All Together Now

Posted on December 12, 2013 by howesdubai

Fortnum_and_masonAmazingly, there were ten thousand applicants for the first viewing of Dubai Hills – a luxury development with villa prices reportedly starting at US$ 8.2 million! Emaar have selected just seventy to attend the first viewing on 08 December at a secret location in Dubai, when plans and pricing will be revealed. The project – a JV between Emaar and Meraas – will be limited to about 600 plots and will be part of phase 1 of Mohammed bin Rashid City.

As a direct result of Dubai’s successful bid for the 2020 Expo, Al Mazaya Holding is expected to invest over US$ 2.8 billion in real estate projects in the emirate. Last year, the Kuwait-based developer cut back on its activity here but now will concentrate up to 85% of their expenditure in Dubai.

Meanwhile, Nakheel has awarded contracts for construction of two projects on Palm Jumeirah. United National Engineering Company will build the 170-apartment Azure Residences for US$ 36.9 million whilst the building of the Club Vista Mare will be carried out by Al Ghurair Contracting & Engineering in a deal worth US$ 10.5 million.

Although still in its infancy, there are signs that on-line property auctions will become increasingly popular. For the first time, the Land Department is getting involved by releasing seventeen properties on their new, easily accessed, portal, eMart.

This week Sheikh Majid bin Mohammed Al Maktoum opened Dubai International Jewellery Week 2013 which has attracted 360 exhibitors from thirty countries.

With their November US$ 23 billion order for 50 Airbus 380s, Emirates now have 100 on order and 40 in operation, taking  total investment in this jumbo to US$ 45 billion. This week, the airline made history by becoming the longest A-380 air service in the world with its 16 hours, 20 minutes daily flight to Los Angeles, covering 13,420 km. (Distance wise, both Qantas and Delta fly further – Sydney / Dallas being 13,804 km and Joburg / Atlanta 13,582 km; the latter, a 777-200LR, flies longer at 16 hours 55 minutes).

All is not well with the Flying Kangaroo as Qantas announced job cuts of 1,000 and issued a profit warning with indications that the half year loss could top US$ 270 million, It has been fighting, and now losing the battle on three fronts – high fuel costs, a strong dollar (although it has recently dropped 8.6% to just over AUD1 = US$ 0.9) and stiff competition, especially from Virgin. What Chief Executive Joyce must realise is that the other airlines also face a strong dollar and high fuel costs.

Still facing debt repayment problems, in the range of US$ 25 billion, Dubai World has sold Atlantis Palm Hotel to the Investment Corporation of Dubai for an undisclosed sum. Built in 2008, the hotel was a JV between Istithmar World and Kirzner International, before the latter sold their 50% share in April 2012.

Inchcape Shipping Services, bought in 2006 for US$ 285 million, by Istithmar World, a Dubai World subsidiary, is reportedly under investigation by US authorities for overcharging the US navy. Consequently, it has been suspended from any new contracts whilst investigations continue on work carried out since 2002.

Damac’s initial foray in the London capital market saw their global depository receipts (GDRs) priced at the lower end of the spectrum – US$ 12.25 – which valued the Dubai-based developer at US$ 2.65 billion. Although well down on some initial expectations, it still valued the company at US$ 2.65 billion and was the biggest UAE offering since DP’s 2007 sale of 20% of its equity for US$ 4.96 billion.

Arabtec Construction – along with Constructora San Jose SA – have won a US$ 1.2 billion contract to build the 719-bed Al Ain Hospital.

Fortnum & Mason is planning to open their first overseas store in Dubai in a franchise operation with Al Khayyat Investments. The iconic high-end store opened in London’s Piccadilly in 1707 and is known for its luxury products and services.

Yet another record was set by the Dubai Mercantile Exchange (DME) in November, with crude oil average daily volumes (ADV) of 7.5 million barrels. This represented an 80.0% jump on the same month last year and a 36.1% increase in ADVs, compared to 2012.

The HSBC local PMI (Purchasing Managers’ Index) jumped to a new high in November rising to 58.1 points. Any figure above 50 indicates economic expansion and, compared to most global economies, these results are spectacular.

Safi Qurashi, who spent US$ 60 million in 2008 for the United Kingdom on Nakheel’s The World, finally received justice when the Dubai court ordered his former partner (SD) to repay him US$ 10.9 million. The UK citizen spent three years in jail for security cheques that SD wrongly presented for payment that subsequently bounced.

The Dubai Financial Market General Index opened a shortened week on Monday at 2955 points and, having reached a five–year high of 3019, closed on Thursday 2.0% up at 3013. Although it is still 94% up so far this year, it has to be noted that, on 31 December 2005, it was trading at 7426!

After fifteen years of deliberation, there seems to be little chance of a common GCC currency. However there were unsubstantiated reports this week that four of the six-member bloc – Saudi Arabia, Kuwait, Qatar and Bahrain – may announce a common currency this month.

Speedy Hire has launched an internal enquiry into a US$ 8.2 million accounting irregularity that has seen the resignation of its CEO and the suspension of its Finance Director. The UK company supplies construction equipment in the region.

On the international front, Tommy Suharto, the son of Indonesia’s second president, has denied any involvement in an alleged US$ 20 million bribe from Rolls Royce. The UK’s Serious Fraud Squad is investigating that there was corrupt activity in the sale of RR engines to Garuda. Having lived there, I find this hard to believe!

Recent events seem to indicate that banks and corruption are synonymous. The EU has just fined six banks – including JP Morgan, RBS and Deutsche Bank – US$ 2.3 billion for fixing two global interest rate benchmarks – Libor and Eurobor. Surprisingly UBS and Barclays escaped punishment, despite being involved, because they both turned whistle-blowers.

It is interesting (and to some worrying) to know that the price of gold is fixed by five participating banks – Barclays, HSBC, Société Générale, Deutsche Bank and Scotia-Mocatta. The price is set twice a day (10.30am and 3.00pm).

This week gold  dipped to 5-month lows and some even expected the yellow metal to test the US$ 1,200 level on fears of the Fed cutting back on its third phase QE policy. It seems that gold will have fallen 30% by the end of this year (including a 5.4% drop last month) and almost 40% from its September 2012 high of US$ 1,920 – its first annual decline in thirteen years. By Thursday close, the price was US$ 1,230. As equity markets have surged, gold markets have tanked.

Latest eurozone data indicates that there is overall weak growth in the 17-couhtry bloc but a downturn in some of the southern countries, particularly France and Spain, continues to worry the markets. November’s PMI in France fell from 49.1 to 48.4 whilst Spain dropped below the 50 level – an indicator of economic contraction.

In a recent blog, HH Sheikh Mohammed bin Rashid Al Maktoum has invited all of UAE society to think collectively of creative solutions to education and health concerns in the country. Asking for ideas and suggestions, he wants every man, woman and child to join him and his cabinet in the biggest ever national brainstorm session. All Together Now!

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Dancin’ In The Streets

Posted on December 3, 2013 by howesdubai

fazza-burjThe week ended with the inevitable announcement that Dubai would become the first city in the MENA region to host a World Expo. The news will add further impetus to an economy that is already beginning to outshine most others in the world. An estimated US$ 7.0 billion will be spent on related infrastructure projects and 270k jobs will be created as a result of the BIE’s decision. The main site – covering 438 hectares – will be located next to the new Dubai World Central airport. (Incidentally the planned world’s tallest commercial tower, to be built in JLT, will be known as Burj 2020).

There is no doubt that the thaw in international relations with Iran will greatly benefit Dubai’s trade as Sunday’s Geneva deal with key world powers will see a gradual lifting of sanctions. Short-term, this may prove a bigger fillip to the local economy than this week’s Expo news.

OSN, the Dubai-based pay-TV network, was planning an IPO and had been valued at US$ 4.3 billion, by Arqaam Capital. Only five months ago, its worth was put at US$ 2.5 billion so it seems that the August acquisition of Pehla Media & Entertainment (for an undisclosed sum) has definitely added some value! At the end of the week, the company surprisingly stated that it was no longer seeking to list.

It appears that work on the US$ 3 billion Al Habtoor City on SZR is steaming ahead with phase 1 due for completion by 2015. The company has appointed Atkins to carry out multidisciplinary design services on the three proposed towers – two at 75-storeys and the other will be a 52-storey building – that will comprise 1,460 apartments, 11 penthouses, along with leisure, retail and entertainment facilities.

