$ 989 million, or 8.0%, of its H1 profit (up 8.8% from 2013 H1’s figure of US$ 909 million). On a global scale, the bank reported a 12.7% fall in its profit, down from US$ 14.1 billion to US$ 12.3 billion, as its revenue figures dropped 9.3% to US$ 31.2 billion.

Standard Chartered fared even worse with a 20.0% fall in H1 profit to US$ 3.3 billion and now faces the real threat of takeover bids from larger European or Australian banks.

But HSBC and Standard Chartered are not the only banks with unhappy shareholders. Credit Suisse announced its biggest quarterly loss (US$ 780 million), since the GFC, which included a US$ 1.78 billion provision for US tax evasion charges. Meanwhile Bank of America came in with a 43% quarterly fall in net income to US$ 2.3 billion. In recent times, the financial institution has been hit with a massive US$ 9.5 billion fine for its impropriety in its dealings with Fannie Mae and Freddie Mac and US$ 783 million for mis-selling.

The Portuguese Banco Espirito Santo has had to be split in two with the “good” bank, Novo Banco, receiving an extra US$ 6.6 billion in capital and taking over the branches, deposits and other healthy assets whilst the “bad” bank will inherit the bank’s loan portfolio and be wound down over time. This comes after H1 losses of US$ 4.8 billion and is bad news for both shareholders and some creditors who will lose money on the new set-up. The troika – EC, ECB and IMF – gave Portugal US$ 105 billion in bailout funds and it seems that they, along with the local government and the bank, have been negligent and have still not fixed the banking system. If it can happen here, there is another Banco Espirito Santo on the European horizon.

Although there are many who consider that the US economy is well into its recovery phase, recent data seems to indicate otherwise. Slowdowns in July growth figures and nonfarm payrolls (from 298k to 209k), as well as a marginal increase in unemployment figures from 6.1% to 6.2%, are giving rise for some concern.

The Australian government is hoping that July’s 6.4% unemployment rate, its highest level since 2002, was a glitch but, if not, the country could be heading for a downturn. With 789k unemployed, it seems that the country’s jobless rate is now greater than the US which last occurred more than seven years ago.

With a 0.2% Q2 contraction, Italy has returned to recession as numbers have deteriorated since the beginning of the year. Since the GFC, its economy has shrunk by over 9.0% and their economic troubles have been further exacerbated by huge government debt and a complete lack of reform to their archaic labour laws.

The last thing the eurozone wanted was the Ukraine crisis to worsen. Now Vladamir Putin is piling the pressure on the West as he retaliates by cutting back on food imports and restricting the use of Russian air space in a move that will have severe economic repercussions for some major carriers. Mario Draghi, the ECB president, will have to introduce some form of quantitative easing sooner rather than later. Failure to act now will see the bloc inevitably go into recession.

Despite the continuing optimism for the Dubai economy, there are some niggling signs that all may not be rosy in the garden and that the emirate may be operating a two-sided economy. Public sector leverage remains high with some estimates putting the emirate’s debt this side of US$ 150 billion compared to a GDP of US$ 110 billion. Up to 65% of this total relates to GREs (government related entities).

The Dubai debt problem will not go away and latest reports indicate that Dubai World is once again restructuring its US$ 25 billion loan and Amlak its US$ 2.7 billion facility; both are looking at an early first repayment and for an extension to the loan tenure. Latest results from Arabtec, Emaar and Shuaa Capital all indicate that Q2 results were not as good as those of Q1. Add to this the recent volatility in the stock market, increased rents, rising costs, a flat housing market and regional ge0-political problems then some may consider that light clouds are on the horizon. But then again this is Dubai and, as usual, We Can Work It Out.