With the emirate’s residential sector booming, Dubai Properties Group wants to see business and entertainment hubs expanding in tandem. Accordingly, it has plans for Dubailand that includes dedicated business centres and a specific business park for the logistics industry. To satisfy the requirements of the ever-growing tourist sector, it will continue to ensure that their needs are met by the latest entertainment and leisure facilities.

There has been progress on the IMG Worlds of Adventures, the second phase of the popular Akar’s eco-tourist attraction ‘Miracle Garden’ and The Sustainable City, a net zero energy project being built by Diamond Developers. Dubailand’s first hotel will open next year and two other projects will be the Safa British Academy and a FIFA approved football centre.

Following the Monday launch of two hundred of its luxury villas at Akoya Park, Damac Properties announced that it would add a further 14 million sq ft (or 50%) to the project area which will include 4.3 million sq ft of parkland, as well as various sporting facilities and an open-air ampitheatre.

Wednesday should have seen 18.8% of Damac shares – in the form of GDRs (global depositary receipts) – on offer for the first time but this was extended for a further four days to take into account any impact from the Expo 2020 decision. Initially, the company had offered shares equivalent to about US$ 500 million, with a price range hovering around the US$ 13 mark. However, at the last minute, the IPO size was dropped to US$ 400 million and the price set at a lower level of US$ 12.25.

Dubai Municipality has confirmed that the eagerly awaited ‘Dubai Frame’ (‘Barwaz Dubai’ in Arabic) will be completed within two years, following the planned start of construction next month. The 150m tall window frame will be located in Zabeel Park and will include a museum and will showcase both ‘old’ and ‘new’ Dubai. Costing US$ 33 million, it is expected to draw in two million visitors every year.

JAFZA announced this week that it had completed work on the first phase (43k sq mt) of its US$ 518 million convention centre whilst Habtoor Leighton has been awarded a US$ 75 million contract for the next phase. The 34–storey JafzaOne tower will receive its first tenants next week, with the whole project (covering 73k sq mt) due for completion by the end of 2014 – seven years after work first started. Its close proximity to the Expo site will make this an attractive location.

This week, the emirate hosted the Global Islamic Economy Summit, attended by over 3,200 delegates. There is no doubt that Dubai’s aim to become the capital of Islamic economy makes financial sense especially when a recent study puts the potential market value at a staggering US$ 6.7 trillion!

The Big 5 was opened on Monday by the Deputy Ruler of Dubai, HH Sheikh Hamdan bin Rashid Al Maktoum. The four-day event attracted over 60,000 visitors and proved another boom week for the emirate’s hospitality sector.

The expected agreement that would have seen Majid Al Futtaim pay US$ 272 million to acquire Egypt’s largest supermarket chain collapsed. No reason was given for the deal to fall through that would have seen the Dubai conglomerate take over 48 Metro supermarkets and Kheir Zaman, the grocery chain.

Damas, the Dubai jeweller, plans a further 11% expansion in its retail outlets with the addition of 34 new shops by the end of H1 2014 – 28 in the UAE and 6 in Saudi Arabia.

Having recently purchased the Index Retail Tower in DIFC, Emirates Reits, a UAE real estate trust company, has bought Gems World Academy in Dubai. Gems will still operate the 1,800 pupil educational facility which opened in 2008. Weeks ago, the Dubai-based education provider sold one of its unnamed schools to PineBridge Investments ME in a similar sale and leaseback arrangement. Last week, it was also reported that GEMS Education’s first foray in the London sukuk market raised US$ 200 million – a third less than was initially targeted.

NPS Energy is apparently up for sale again following a failed 2012 attempt by Norway’s Aker Solutions. It appears that a consortium, including Fajr Capital, could bid up to US$ 700 million for the Dubai-based oil service company.

Two local unnamed construction companies faced the wrath of the immigration court and were fined US$ 534 million and US$ 136 million respectively for hiring 565 workers who were not on their direct sponsorship. The labourers had been sponsored by companies, registered in another emirate, and the Dubai entities had failed to get the appropriate permits from the Ministry of Labour.

Arabtec announced that it had paid US$ 74 million for a further 38% in Target Engineering Construction that will bring its stake in the oil and gas construction company to 98%.

Another record month at Dubai International with both passenger and cargo traffic up by 15.1% (to 5.7 million) and 3.0% to 209k tonnes respectively. With over 55 million passengers to the end of October, the airport will inevitably top a record 65 million this year.

HH Sheikh Mohammed bin Rashid Al Maktoum has approved a law making health insurance compulsory for all expatriates. The Dubai Health Authority will be responsible for its implementation which will take place in several phases over the next three years.

Dubai’s Ruler also approved Dubai’s 2014 budget which sees spending 11% up to US$ 10.3 billion offset by a 13% hike in revenue to US$ 10.1 billion. Dubai expects to have a 41.1% reduction in the deficit to US$ 240 million.

It is estimated that, over the next  three years, government and quasi-government entities will have to repay up to US$ 50 billion – most of the debt emanating from the GFC. With that in mind, it is reported that DIC, the private equity division of Dubai Holding, is in talks to sell Mauser, the German packaging company, which it bought in 2007 for a reported US$ 1.2 billion and will probably sell for slightly more. Furthermore Technocorp Holding – a Swatch Group subsidiary – has bought an additional 18% (bringing its shareholding to 58%) of DIC’s share in Rivoli Investments which was bought in 2007.

The Dubai Financial Market General Index opened on Sunday on 2891 points and ended an eventful week 2.2% up at 2955. Over the month, it has gained 1.1% and in 2013 a massive 90.91%! Bellwether stock, Emaar Properties is 71.90% higher YTD, closing at US$ 1.73.

Scarcely a week goes by without some financial institution showing how badly they treat their customers. This time, the much-troubled RBS has been accused of unprincipled behaviour as it allegedly caused the demise of some small firms by charging them high fees and rates. Its property division would then purchase their assets at ‘fire-sale’ prices.

It seems that the Australian dollar is weakening in anticipation of the US Fed’s imminent announcement that it will begin to cut back on its stimulus measures that has resulted in the markets being flooded with ‘easy’ money.

The global economy continues to stutter along and it is unlikely that anything like the required growth needed will be seen in the foreseeable future. It is ironic that in a world where probably 99% of all economists in the history of mankind are still living, they cannot guide governments to follow a road that equalises the right balance of growth and austerity. Five years on from the last crisis, the global economy is without any perceived plan or direction.

Dubai is the place to be this weekend – with the euphoria from the Expo announcement, the Emirates Airlines rugby 7s and the 42nd national day, the place will be buzzing more than usual. There will be Dancin’ In The Street!

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Singin In The Rain

Posted on November 24, 2013 by howesdubai

singin-in-the-rainAlthough the week started with a sandstorm and ended with a rainstorm, the big news was the massive US$ 99 billion new plane orders made by Emirates at the start of the Dubai Air Show with US$ 76 billion being spent on 150 new Boeing 777-Xs. A further US$ 23 billion went on an order for 50 Airbus 380s, and along with  the 51 previously ordered and the 39 already in service bring its investment in the super jumbo to US$ 45 billion. Budget carrier, flydubai surprised the market by a larger than expected order of 100 Boeing 737 MAXs and 11 next generation 737-800s, valued at US$11.4 billion at current prices.

Next door neighbours, Etihad announced a US$ 25.2 billion Boeing order for 82 wide body aircraft including 777-Xs and 787s whilst  Qatar Airways waded in with a US$ 19 billion, 50-plane order. By Tuesday, the order book from this air show topped US$200 billion – a record.

Increasing prices and higher rents continue to dominate the real estate sector. According to a recent local report, the average price of a Dubai villa (US$1.39 million) is US$ 0.500 million higher than its Abu Dhabi equivalent. Although property surveys seem to have different findings, they all agree that the local housing boom continues unabated. The latest such report, from Cluttons, indicates a 23% Q2 property price rise has been followed by an 8% jump in Q3; over the past twelve months, values have risen an impressive 53%!

A relatively new entrant into the housing market is National Properties – a subsidiary of National Bonds Corporation – with the launch of 69 upmarket ‘Al Andalus’ units located in The Villa. The Andalusia Collection will be 5-6 bedroom villas, with built-up areas of between 7k – 8k sq ft – built on large block sizes.

Even before this week’s rains, Nakheel’s Al Furjan project, currently with 800 villas occupied, had been troubled by flooding. Despite these problems, the developer had sold a further 400 plots in September and, this week, another 500 blocks for US$ 215 million.

With a September 2015 US$ 5.5 billion loan repayment due, Istithmar, a division of Dubai World, has numerous options to consider from its investment portfolio. If it needed to sell, to raise funds, there is the Atlantis hotel on Palm Jumeirah, with the company having bought out its JV partner’s share earlier in the year.

This week saw the first of two openings for the Hilton Worldwide luxury brand as the Conrad Dubai opened its doors, to be followed next month by the Waldorf Astoria Palm Jumeirah. With the strength of the local hospitality sector, the company may be considering further properties in the near future.

GEMS Education’s foray into the sukuk market raised US$ 200 million – a third less than was initially targeted when the non-call hybrid sukuk was first launched. Because the company was unrated and issuing a subordinated bond, the Dubai-based educator had to pay a premium, with the deal probably priced nearer 12%, than the 8% first estimated. (Only last month, Majid Al Futtaim issued a similar perpetual non-call five note at par, for US$ 500 million, at a 7.5% yield). Dubai Investments are looking at a US$ 300 million Islamic bond issue by the end of the year – this has been delayed from earlier in the year because of the rising interest rates.

Mainly because of the booming economy and subsequent increase in its population, it comes as no surprise to read statistics from Dubai Customs indicating high growth in the emirate’s fruit and vegetable trade that jumped 18.5% in H1 to US$ 1.74 billion. Of this total, imports accounted for US$ 1.25 billion – a rise of 17.9% – and exports and reexports rose by 20.0% to US$ 490 million.

A subsidiary of Drake & Scull, Passavant-Roediger GmbH, is part of a three-company consortium that  has won a US$ 148 million contract to construct phase 2 of the Gabal Al Asfar wastewater treatment plant  in Egypt.

With the much awaited Expo 2020 announcement due out next Wednesday, HH Sheikh Ahmed bin Saeed Al Maktoum has indicated that the government would invest in excess of US$ 8 billion, if their bid was successful. Although there is conjecture about the economic impact hosting the exposition would bring to Dubai, the cost of infrastructure would be in the region of 9% of GDP – offset by economic growth which could be the equivalent of 2% by 2020, with smaller contributions in the years leading up to the big day. Dubai could also see nearly 300k new jobs created mainly in the construction and hospitality sectors, with visitor numbers in excess of 22 million. (Even without Expo 2020, consulting firm, EC Harris estimate that the value of major construction projects being handed over in 2016 may top US$ 40 billion).

Since the GCC produces more than 20% of the world’s plastic, and the UAE is one of the world’s largest producers of polypropylene, it makes sense for the DGCX  to start trading in plastics futures as from February 2014; this initiative sees the first ever plastics contract in the MENA region.

The Dubai Financial Market General Index returned to the black this week closing 2.3% higher, or 66 points,  at 2891 on its Sunday opening of 2825 points. Although it is 1.06% down on the month, the YTD gain of 86.38% makes it one of the best performing global bourses.

For example, the Dow Jones hit 16000 for the first time ever whilst the S&P 500 did likewise at 1800 points. Meanwhile the FTSE All World Equity Index reached a 6-year high as the Nikkei in Japan, having risen 7.7% the previous week, was testing 6-month highs.  The current bull run is largely attributable to the Fed’s easy money policy which has kept interest rates artificially low and enticed many investors into equity markets. There is now inevitability that the Fed will shortly start easing back on its QE program of pumping US$ 85 billion every month into bond purchases which in turn will see a realignment of the global equity markets – southwards.

A bad week for JP Morgan Chase with confirmation that the bank was hit with a US$ 13 billion fine by the US regulators for their investment role with risky mortgages between 2005 – 2008. It has not been a good H2 for the financial institution as July started with a US$ 0.4 billion penalty for manipulation of the Californian energy market, followed in September by two fines of US$ 0.47 billion and US$ 0.92 billion for erroneous billing to its credit card customers and its now infamous ‘London Whale’ debacle respectively, topped off last month by  US$ 4.5 billion for manipulating mortgage bonds to pension funds. How are they still in business?

There is no doubt that economic growth is slowing down in most Asian countries. Thailand, for example, recorded a reduced growth of 2.7% in Q3 – the third straight quarter of economic slowdown. It is expected that the country’s annual growth for the year may reach 3.0% – a lot lower than the August forecast of 4.3% and 54% down on the 2012 figure of 6.5%. One positive factor is the 26.1% annual expansion in the tourist sector which will be hoping that the kingdom can escape serious civil unrest in the coming months.

France is quickly becoming the sick man of Europe and the state of its economy is causing more concern to some than that of say Spain and Italy. The latest Flash Composite Output Index, at 48.5, is down from 50.5 last month – any figure below 50 equates to contraction. It is still in contravention of EU deficit rules and its public debt – at 53% of GDP – is one of the worst in the eurozone.

As Dubai gears up for Wednesday’s Expo 2020 announcement, and if the the correct and logical choice is made, the party starts and we will all be Singin In The Rain!

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Little Arrows

Posted on November 21, 2013 by howesdubai

japan-bullet-trainAfter a relatively quiet month by their standards, Emaar Properties are once again in the news – this time launching the Rosa collection of 144 villas in Arabian Ranches. No doubt there will be much activity on Saturday – in Dubai, Abu Dhabi and Mumbai – as the villas go on sale.

Commercial property had been the weak link in Dubai’s realty sector, dragged down by an over-supply of inventory. But latest indicators point to the fact that, in Q3, UAE and Japan were the best performing global markets, with more of the same expected, as there has been a noticeable drop in the sale of distressed assets. However, the market is still some way off its 2008 price position but is recovering well from its later trough which saw values some 60% down from their peak. The Knight Frank Prime Global Cities Index estimated that Q3 prices were easing but still up 3.4% compared to the 6.1% in Q2 and 22.0% over the past twelve months.

Also slowing down is the hospitality sector with October occupancy rates at 78.6%, down 0.7% mainly because  the 7% demand growth was more than offset by a 7.4% supply expansion. However, both the average daily rate (ADR) and revenue per available room were up by 7.4% to US$ 299 and 6.6% to US$ 245 respectively. Hotel visitors for the first nine months of the year were up 9.9% at 7.9 million with total revenue of almost US$ 4.2 billion. Some hotels may have to consider not killing the golden goose by reducing their comparatively high room rates

As the Q3 reporting season draws to an end, Dubai Islamic Bank – the main sharia-compliant financial institution in the emirate – came out with impressive numbers. A 52.0% hike in net profit to US$ 126 million helped the YTD return rise by 33.5% to US$ 327 million. All other indicators headed north including deposits up 19.3% to US$ 21.7 billion, loans and advances by 1.4% to US$ 16.3 billion and total assets up 9.0% to US$ 29.3 billion.

Sensational figures were announced by Arabtec Holdings which saw its Q3 profit surge 212% to US$ 44 million on the back of a 39% rise in revenue at US$ 518 million. The company’s YTD revenue is up 27% to US$ 1.39 billion and profits by 153% to US$ 100 million. Largely as a result of these figures, the Board has decided not to go ahead with phase 2 of a US$ 653 million rights issue.

Less spectacular were the results from Shuaa Capital which turned a Q3 2012 loss of US$ 3.8 million into a US$ 1 million profit this period on a 57.0% increase in revenue to US$ 14.9 million. Its total assets stood at US$ 409 million.

Dubai’s jewel in the crown, Emirates Group saw H1 revenue up 12.8% to US$ 11.5 billion resulting in a 4% hike in profit to US$ 599 million. The main cost drivers were the fuel charges, accounting for 39% of operating expenses, and exchange variances because of the relatively high US$. It still has cash reserves of almost US$ 5 billion and the airline has seen the number of employees jump 11.7% to its current level of 75,800. Having already brought ten aircraft into service in H1 and a further fifteen expected in H2, it will be interesting to see what acquisitions the airline makes at next week’s Dubai Air Show. There is no doubt that there are benefits from economies of scale but there may be a time when it starts working against the airline – in other words, can any airline get too big?

A joint venture, between Danzas AEI Emirates, the Al Tayer Group and DHL Global Forwarding, has started work on two new airfreight and chemical logistics facilities. Located at the DWC Logistics District, the US$ 40 million facility, covering 37k sq mt, will be ready by the end of 2014.

Despite reports earlier in the year, it now seems that Majid Al Futtaim Holding (MAF) is only interested in the two Spinneys branches in Jordan – and not now in buying all the Spinneys outlets outside of the UAE, i.e. in Egypt, Lebanon and Qatar.

Christmas has come early for two Australians, Matthew Joyce and Marcus Lee. The Court of Appeal has quashed their convictions and acquitted them in a corruption case in which the former had been sentenced to ten years and a US$ 25 million fine.