Posted in Finance | Tagged Arabtec, David Haye, DFM, Dubai, Dubai Financial Market, Dubai International Capital, Dubai Investments, Emaar, Emirates, emirates airline, Emirates NBD, GEMS Education, Hayemaker Gym, HH Sheikh Mohammed bin Rashid Al Maktoum, Nakheel, Skai Holdings, UAE | 1 Comment

Danger Zone

Posted on August 7, 2014 by howesdubai

The last week of July saw the Q2 reporting season in full swing with Arabtec, Emirates NBD, Emirates Islamic and Du announcing their latest results. Arabtec – which has dominated the financial press recently for all the wrong reasons – came in with a 51.0% hike in Q2 revenue to US$ 657 million to generate a quarterly profit of US$ 28 million (H1 revenue and profit were US$ 1.24 billion and US$ 65 million).

Emirates NBD saw its Q2 profit up 34.8% with H1 profit at US$ 640 million on total income of US$ 1.92 billion. At the end of June, its total assets were US$ 94.9 billion, with customer loans and deposits both marginally up at US$ 65.9 billion and US$ 68.9 billion respectively. Its related bank, Emirates Islamic, reported impressive H1 increases in both income (28.0% to US$ 250 million) and profit (101.8% to US$ 62 million).

Du’s revenue was 13.7% higher at US$ 823 million with jumps in both EBITDA (17.9% to US$ 351 million) and net profit by 22.0% to US$ 259 million. The Dubai-based telecom company is proposing an interim dividend of US$ 0.033 on the back of these figures.

Despite its recent partial 80-day closure for maintenance and refurbishment – and reduced June passenger numbers of 5.1 million (cf 5.6 million in June 2013) – Dubai International was still able to record an impressive H1 growth of 6.2% to 34.7 million. It is highly likely that the world’s busiest international airport will top a record 70 million passengers by the end of the year.

DP World handled 29.4 million TEUs in H1 – 10.7% up on like to like traffic over the same period last year with 25.2% originating at its home base – a rise of 14.1%. This figure is set to grow even further as an extra 66.7% capacity will be added by the end of the year so that Jebel Ali will be able to handle in excess of 10 million TEUs.

The long-awaited Marina 101 – slated to be Dubai’s second tallest tower at 425 metres – is due to open early next year. It was expected that Hampshire Hotels, in association with the Wyndham Group, would operate the 300-room Dubai Dream hotel – the focal point of the development – but it now seems that the search is on for new management of the hotel.

Dubai has always put a lot of emphasis on 5-star tourism with an estimated 62% of all properties falling into that category. Premier Inn is one company that is planning to redress the balance with plans to open a further four budget hotels adding 1,090 rooms – Ibn Batuta (370 rooms), Jadaf (300), Healthcare City (220) and Al Maktoum International Airport (200). The UK-based hotel brand, established in 1987, entered a JV agreement with Emirates Group in 2006 to launch in the Gulf and has already opened three properties in Dubai.

Having reported a 12% fall in H1 revenue to US$ 17.6 billion, JP Morgan Chase & Co is cutting staff numbers by 2%, including a number in its Dubai operation.

A recent report by Knights Frank shows a massive 25% increase in Dubai industrial rents with Class 2 buildings in Dubai Investment Park, Jebel Ali and Ras Al Khor posting gains of over 40%. With an increasing dearth of quality buildings available, there is growing demand for second-rate units.

The Dubai World Hospitality Championship is to establish a sector to develop best training methods to global standards in the hospitality segment. This comes in the form of a directive from the Crown Prince, Sheikh Hamdan bin Mohammed Al Maktoum, as Dubai ratchets up its efforts to ready the emirate for Expo 2020 and the influx of 20 million visitors.

The Dubai Financial Market General Index opened on Sunday at 4652 – and closed the shortened week up 3.9% at 4833. Because of the Eid Al Fitr holidays, there were only two days’ trading – Monday and Thursday – with thin volumes; Thursday saw only 335 million shares, equivalent to US$ 240 million, being transacted. The market has recovered 22.6% in July from its monthly opening of 3943.