Although there were some slight falls in September, the UAE Central Bank latest statistics indicate that YTD money supply has risen. Monetary aggregate M2 (currency, current accounts call accounts and deposits) rose by 10.7%, with bank loans and advances increasing by 7.2% and total bank deposits by 8.8%.

The Dubai Financial Market General Index lost 73 points this week to close 2.5% down at 2825.

Dubai’s annual inflation rate continues to rise – at 3.2%, its highest level in four years. According to the Dubai Statistics Centre, 44% of consumer costs is taken up by housing and utility expenses which have increased by 3.2% year on year. But with recent spiralling rent rises and school fees, the CPI may see a bigger jump next year.

Indian inflation in October hit 10.1% with some food prices going through the roof. On the other hand, inflation in the UK fell to 2.2% and is expected to drop to the 2% level in 2014 despite the recent double digit energy price hikes.

The UK economy has recovered we’ll and appears to have some traction, with 2013 GDP growth expected to be 1.6% and rising to 2.8% next year. Unemployment has dropped again with 7.6% of the workforce looking for a job.

This is in direct contrast to the eurozone which managed to register growth of just 0.1% in Q3. Nine countries in the 17 nation bloc have unemployment levels of over 10%, including Spain and Greece with 1 in 4 of their population unemployed. Even the three largest economies are feeling the pinch with Germany recording a falling 0.4% growth and France and Italy each with a marginal 0.1%.

In Japan, the situation is not much better with Q3 growth falling to 0.5%, despite the best efforts of PM, Shinzo Abe. His brand of economics, known as Abenomics, relies on the so-called “three arrows” – being monetary policy to end twenty years of deflation, reform to boost outside investment and to bolster government spending on infrastructure. To overcome his economic woes and get the country back on track, the Japanese leader will need a bigger armoury than his Little Arrows.

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You Ain’t Seen Nothin Yet!

Posted on November 10, 2013 by howesdubai

dubai-airshowThere is no doubt that the Arab Spring has given a welcome boost to the Dubai tourism industry, on the whole. However, one sector that is suffering is the cruise market which will probably see a 27% fall in numbers this year to around 300k because of regional problems.

Turkish company, Gunal, has been awarded a US$ 136 million contract to build phase 1 of the road and bridge network for the 3 km long Dubai Water Canal project. The project – spread over three phases – will cover more than 80k sq mt with marinas, retail outlets and an estimated 450 restaurants. It is expected to be finished by 2017 and to attract 22 million visitors a year.

It comes as no surprise to see that Dubai has finally made the Q3 ‘hot list’ of global properties according to IP Global’ s Property Barometer.  This must be treated with a little caution as yet this is another survey that estimates prices are still 30% lower than at their 2008 zenith and that YTD prices have risen by 11.9%. It is apparent that there is a wide divergence of views from the various recent property surveys.

Emaar has dismissed reports that it has plans to build another tower taller than Saudi’s Kingdom Tower, which, when completed in 2017. will surpass the Burj Khalifa as the biggest structure in the world.  Data from Emporis shows that Dubai is home to over 900 high rise buildings, of which nearly 50% are over 40 storeys.

As the Institute of International Finance has upped its growth forecast for the country to 4.7%, it also issued a caveat that the UAE has to be aware of a potential renewed cycle of risk taking as a result of a robust real estate recovery and a massive jump in the local equity market prices. Some analysts are experiencing déjà vu and see a repeat of 2008 on the horizon.

Dubai authorities are apparently aware of the possibility of another asset bubble and are taking active steps to deter a reoccurrence. It seems that the rapid upward price movements seen recently are beginning to dampen market expectations. Nevertheless realty transactions so far this year are up 34.5% to US$ US$ 53.1 billion, with the construction and real estate market now contributing to over 24% of Dubai’s GDP. It is not difficult to see that any major downward correction would bring problems to the economy.

Dubai Holding Commercial Operations Group, personally owned by the Ruler, saw its Moody’s credit rating improve one notch from B2 to B1. There is market confidence that the company will be able to meet its future debt repayments, including a US$ 1 billion bond in January 2014.

Last month, Dubai Holding announced it was planning to sell its 35% share in Tunisie Telecom, which it had bought for US$ 2.25 billion in 2006. This week, Abraaj Group is also exiting from the Tunisian market as it sells its 2009 acquisition, pharmaceutical company Opalia Pharmato, to Recordati.

Two months after signing a JV with Samsung Engineering, Arabtec has signed a similar agreement with another S Korean company, GS Engineering & Construction. The new entity will concentrate on large infrastructure and construction projects in the MENA region. This week Arabtec won a US$ 490 million contract to build a 77-storey, 369m tall tower block in Downtown Dubai.

Dubai-based Habtoor Leighton Group has been awarded a US$ 163 million Abu Dhabi airport contract for construction and infrastructure works. This is scheduled for completion by 2015.

Impressive figures emanating from Drake & Scull’s September results show both revenue at US$ 970 million and net profit of US$ 40 million with healthy gains of 68% and 76% respectively. Awarded projects so far in the first nine months were up at US$ 1.83 billion and its backlog has jumped 65% to US$ 3.38 billion.

Damac intends to raise US$ 800 million by offering Global Depository Receipts on the London Stock Exchange with 1 GDR equivalent to 3 Damac shares. Formed in 2002, the company has delivered nearly 8.9k properties (to the value of US$ 3.1 billion), with a further 21.2k units under construction. Last year, profits were almost US$ 340 million on turnover of US$ 1.1 billion; sales for the first six months of 2013 are already over the US$ 1 billion mark.

Dnata has now expanded its UK base to cover the five major airports, with new facilities at Gatwick, Glasgow and Birmingham, to add to existing operations at Heathrow and Manchester. Total investment in the country is in excess of US$ 160 million.

It seems that the April 2013 Emirates tie-up with Qantas is beginning to pay dividends with Australasian September passenger traffic and ticket sales up 41.7%  and 38.6% respectively, compared to the previous year.

Latest IATA figures for September indicate a global increase in passenger numbers with total revenue passenger kilometres up 5.5%, and capacity by 5.3%. Although international passenger demand expanded by 5.7%, increased capacity resulted in load factors remaining fairly static at 80.3%. As usual, the Middle East saw a bigger 10.4% jump in traffic growth but because of a 13% increase in capacity, its load factor dropped from 79.1% to 77.2%.

With over 60k trade visitors expected, the Dubai Airshow 2013 takes place this month at its new location, Dubai World Central; it will be the biggest to date with a 32% increase in outside capacity from its old venue, Airport Expo, Dubai International. Of the one thousand exhibitors 266 companies will be from the UAE and 197 from the US, with the likes of Canada and China increasing their presence to 32 and 25. Local carriers, Emirates and flydubai, are expected to place mega orders – definitely with Boeing and probably with Airbus.

Ahead of the event, flydubai has just signed a $228 million ten-year finance lease for six new Boeing 737-800 aircraft with quarterly loan repayments over the tenure of the lease.

In 2012, Dubai Duty Free recorded record annual sales and this year, the company expects to see a further 11% growth with figures of over US$ 1.8 billion expected. YTD sales at the end of October have already topped US$ 1.5 billion. Their best selling products are perfumes (accounting for 15.3% of the total value sold), gold (9.2%), confectionary (7.7%), watches (6.5%) and cosmetics (6.4%).

Dubai retail firm, Apparel Group, formed in 1996, has signed up with Line Investment & Property to open a further forty outlets to add to its current portfolio of 750 stores in 14 countries. The company represents more than fifty brands in the region including Tommy Hilfiger, Tim Horton’s and Nine West.

With China producing more than 40% of the global calcined petroleum coke, it makes sense to see that Dubai Aluminium owns 20% of a Chinese calciner which has just been commissioned. The JV – with Hong Kong’s Sinoway Holdings – will have an annual production of 560k tonnes.

A new aluminium downstream plant has opened in Jebel Ali. Royal Engineering Fabrication Company – owned by the Al Ghurair Group – is to source locally from the regional aluminium producers, including Dubal, and supply the automotive, aerospace and architectural sectors. Refco is expected to produce 1.9 million parts for the premium vehicle makers next year.

Another boost for the local economy came with news from Ford that Dubai will become the HQ for its fifth global business unit, covering the MENA region. The US car manufacturer has seen a 60% increase in sales of its Ford and Lincoln models over the past four years.