A US lawsuit has now named Deutsche Bank, HSBC and Bank of Nova Scotia of trying to fix the price of silver and abusing their position in the market. Every day, in an apparent veil of secrecy, these three banks, appointed by the London Bullion Market Association, fix the price of silver in a practice that has been going on since 1897.

Thursday saw Argentina default on its foreign currency debt as last-minute talks failed to end the impasse. A US federal court has urged its government to resolve this debt crisis through negotiations as it blocked the Latin American country from making interest payments to creditors, who exchanged their bonds in 2005 and 2010 for securities of a lesser amount. The court ordered that it should settle the US$ 1.5 billion owed to US hedge funds, led by NML Capital, that bought up the cheap defaulted debt but did not agree to a “haircut”. Until this dispute is settled, the country’s precarious economy could be further damaged which will then have a negative impact on the world’s financial markets.

It was only last year that the IMF was advising the UK government that their economic policies were not working. Not for the first time has the august world body got it wrong as the British economy goes from strength to strength. This week, it reported a 0.8% rise in GDP, with latest data forecasting that annual growth is set to be around the 3.2% level – the highest of any developed country. In contrast, the German economy is slowing dramatically, not helped by geo-political developments in the Ukraine, with even the moist optimistic growth estimate being south of 2.0%. Meanwhile France’s economy is stagnating as the Hollande government fails to get to grips with archaic labour laws and too much red tape.

The July eurozone inflation rate dipped yet again to 0.40% – its lowest level since the financial crisis. Over the past ten months, annualised prices have risen at less than 1.0% and the monthly trend continues to head south. This figure is well below the European Central Bank’s target of 2.0% and the risk of a deflation spiral will become reality unless the ECB Governor Mario Draghi takes a more proactive approach to the problem. There is no doubt that the bloc is in the Danger Zone.

Posted in Finance | Tagged Arabtec, DFM, DP World, Du, Dubai, Dubai Financial Market, Emaar, Emirates, emirates airline, Emirates NBD, HH Sheikh Mohammed bin Rashid Al Maktoum, Marina 101, Nakheel, UAE, Wyndham Group | Leave a comment

Good Riddance (Time of Your Life)

Posted on July 24, 2014 by howesdubai

Dubai Land Department reported that H1 real estate transactions totalled US$ 30.8 billion, of which US$ 14.2 billion occurred in Q2 indicating a slowdown compared to the previous quarter. The 6.9k mortgage deals, totalling US$ 12.9 billion, accounted for nearly 42% of all transactions. During the period, 16.0k units were sold, totalling US$ 6.7 billion of which 2.6k, amounting to US$ 1.6 billion, took place in Dubai Marina.

Office rents are still on the rise but increases have slowed in Q2 to around 3% compared to 25% over the past twelve months. 40% of stock is still vacant but space in prime locations is filling fast where rents average US$ 513 per sq mt. Secondary office space has seen prices jump 24.2% to US$ 312 over the past year.

Abdulla Al Moosa’s Arenco Real Estate has just awarded the China State Construction Engineering Co (CSCEC) contracts to build two 5-star hotels on Palm Jumeirah. The world’s third largest construction company expects to complete construction of the two 13-storey buildings by the end of 2016.

Marina 101, standing at 425 mt, is expected to be handed over early next year. What will then be the tallest tower in Dubai Marina – and second only to Burj Khalifa – will comprise a 420-room, 5-star hotel, 60 3-bedroom apartments and 8 duplexes.

Damac Properties’ latest Loretto project sold out at its Monday’s launch. The 300 luxury apartments – part of the massive Akoya development – will finally be completed by 2018, with hand over on the early starts by the end of next year.

Deyaar saw Q2 profits skyrocket 229% to reach US$ 17.0 million – a sure sign that the Dubai-based property developer has recovered well from its dark days following the GFC. Sales were buoyed by the April launch of its Atria hotel apartments, located in Downtown.