Dubai Investments PJSC witnessed a massive 97.8% rise in Q3 profit to US$ 43.9 million and an even more impressive YTD 107.1% return at US$ 144.7 million. The conglomerate, which owns around forty subsidiaries and JVs in a catalogue of sectors, has assets in excess of US$ 3.4 billion and a net value of US$ 2.4 billion.

The Dubai Financial Market announced its own results with a Q3 profit of US$ 22.6 million (compared to a loss of US$ 463k over the same period last year) and a YTD surplus of US$ 48.9 million. The main drivers for this improvement have been capital appreciation and higher volumes.

The Index itself was marginally down on Thursday at 2898 points, having started the shortened week on Monday at 2922.

The Islamic Development Bank, which provides financing for fifty-six member countries, has announced a future US$ 10 billion sukuk listing on Nasdaq Dubai. This will be a big step forward in the expansion of the local bourse as well as in Dubai’s aim to become the capital of Islamic Economy. Following HH Sheikh Mohammed’s initiative, the emirate’s capital markets have attracted US$ 12.5 billion with a further US$ 3.8 billion expected before the end of the year.

It now seems that UAE financial institutions have five years to introduce new Central Bank regulations that will restrict the amount banks can be exposed to government-related entities’ debt. The long-awaited regulations are expected to be formalised next month.

Two years after losing its triple A status, the French credit rating has been cut again from AA+ to AA by Standard and Poor’s. The main reasons for this are the government’s intransigence in introducing labour reforms that would make the country more competitive and its high government debt to GDP which is nearing 85%. If further drastic action is not taken by the Hollande government, the country will remain in the economic doldrums.

A further sign of the economic weakness prevalent in the eurozone was the European Central Bank’s confirmation that it will cut interest rates to almost zero. This has been done in the forlorn hope that it will prevent the bloc returning to recession.

With the Expo 2020 decision less than three weeks away, there is no doubt that whatever way the announcement goes, there will be mega projects launched in the emirate. The message from Dubai to the world is You Aint Seen Nothin Yet!

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The Lonely Bull (El Solo Torro)

Posted on November 4, 2013 by howesdubai

nyse-bullFollowing their impressive Q3 financial results last week, Emaar Properties has announced a US$ 3 billion Iraqi project in Erbil, Kurdistan. Comprising 15k residences, three 5-star hotels, 715k sq mt of office space and a shopping mall, the development will cover 541k sq mt. Downtown Erbil will create 45k new jobs.

The company also announced this week the launch of its luxury Sky Collection residences in Downtown Dubai. The Address Residence Fountain Views III – with 76 storeys – is a major component of Emaar’s three-tower dedicated serviced apartment project. So far this year, the company sales have almost tripled to US$ 2.5 billion.

This week, Dubai was selected to host the 2014 World Islamic Economic Forum – over two thousand Muslim political and economic leaders are expected to be in Dubai for the conference next November. Recently HH Sheikh Mohammed declared his keenness to make Dubai the world’s Islamic economic capital but the emirate has some ground to make up to catch up with Kuala Lumpur and London.

Dubai Holding, owned by the Ruler, confirmed that it would repay a US$ 1 billion bond due for maturity in January that would then leave the Dubai Holding Commercial Operations Group with one outstanding US$ 805 million bond, due for repayment in 2017. The group, with 2012 profits of US$ 327 million, has assets such as the hospitality-based Jumeirah, TECOM, Dubai Properties Group and Emirates International Telecommunications. This week Jumeirah announced it had raised a five-year $1.4 billion unsecured syndicated loan; this would be used to fund its expansion and also, in part, for the general corporate business of DHCOG. The operator, with 22 managed hotels, also confirmed an agreement with IFG Basis Project to manage a 74-room luxury St Petersburg hotel, due to open within three years; this will be the operator’s first foray into Russia.

Sunday saw the first official commercial flight into Al Maktoum International Airport with the arrival of Hungarian-based Wizz Air. The facility has been opened for freight carriers since June 2010 but an increasing amount of international carriers is expected to use the airport, which is destined to become the world’s largest super aviation hub.

Meanwhile passenger traffic at Dubai International increased by 13.1% in September, with a total of 5.4 million passengers, whilst year to date traffic was up 16.0% to 49.4 million. Air freight volumes rose 1.9% in September, on volumes of 197k tonnes, with YTD totalling 1,786k tonnes – up 6.6%.

Also on the transport theme, Serco Group has just signed a new five-year US$ 575 million contract with Dubai’s Road and Transport Authority (RTA) to maintain and operate the Metro. The world’s largest fully automatic transit system was inaugurated in September 2009 and is expected to carry over 127 million passengers this year. There are 49 stations on the Red and Green lines, covering 75 km.

DP World announced that Q3 gross container volumes were up 2.4%, on a like-for-like basis, handling 14.2 million TEUs (20’ equivalent units). Of this total, the UAE had a record quarter with 5.4% growth to 3.6 million TEUs – and exceeding 10 million TEUs, for the first time, in the first nine months of 2013. It is interesting to note that the company has a further four million TEU capacity coming on line within the next year.

The latest company to report on Q3 earnings was Etisalat with a 20.0% jump in revenue to US$ 2.61 billion negated by a 17.2% drop in profit to US$ 499 million, as staff expenses grew. International operations, which have increased by 41.0% this year, now account for 35.4% of its total revenues; however, however, in Egypt, there was a 14.0% reduction in revenue to US$ 300 million mainly because of the weak Egyptian pound.

With a current customer base of 6.9 million mobile subscribers and 587k fixed line users, Du, the Dubai-based telco, saw its Q3 revenue up 8% to US$ 719 million, whilst net profit after royalty payment surged 45% to US$ 129 million. Its growth is limited by the fact that Etisalat has the monopoly over Abu Dhabi’s fixed-line networks and further liberalising of the country’s broadband would benefit Du’s expansion plans.

The Dubai-based schools operator, GEMS Education, is planning to raise US$500 million from a sale of hybrid Islamic bonds to finance its future plans. The company has 11k staff and operates around one hundred private schools globally of which seventy are in the region.

Work is well under way on the 14km long corniche which will stretch from the Burj Al Arab to the Dubai Marine and will be ready by the end of 2014. The new walkway and jogging track – known as the Jumeirah Corniche Development Project – will link with the Dubai Canal Project.

Latest figures from the Dubai Economic Council show that the emirate continues with its impressive growth trend – with Q2 GDP up by 4.7% – allied with a reduction in the emirate’s fiscal debt by 15.7% to US$ 409 million. Next year, there is a forecast 7.2% rise in public revenue to US$ 8.9 billion and a smaller 5.8% hike in spending to US$ 9.3 billion. The major sectors that contribute to Dubai’s GDP toal are wholesale and retail (29%), manufacturing (16%), transport (14%), real estate (13%), finance (12%) and construction (8%).

The report also highlighted that more than 5 million tourists arrived in Dubai in H1 with visitors from neighbouring Saudi Arabia up by a massive 32%. On a quarter to quarter basis, returns show occupancy rates up by 5.3% to over 80%. Rather surprisingly, there were only fourteen new hotels and two hotel / apartments opened in the year bringing the total inventory to 406 and 197 respectively. August hotel occupancy figures rose 7.8% whilst year on year RevPar has surged 25.8% to US$ 149, following an 11.7% rise in the ADR (average daily rate).

Mashreq reported a 34.0% profit jump for the nine months of 2013 to US$ 354 million, as its total operating income grew by 19.2% to US$ 954 million. During the period, deposits rose by 11.7% to US$ 14.4 billion whilst total provisions for loans and advances reached US$ 790 million, constituting 87.9 per cent coverage for non-performing loans.

Further good news for the bank came in a US court case confirming that Mashreq has a claim against ING Groep involving the loss of over US$ 60 million. The case arose when the Dubai-based bank claimed that a 2007 US$ 108 million investment went sour with ING allegedly placing more than two thirds of the investment into “toxic, illiquid structured securities”. Unfortunately, New York law precludes Mashreq from pursuing punitive damages and can only claim what it is actually owed.

HH Sheikh Mohammed bin Rashid Al Maktoum chaired the latest cabinet meeting that approved the 2014-2015 federal budget. The planned US$ 12.5 billion spending package was up 3.1% on last year, with more than half allocated for development and welfare and a further 21% and 8% for the education and health sectors respectively.

At long last, the Central Bank has issued new regulations in relation to property sales, basically restricting home loans to 75% for expatriates and 80% to locals for property valued at under US$ 1.36 million and 65% and 70% for values above that sum. Second property purchase will be further restricted to 60% for expats and 65% for nationals. The main provision to stop “flipping”, and slow down the booming market, is that all off plan mortgages will be limited to 50%. The new rules will become applicable by December.

For a change, the Dubai Financial Market General Index had a lacklustre week closing on Thursday 12 points up at 2922. Over the month, the market has risen a further 6.0% and over the first ten months of 2013 it has climbed 88.38%.

As governments around the world battle with lower tax receipts and increased expenditure demands, it is difficult to have any sympathy with the likes of Amazon, DHL and Google who seem to go out of their way to make a mockery of the system. Recent reports indicate that the Google funneled US$ 12 billion of royalty payments to Bermuda which slashed its overseas tax rate to a about 5%. The company earns most of its foreign income in Ireland (already with a low tax regime) thus paying little tax in the countries where its customers are based. Furthermore it makes use of what is called a ‘Dutch sandwich’ – a structure that routes its profits via the Netherlands to avoid withholding taxes.

With Christmas fast approaching, it seems that the price of chocolate is set to rise, as costs have surged 31% this year, mainly because of huge increases in cocoa butter (70%), milk powder (50%) and cocoa (21%).  The situation is expected to worsen in the coming months.

There will be little festive cheer in the eurozone despite the bloc exiting six quarters of recession.The recovery is weak and fragile with major problems of low productivity, high unemployment, anaemic and uneven growth and an ever expanding north / south divide still to be surmounted. The banks have to start lending and unblocking the credit lines and, if they fail to do so, the eurozone will once again sink into inevitable recession.

As the Federal Reserve decided to continue with its stimulus package for the foreseeable future, it seems odd that  US stocks are trading at historic highs, despite recent indicators, such as private-sector jobs growth, housing starts and consumer spending, being more than disappointing. The fact that the Fed has been pumping in US$ 85 billion of ‘easy’ money a month (and probably more than US$ 3 trillion since the QE process began), allied with low interest rates and a falling bond market, has resulted in the total return for October alone (including dividends) from the S&P 500 companies to be 5.5%. Now is the time to get out of this market – you do not want to be The Lonely Bull (El Solo Torro)!

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Another One Bites The Dust!

Posted on October 27, 2013 by howesdubai

dubai-expo-2020HH Sheikh Hamdan bin Mohammed Al Maktoum, Crown Prince of Dubai, opened the 33rd Gitex Technology Week on Sunday. The event provides a major boost for the local economy as it attracts more than 130k industry specialists from over 150 countries. This will prove to be another boom week for the hospitality sector, following straight after the lucrative Eid Al Adha holiday.

Prior to the event, HH Sheikh Mohammed bin Rashid Al Maktoum announced a major project to transform Dubai into a Smart City. With the expanded use of smart technology, the project will enable the public, including residents and visitors, to link directly with the various departments in the public service 24/7. Other information portals – including weather, traffic, entertainment guides etc – will become available.

Dubai Customs also released figures showing the tremendous growth in the emirate’s electronics foreign trade with an H1 growth of 30.8% to US$ 37.1 billion. Imports were up 31.6% to US$ 20.5 billion of which China (accounting for 46.7%), Vietnam (16.0%) and Malaysia (5.3%) were the largest trading partners. Exports and reexports jumped 27.1% to US$ 16.6 billion with the main business going to Saudi (21.3%), Iraq (11.4%) and Hong Kong (6.6%). Not surprisingly, mobile phones were the single-most traded item, accounting for 49.2% of total imports and 57.5% of exports and reexports.

One of the first companies to announce their Q3 results was Emaar Properties with a 36% revenue surge in the first nine months of 2013 to US$ 2.4 billion whilst net profit was 13% up at US$ 490 million. Its prime asset, Dubai Mall, had a footfall of 55 million – 24% up on the same period last year and was a major contributor to the fact that the company’s malls and hospitality sectors accounted for 44% of total revenue.

Emirates NBD has acquired from Union Properties its Uptown MotorCity development, including six hundred apartments, as well as the 243-room Motor City Hotel, due for completion by June 2014 – five years later than originally planned. 40% of the residential units have already been sold. At the beginning of the year, the bank was UP’s largest shareholder but their latest accounts show that it had booked a US$ 52 million gain from divesting 32.6% of its shares and has announced that its remaining 15% is now up for sale. ENBD reported a 21% increase in Q3 net profit to US$ 211 million although a 50.5% rise in bad loan provisions, from US$ 275 million to US$ 414 million, meant its profit was below analysts’ forecasts.

Merlin Entertainment, the world’s second largest second largest visitor attraction operator (with 54 million visitors) after Disney, is planning to build a Legoland theme park in Dubai. Five years ago, it was due to partner Tatweer to build the park in Dubailand in what was to be a US$ 248 million project but the GFC put an end to those plans. (At the time, Dubai Holding subsidiary, Dubai International Capital, had a 17% share in Merlin but sold out in 2011).

Emirates International Telecommunications LLC, part of Dubai Holding, owned by the Ruler, is expected to sell two of its assets – a 35% share in Tunisie Telecom, which was bought for US$ 2.25 billion in 2006, and a 26% share in the Dubai-based Axiom Telecoms. It is estimated that proceeds from both sales will bring in US$ 1 billion and are part of the repayment strategy that sees state-owned entities having to find in the region of US$ 50 billion, over the next three years.

A 13 megawatt photovoltaic plant, opened this week, represented phase one of Dubai’s $3.3bn Mohammed Bin Rashid Solar Park in a push to diversify energy supplies in the UAE. Built by US company, First Solar, the facility will eventually produce 24 million kw pa which should meet the power needs of five hundred households. The solar park will eventually generate 5% of Dubai’s electricity.

The country continues to power on with an expected US$ 12.8 billion 2013 expansion in its nominal GDP to US$ 389.8 billion and this should easily top the US$ 400 billion mark next year. The main driver for growth will be the non-hydrocarbon sector at 4.5%, whilst the oil sector will fall to 1.6% growth this year, giving a real GDP expansion of 3.5%.

In no time at all, Dubai bourses hold nominal value of sukuks at US$ 11.1 billion, the third largest total globally, The DFM has had six new listings already this year, totalling US$ 4.4 billion. Undoubtedly, this market is set to develop further as Dubai expands its range of Islamic finance listings, including sukuks.

Meanwhile the Dubai Financial Market General Index witnessed a quieter week (in local terms) – up 3.1% to 2910 points, having started Sunday at 2823.  The market has jumped 5.4% already this month and shows an impressive 87.6% gain in 2013.

This week, Dubai welcomed more than 250 representatives, from 167 member nations of the Bureau International des Expositions (BIE). These delegates, who oversee World Expo, are here to check on the emirate’s readiness to host Expo 2020, with Dubai being the bookies’ favourite in a four horse race. However, the jury is still out whether the awarding of Expo 2020 will be a godsend to the Dubai economy. Whichever way the decision goes on 27 November, there will undoubtedly be a raft of mega projects announced. It will be disappointing news for Dubai if the BIE plump for any of the other candidate cities – Izmir, Sao Paulo and Yekaterinburg. However, if the unthinkable were to happen, the emirate will find suitable ways to spend the estimated US$ 8.4 billion cost of financing the six-month exposition.

The UK government seems to have wasted over US$ 2 billion of taxpayers’ money by selling its stake in Royal Mail at least 37% below market value. IPO shares were issued at US$ 5.33 (valuing the company at US$ 5.3 billion); at the beginning of the week, they were trading at US$ 7.26 (US$ 7.3 billion).

Despite the odd snippet of good news rippling out of Europe, many of the countries still face the prospect of continued austerity. For example, troubled Spain will have to slash public spending by 4.7% and cut pensions so as to reduce its public deficit to GDP to 5.8% in order to satisfy the new tougher European budgets. Greece – now in its 6th straight year of recession – has to introduce further draconian measures, as its public revenue is still far short of its proposed spending.

It is no surprise to see BHP Billiton, the world’s largest mining company, cancel all but one of its Indian operations – another example of a conglomerate not happy with the Indian government’s intransigence, petty bureaucracy and business-unfriendly policies. In the past four months, three other high profile MNCs have pulled the plug on their Indian projects. Wal-Mart recently closed their partnership with Bhartia Enterprises, having been ordered to source at least 30% of its goods sold locally and other over restrictive government regulations on foreign investment. Similar regulatory problems have seen South Korea’s Posco scrap a US$ 5.3 billion steel mill project and Luxemburg-based ArcelorMittal cancel plans to build a second major steel plant. The Indian people will be the ultimate losers as BPP Billiton becomes yet Another One To Bite The Dust!