Dubai-listed Emirates Reit Limited reported a 194% surge in H1 net profits to US$ 34.1 million compared to the same period in 2013. The Shariah-compliant real estate investment trust also saw its portfolio increase by 73.1% to US$ 561 million. Over this period, REIT raised US$ 200 million in an IPO which has funded US$ 32 million and US$ 167 million for the purchase of Le Grand Community Mall in the Marina and office and parking space in the DIFC’s Index Tower respectively.

Commercial Bank of Dubai reported satisfying H1 figures with Operating Profit up 4.4% to US$ 196 million and Net Profit up 17.0% to US$ 158 million over the same period in 2013. Loans and advances surged 6.8% to US$ 8.5 billion whilst deposits were up 12.1% to US$ 8.8 billion. Another indicator that consumer confidence has returned to the market was the fact that CBD’s gross loans climbed 40.4% to US$ 1.0 billion.

Mashreq went even better with a 45.3% jump in Q2 net profits to US$ 159 million, with H1 at US$ 316 million.

Following its 80-day partial closure for refurbishment and maintenance, Dubai International services returned to normal this week with 31% more flights. Even with its reduced workload in June, it was still the busiest international airport in the world and will probably carry more than 70 million passengers this year.

Of the 1,226 billionaires listed by Forbes, four come from Dubai – Abdul Aziz Al Ghurair (Mashreq bank) has a wealth fund estimated at US$ 2.9 billion, Saif Al Ghurair – US$ 2.0 billion, Abdullah Al Futtaim (Al Futtaim Group) – US$ 1.6 billion and his cousin, Majid Al Futtaim – US$ 1.1 billion. The latter’s MAF Group reported a 14% H1 hike in revenue to US$ 3.5 billion resulting in EBITDA being US$ 490 million – an increase of 13.0%. Most units performed well, including retail with revenue up 15.0% to US$ 2.9 billion, with EBITDA at US$ 151 million.

A recent Q2 survey by Morgan McKinley indicated that demand was greater than supply when it came to professional job opportunities in the UAE; it found that there was a 21.1% increase in job opportunities, to 8.1k, compared to Q1, whilst the number of professionals looking for work jumped by 29.7% to 45.6k. There was no surprise to see that construction was the primary driver and these figures underlie the continuing strength of the economy which is growing at its fastest rate since the halcyon days of 2007.

The Dubai Financial Market General Index opened on Thursday at 4667 – down 4.8% on Sunday’s opening of 4903. Emaar and Arabtec, were at US$ 2.65 and US$ 1.15 respectively.

If not so serious, it would be laughable, that despite all the rhetoric about the imposition of tough sanctions against Russia, the UK is still exporting arms to the value of US$ 225 million. No doubt some of these are being used for “illegal” activities as well as for military and security purposes. It is about time that western governments toughened up and imposed more severe restrictions that will damage the Russian economy, rather than individuals and small companies. Why has Robert Mugabe faced the full force of sanctions whilst Vladimir Putin has not? The answer is simple!

Analysts are keeping a close eye on developments in the eurozone as a Bundesbank report expects that the German economy has stagnated in Q2 with growth at a pitiful 0.2%. Apart from the inevitability of further bad news from bloc members, external factors – such as the Russian / Ukraine stand-off and the immoral expansive Israeli ground offensive in Gaza – are slowing down European economic growth and are primary reasons for German economic indicators heading southwards.

It is indeed a matter of when – and not if – the ECB introduces QE (quantitative easing) as current growth is at best patchy and consumer confidence is weak. The troika of high public debt, very low inflation and minimal expansion will leave countries marginalised, with high unemployment levels and reduced tax revenue, which will continue to spiral ever downwards, unless immediate positive measures are taken. The central bank has to act now and start buying government bonds – this is the only way to kick start the eurozone economy.