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Hold On

Posted on October 21, 2013 by howesdubai

BernabeuA raft of property projects was announced at last week’s Cityscape including Crystal Lagoons building the world’s largest man-made lagoon (40 ha), in the new Mohammed bin Rashid City, featuring beaches and waters similar to the Caribbean (at more than three times the size of its Sharm El Sheikh facility).The company has a portfolio of 250 projects in fifty countries.

Khalaf Ahmad Al Habtoor has announced the world’s biggest residential and hospitality development, Al Habtoor City, with more than 3,000 hotel and residential units. Located on the site of the old Metropolitan Hotel, on Sheikh Zayed Road, there will be three luxury hotels in the 10 million sq ft development, as well as two 4-level penthouses, with a price tag of US$ 250 million each!

Latest RERA figures indicate that there were 5,175 residential property transactions in Q3, totalling US$ 3.04 billion. Over the same period, average rental increases for all types of property came in at 3.5% – the same level as the previous quarter. Apartment rentals have increased at a quicker rate than villas, with a Q3 rise of 4.5% (and 28% year on year).

Also slowing down in Q3 were office rentals but that sector still remains buoyant, despite an oversupply of stock. The two big gainers were JLT – up 14% quarter on quarter and 75% year on year – and Business Bay –  nudging up 10% and 28% over the same time period.

Will Real Madrid alter its iconic Santiago Bernabeu stadium name to include that of Emirates? The airline is the club’s main sponsor and club president, Florentino Perez, has hinted of a change.

Dubai-owned QE2 Holdings has appointed the Chinese COSCO Group to refurbish its 294 mt long cruise liner into a luxury floating hotel. Within two years, 400 suites (60 to 150 sq mt) will replace the 990 rooms and the shopping mall, ten lounges, seven restaurants and ballroom will be revamped. Is it incongruous then, that it will be based in Hong Kong, rather than Dubai?

With a US$ 100 million expansion strategy, Malabar Gold and Diamonds plans to open 100 mini jewellery stores, over the next three years, in the UAE. The ‘Pink Chic’ brand will be located in shopping malls and hotels and will sell jewellery in the US$ 100 – US$ 1,000 range. The company has seventy outlets in India and thirty in the Gulf.

The 33% sales increase of Renault vehicles so far this year and BMW Q3 turnover jumping 18% are sure indicators of the current boom in the local economy. Likewise the 69% YTD surge in the volumes registered on the Dubai Gold and Commodities Exchange (DGCX). At the end of Q3, there had been 11.4 million contracts with currency futures up 77%.

Dubai Duty Free continues to grow with revenue up 12% to US$ 1.27 billion for the first nine months of 2013, and expectations of another record end of year,  when sales could top US$ 1.8 billion. Terminal 3 had a 17% increase to US$ 801 million whilst arrivals jumped 10% to US$ 125 million. The big-3 selling items were perfume (15.7% of all sales, at US$ 201 million), liquor and gold.

French wine producer is trying to sell a Balthazar (a 12 litre bottle) of its 2009 vintage Chateau Margaux for US$ 195k. If successful, this would be the highest price ever paid for a red wine. The 400-year old vineyard has produced only six of these bottles, three of which are on sale at Dubai International Airport.

The OECD has ranked the UAE as the world’s 16th most generous country as it has committed US$ 1.59 billion in foreign aid, of which 87% – or US$1.38 billion – will go on development projects. US$ 883 million (55.6%) of the aid is spent in Asia.

The Dubai Financial Market has been closed all week for the Eid al Adha break and will reopen for business on Sunday when the index will be at 2823 points. The market will see increased activity in the coming weeks, especially with the Q3 reporting season under way and some exciting results expected, especially from the local banks.

With the banks expecting to announce spectacular performances, it is just a pity that so often their service goes in the other direction.

The biggest bank in the US, JP Morgan, has not had a good Q3, reporting a loss for the three months of US$ 400 million, compared to a US$ 5.7 billion profit a year earlier, because of a further US$ 9.2 billion legal provision before tax. Since 2010, the financial institution has already put aside a massive US$ 23 billion to meet penalties and claims and has admitted that it may have to find a further US$ 6.8 billion! The two major problem areas are its sub-prime mortgage losses, that could end up costing US$ 11.0 billion (US$ 7 billion in penalties and US$ 4 billion in claims), and the London Whale Trading incident, that could top US$ 7.1 billion (US$ 6.2 billion in trading losses and US$ 920 million in penalties).

With figures like that being bandied about, there is no doubt that few lessons have been learnt from the GFC. Many of today’s banks continue to be too big to manage and too big to fail and this can only be a sure recipe for a future banking catastrophe.

It seems that the US is fast catching up with Saudi Arabia and Russia as the world’s largest crude oil producer. Thanks mainly to increased production from shale, the country is now the global oil supply leader (at 12.1 million bpd) when the likes of natural gas liquids and biofuels are added to its crude oil output of 3 million bpd. It is interesting to note that the US is the largest user of oil at a staggering 19.18 million bpd – far greater than China (9.06 million), Japan (4.45 million) and India (3.20 million).

The US economy will be helped by possible US$ 4 billion UAE government defence contracts including the purchase of Raytheon Joint Standoff Weapons and the Boeing Expanded-Response Standoff Land Attack Missiles. In addition, there will be requirements for training, software, related equipment, transportation and storage facilities. Next month is the Dubai Air Show, with probable Boeing orders from Emirates, for at least fifty 777-9x aircraft, and flydubai for fifty  737s – a welcome boost for the slowing US economy.

After sixteen days, the US farce came to its expected end as lawmakers produced a last-minute deal to stop the country defaulting on its debt. The compromise saw the Senate lift the US$ 16.7 trillion borrowing limit and re-open the government for business. There is every chance for this absurdity to reappear as the deal does not resolve the basic issues of spending and deficits and only funds the government until 15 January and raises the debt ceiling to 07 February 2014.

Unsurprisingly, the global markets responded well to the news as did the greenback which rose against most currencies. Whilst oil prices moved north to nearly US$ 111, the big loser was gold which continued its downward trend to dip to US$ 1,380 during the week, later rallying to close on Thursday at US$ 1,420. It is inevitable that this precious metal will see its first annual fall since 2001 and will continue to be a problematic investment, whilst the equity markets flirt with all-time highs. The message to those currently holding gold – Hold On.

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Start Me Up

Posted on October 17, 2013 by howesdubai

obama-laughingThis week saw the inevitable raft of new projects being announced that always coincides with Cityscape. Probably the most surprising property news of the week was Nakheel’s plan to restart work on the much delayed Palm Deira (now to be known as Deira Island). The change in name comes with a modification to the size of the development, with none of the original fronds being utilised. Despite this reduction, the island will still have 1,400 retail and food outlets, a 30k capacity ampitheatre and a 250-room hotel. There is every possibility that outside companies will be asked to tender for other areas in the development.

Another massive delayed project was brought back to life with news that Emaar Properties and Dubai Holding will restart work on the 6 million sq mt The Lagoons, located at the end of The Creek. This will include a central business district with the Dubai Twin Towers, schools, medical facilities and a hotel, and when completed will be three times the size of Downtown Dubai.

In 2008, there were plans to build an opera house on a Dubai Creek island but they were shelved because of the GFC. Now it seems that Dubai will finally have the most modern theatre in the world which can be converted to other uses such as for weddings, exhibitions etc. The 60k sq mt facility, shaped like a traditional dhow, will be completed by 2015.

Dubai Properties Group will start work with further developments of Culture Village, located on the Creek. This will include a 3.8km promenade with a retail souk, art centre and a residential area, Manazel Al Khour. Two of the major developments in this heritage location, the 6-start Palazzo Versace Hotel and D1 Residential Tower, will be completed next year.

DPG will also add new projects to its ‘The Walk’ in JBR, including yet another beachfront hotel. The area is home to 40k residents and welcomed over 13 million visitors in the past year.

Deyaar, now controlled by Dubai Islamic Bank, has confirmed that it will construct two tower blocks in Business Bay. The US$ 38 million received from a recent deal, together with a mix of bank loans and advance sales, will help finance these projects.

Meydan also used the property show to announce some major developments. As part of the new US$ 545 million, 3 km Dubai Canal Project, the organiser of the world’s richest horse race has formed a JV with Meraas to develop a 40 million sq ft site for up to US$ 9.5 billion worth of residential development, on either side of the canal. The JV has also commenced sales on its 520 mt high Entisar Tower, which will have 444 apartments.

Meydan Heights – with its 528 townhouses – will start receiving its first tenants, mostly Emirates pilots and staff, by the end of the year. It was no surprise that two other Meydan developments have already sold out. These are the 70 blocks of land for its upmarket Racecourse Villas and 120 Meydan Business Park plots.

Dubai Investments Real Estate Company has started work on three residential and commercial properties in Jumeirah, Mirdiff and Meydan. This comes after the success of its RITAJ project in Dubai Investments Park that comprised some 2k apartments, most of which have already been sold or leased.

Troubled developer, Union Properties, have also got in on the act, announcing six new projects. These include expansions of its Green Community and Motor City retail area – The Ribbon. It will also replace its proposed F1-branded theme park with a mixed-use development which will have a replica of the Champs-Elysees.

The DIFC zone is planning a US$ 4.1 billion expansion plan in a bid to attract more international companies. Currently only 60% of the total 25 million sq ft available is being utilised and suiters are being sought to develop the remaining area which is expected to be 65% offices, 20% residential and 15% retail.

On Tuesday, flydubai launched its first business class flight with FZ729 taking off for Kiev in the Ukraine. The three-year old airline already covers 65 destinations in 34 countries with more growth on the horizon.

The Dubai Financial Market General Index finally took a breather after a tumultuous six weeks of trading closing on Thursday on 2831 points – marginally up on its 2823 Sunday opening. The market is still 82.50% YTD and 2.5% up so far in October. The bourse will be closed next week for the Eid al Adha celebrations and will reopen on 20 October.

Meanwhile Dubai’s other stock market, Nasdaq Dubai, listed its first new stock in four years. However, the Bank of London and The Middle East saw no activity in its first day of trading on Tuesday. The only other stocks listed on this exchange are DP World and Depa Ltd.

A recent study by the Emirates Identity Authority (Eida) estimates that only 20% of the 150k new jobs generated in the country every year is being taken by Emiratis. 58.7%, or 88k, are Dubai-based.

It is reported that the country’s consolidated financial account (CFA) will hit a new high this year because of the high oil prices. The country has recovered well from its US$ 8.0 billion 2010 deficit. It is estimated that in 2008, the country needed oil at US$ 23.4 to break even which rose to US$ 92.4 in 2011 and has fallen back to US$ 80.0 last year.

Not one of the best forecasters, the IMF has once again had to change their growth estimate for the GCC. Only four months ago, they were predicting a 3.78% 2014 expansion but now have amended that to 4.4%.This will be 18.9% up on the expected 2013 growth of 3.7%. The rest of the world does not fare so well with the world body lowering their July growth forecasts by 0.3% to 2.9% this year and by 0.2% to 3.6% in 2014.

The 3 ‘I’s are in the news. India has seen its growth pegged back from 5.6% to 3.8% over the past three months and has been dogged by persistent high inflation rates and a significant downturn. Italy has been beset by its usual problems of red tape, weak government, fragile economy and high debt which stands at 133% of GDP. Ireland expects to exit the bailout programme by the end of the year having had to go to the EU and IMF for a US$ 115 billion loan in 2010.

Despite apparent conciliatory moves by Republican John Boehner, it seems that the US president is not in a mood to negotiate. By Thursday, the federal government had been virtually shut down for ten days with no apparent end in sight. Consequently, the world’s markets are becoming spooked and 1-month US government debt hit a five-year high. This impasse threatens to stop the raising of the country’s US$ 16.7 trillion debt ceiling by 17 October and could push the rest of the world into a major recession. The simple message to Obama is – Start Me Up!

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Here We Go Round The Mulberry Bush

Posted on October 8, 2013 by howesdubai

falkirk-wheelThe latest industry market report indicates that property prices continue to surge – up 42% over the past year. The usual factors driving prices are in evidence – political stability, buoyant local economy, growing demand, 2020 Expo etc. However such steep climbs may well be a precursor of another asset bubble, similar to what happened in 2008.

One of the drawbacks of this current property boom is the increase in the number of cold-calls from brokers and agents. As a result, the Real Estate Regulatory Agency (RERA) has notified all concerned parties that such direct telemarketing tactics are against its 2006 regulation 85 which could lead to fines for offenders.

The government is planning to spend US$ 545 million in building a canal that will link Business Bay to the Arabian Gulf. The 3km waterway will have to cross Sheikh Zayed Road, around Safa Park, as well as Al Wasl  and Jumeirah Beach roads and will be completed by 2017. It will cover 80k sq mt and will use a bridge – that could be based on the Falkirk Wheel in Scotland – to straddle SZR.

The oldest shopping mall in Dubai – Al Ghurair – has finally completed its first phase of a US$ 545 million revamp. Its retail expansion has 130 new shops and 350 other outlets covering 850k sq ft.

Habtoor Leighton Group has been awarded a US$ 75 million contract to build the next phase of the JAFZA One convention centre complex, as work restarted on the stalled US$ 518 million project. The contract will cover the interior fit-out of one of the twin commercial towers which is part of the development that will include a hotel and associated exhibition and recreational facilities.

A reflection of Dubai’s economic upturn saw a 15.3% rise in the number of new licenses issued by the Department of Economic Development with an August total of 1,148. There were also increases in issued trade names (up by 27.2% to 4,840) and initial approvals by 23.3% to 1,629 during the month.

It is estimated that the UAE has plans, totalling US$ 58 billion, for future expenditure on its roads and bridges. With that amount of investment, it is no wonder that, according to the latest Travel and Tourism Competitiveness Report, the country ranks second in the world for roads quality. Shame about the driving!

In a move to encourage more budget hotels, newly built properties, in the 3-4 star brackets, will be granted a concession on the current 10% municipality fee. The waiver of the levy, charged on the nightly room rate, will be for a four year period.

Ducab and Abu Dhabi’s Senaat have formed a JV to build a 50k tpa aluminium rod mill. The new entity, Ducab Aluminium, will manufacture Electrical Conductive grade aluminium rods with the project slated to cost US$ 60.0 million and will be located in the Khalifa Industrial Zone.

An initial agreement has been signed between the Dubai Supreme Council of Energy and the China Sonangol Group to build a crude oil refinery in the emirate. This is seen as a necessary move as Dubai‘s energy requirements continue to grow in line with its booming economy.

The Dubai Financial Market witnessed a mesmeric Q3 gain of 24.2% closing at 2762, following a Q2 increase of 21.5%. Thursday’s closing bell saw the market at 2823 – a 3.1% jump on the Sunday opening of 2737 and 81.99% up for the year to date. Bellwether stocks, Emaar and Arabtec, were higher closing on US$ 1.64 and US$ 0.73 respectively.

There is speculation that the Dubai and Abu Dhabi bourses are discussing a possible merger, a move that would attract more foreign investment. On Wednesday, the share value of Dubai Financial Market was 15% limit up – a sure indicator that this on-off deal is back on the table.

A long awaited, but welcome, move by the local banks sees the first phase of the introduction of a direct debit scheme being implemented from 05 October. Initially, all post-dated cheques will be transferred to the new system and then all loan repayments will be gradually phased in, followed by payments such as DEWA, insurance, credit cards, telecoms etc.

Hot on the heels of HSBC, it seems that troubled British bank, Barclays, has begun to cull their retail accounts in Dubai. It appears that both banks have had communication problems with customers, some of whom have claimed lack of information and notification. Confirming recent reports, it is no surprise to see Barclays plc decide to move out of retail banking in Dubai to concentrate on its core business of investment and corporate banking.

With UK Chancellor hinting that the country will be in austerity until 2020, German and Spanish September jobless figures rising and Berlusconi trying to topple the Italian government yet again, it is little wonder that the ECB president, Mario Draghi, thinks that European economic recovery is ‘weak, fragile and uneven’. Unemployment in the eurozone is at 19.2 million with Austria the country with the least unemployment at 4.9% and Greece at the other end of the scale with 27.9%. Even more disturbing is the fact that the total EU number of those aged under 25, not working, now stands at 23.7%.

The last thing the US economy needed was an impasse that saw 800k public workers forced to stay at home. It will further damage an already fragile domestic economy, with below 2% growth expected this year, and have serious repercussions across the globe, if the shutdown is prolonged, there will be widespread economic collateral damage that will result in a major global recession. Furthermore, it may be interesting to see China’s reaction to a weaker dollar and a stronger yuan.

Monday was the first day that the US government went into shutdown after Congress failed to approve next year’s funding. Nothing new as this is the 18th time in the past thirty-five years that this has happened.  Once again – Here We Go Round The Mulberry Bush.

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