Unlike its European neighbours, the UK economy is beginning to build up a head of steam with a forecast 2014 growth rate of 3.1% – the highest in the G7 and over 70% higher than Germany’s forecast of 1.8%. Although sterling is strong (at over 1.70 to the US$), unemployment levels are plummeting and business investment – rather than consumer spending – is the main economic growth driver, interest rates will probably remain at their historical lows until at least the end of the year. One drawback to some is that house prices will continue to head upwards – probably as high as 10% in certain hot spots.

A defeat in the World Cup final could well be followed by another loss that could have ramifications not only for Argentine but for the global bond market. The country is refusing to follow a US court decision that it pay all its creditors – including a minority that have refused to take a hair-cut of up to 70%. \if the current impasse continues into next month then Argentine will again be in default for the second time in the past decade.

Improprieties and banks seem to go hand in hand, whether it be gold price fixing, money laundering, manipulation of Libor rates, mis-selling of mortgage-backed bonds – the list goes on. Indeed it is estimated that UK’s four largest banks’ exposure in the PPI scandal runs at over US$ 34 billion! Now that country’s Senior Fraud Office is to investigate whether currency traders have been rigging forex rates to their advantage – and customers’ disadvantage. 40% of the daily US$ 5.3 trillion market is carried out in London and it would be against the grain if no manipulation has been taking place. It seems that people in this business cannot help but help themselves and already almost forty staff from ten banks are on garden – or permanent – leave. Good Riddance (Time of Your Life).

Posted in Finance | Tagged Akoya, Arabtec, Damac, DFM, Dubai, Dubai Aiport, Dubai Financial Market, Emaar, Emirates, emirates airline, Emirates NBD, HH Sheikh Mohammed bin Rashid Al Maktoum, Nakheel, UAE | 1 Comment

Life On Mars

Posted on July 22, 2014 by howesdubai

Following Emirates’ announcement earlier in the month, confirming its order for 150 Boeing 777X aircraft, the airline has signed a 12-year, US$ 13 billion maintenance and repair agreement with GE for the 300 GE9X engines that it ordered last November, at a list price of US$ 15 billion. (The GP7200 engines, used on the entire Emirates 380 fleet, are made by Engine Alliance, owned by GE and Pratt & Whitney).

The week it received its 50^th Airbus 380, and with a further 140 on order, Emirates intimated that it could be in the market for another 80 if the manufacturer could be convinced to overhaul the existing model by 2020. Any revamp would include using the more fuel efficient Rolls Royce engines and other modifications which could slash operating costs by more than 8%.

DP World is the latest GRE to make use of the improved debt market conditions by signing a 5-year US$ 3 billion loan. It is reported that the global port operator has agreed to a US$ 2.39 billion conventional loan, at 150bps over Libor, with the balance being a Sharia compliant instrument.

To ensure a continuing reliable supply of water, and improve operating efficiency, DEWA has invested US$ 18 million in a two-year project that will see the introduction of surge protection devices in its pumping stations.

The fact that Dubai’s inflation rate in H1 rose over 71% to 2.74%, compared to the same period in 2013, comes as no surprise when residential rent and utilities account for 44% of total consumer expenses. Three major price rises in H1 were gas (11.89%), rents (5.03%) and education (4.43%).

Shuaa Capital posted Q2 profit figures of US$ 1.7 million, up US$ 1.3 million on a year earlier, as Revenue jumped 19.8% to US$ 14.2 million. Although the investment bank’s figures are up on the same 2013 period, they are slightly down on Q1 Revenue and Profit of US$ 17.5 million and US$ 2.2 million.

There is some indication that Aabar Investments is interested in acquiring more shares in Arabtec from its former CEO, Hasan Ismaik, so as to bring its holding to around 30%. The Abu Dhabi government-owned investment company is currently Arabtec’s second largest shareholder with a 18.94% stake. Belatedly, the authorities have taken some positive action and suspended trading in the company’s shares at the start of Thursday’s business, whilst it awaited further clarification from the main stakeholders.

The Dubai Financial Market had a stellar Q2 with Profit up 363% from US$ 18.9 million to US$ 68.8 million whilst the value of securities traded in the quarter rose by 234% to US$ 34.6 billion.

The bourse, opening on Sunday at 4575 points, had another mega week to close Thursday up 7.2%, or 328 points, at 4903. Emaar and Arabtec ended the week on US$ 2.70 and US$ 1.35 respectively. The DFM alsobconfirmed that it had approved a move by Drake & Scull to issue a US$ 15 million convertible bond to an unnamed investor, keen to buy into the company.

According to a recent Thomson Reuters’ report, H1 debt capital market activity in the ME fell some US$ 4 billion to US$ 22 billion. Over US$ 12.1 billion of this business originated in the UAE with Saudi being a distant second with US$ 6.2 billion.

The Brics group – which represents over 40% of the global population – now has its own development bank with the principle aim of financing infrastructure projects in the five member nations – Brazil, Russia, India, China and South Africa – without having to rely on the Western banking system. All countries will each pay in US$ 10 billion capital for the new financial institution which will be headquartered in Shanghai. Furthermore, there will be a US$ 100 billion Contingent Reserve Arrangement to reduce any economic fall-out as US continues tapering its QE policy, which started the year at a monthly US$ 85 billion and is expected to be finally closed down by November.

HH the President Sheikh Khalifa announced the creation of a UAE Space Agency, as the country enters the space race to send an unmanned craft to study Mars. This project will be the main driver of the agency but it will also be tasked with developing Emirati talent in the space and aeronautical sector as well as making the country a space technology centre. Only eight other countries have plans to explore this planet that will involve a 60 million km journey over a nine month period.

The launch date, 2021, coincides with the country’s 50^th anniversary of its formation and UAE will be the first Arab nation to explore outer space. There are no costs available but the UAE has already spent US$ 5.5 billion on its satellite and space development programme – and this will cost a lot more. HH Sheikh Mohammed bin Rashid Al Maktoum is quoted as saying: “We chose the epic challenge of reaching Mars because epic challenges inspire us and motivate us. The moment we stop taking on such challenges is the moment we stop moving forward.” One wonders what Dubai could do to the red planet if its probe did find Life On Mars.

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

I Heard It Through The Grapevine

Posted on July 16, 2014 by howesdubai

HH 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 4^th 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.

Posted in Finance | Tagged Arabtec, Asteco, DFM, Dubai, Dubai Financial Market, Emaar, Emirates, emirates airline, Emirates NBD, Expo 2020, HH Sheikh Mohammed bin Rashid Al Maktoum, I Heard It Through The Grapevine, Khalaf Al Habtoor, Mall of the World, Nakheel, UAE | Leave a comment

A Hard Rain’s Gonna Fall

Posted on July 6, 2014 by howesdubai

It 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 23^rd, 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!

Posted in Finance | Tagged Arabtec, Deira Islands, DFM, Dubai, Dubai Financial Market, Emaar, Emirates, emirates airline, Emirates NBD, HH Sheikh Mohammed bin Rashid Al Maktoum, Knight Frank, Nakheel, Sheikh Hamdan bin Rashid Al Maktoum, UAE | Leave a comment

Down, Down (Deeper and Down)

Posted on June 30, 2014 by howesdubai

Following 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).

Posted in Finance | Tagged Al Habtoor Group, Arabtec, Damac, DFM, Dubai, Dubai Financial Market, Ducab, Emaar, Emirates, emirates airline, Emirates NBD, Hasan Ismaik, HH Sheikh Mohammed bin Rashid Al Maktoum, Nakheel, UAE, Union Properties | Leave a comment

The Circle Game

Posted on June 29, 2014 by howesdubai

The 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.

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

Baby – What A Big Surprise

Posted on June 19, 2014 by howesdubai

The 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!

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

Fernando

Posted on June 10, 2014 by howesdubai

Although 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 11^th 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.

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