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Here, There and Everywhere

Posted on July 19, 2013 by howesdubai

The next chapter in the history of the QE2 has been written with news that it is currently being converted into a luxury floating hotel at Drydocks World. In October, it will set sail for Singapore and from there to Hong Kong, before berthing in an unnamed Chinese shipyard for final renovations prior to beginning its new life in the Far East.

The warning bells are already ringing as a recent report indicated that Dubai rents jumped a frightening 18.3% in Q1 – even more staggering when the likes of London, New York and Hong Kong actually slumped by 3.1%, 2.6% and 2.3% over the same time-frame. Yet another report showed year on year growth to June for apartments up by 38% and villas 24% with rental returns climbing 20% and 17% for these two categories. There is no way that this trend can continue without an asset bubble eventually becoming a reality.

However, it appears that the two major local property developers are both confident that the upturn shows no sign of waning and is sustainable. Emaar has announced that over 95% of all units, launched in the past eighteen months, have been sold with total sales this year reaching US$ 1.23 billion, compared to just US$ 327 million in the corresponding 2012 period. In total, the company unveiled 1,050 units last year and a further 2,120 so far in 2013. It is interesting to note that forecast deliveries for the next three years are 749, 539 and 533 – a total of just 1,821!

Nakheel has announced H1 profits of US$ 327 million (up 57% on the corresponding period last year) on a 36% increase in Revenue to US$ 1.15 billion. This year, it hopes to place a total of 3,000 units, having already delivered 1,600 residences in H1.

It is surprising to note that JLT now houses 65,000 people – in their 65 tower blocks – who either live or work in the mushrooming complex. By the end of Q3, the DMCC should become Dubai’s largest free zone with registered companies reaching 7,000. What is good news for the Dubai economy is that 95% of the 1,200 companies registered this year were new to the emirate. On the flip side, office rentals have risen 75% over the past twelve months to US$ 306 per sq mt.

With the prospect of Dubai hosting the 2020 World Expo, Damac Properties have plans for a further 8,000 luxury serviced hotel apartments over the next six years. Their first foray into this sector was the 355-apartment, The Signature, which began handover last month.

The conundrum facing the realty sector is that despite all this activity, local banks’ mortgage books actually fell in Q1 by 2.9% from US$ 43.5 billion to US$ 42.5 billion. One of the side effects of the regional turmoil is that Dubai has become a safe haven resulting in money flooding in so that an estimated 80% of purchases are cash buyers. It has taken the local market some years to recover from the 2008 property crash and it can only be hoped that we are not watching history repeating itself.

On the retail front, it seems that Dubai is responsible for US$ 2.32 billion of luxury good purchases with a double digit increase slated for 2013. The emirate has an estimated 30% of the regional market, with up to 50% of the merchandise being sold in the Dubai Mall.

One project that has now been scrapped is the proposed Tiger Woods Dubai golf course, in partnership with Dubai Properties Group. There is no need to shed any tears for the now ebullient golfer since his company – ETW (Eldrick Tiger Woods) – had already banked US$ 55.4 million in 2008 for design and promotion work. The world’s number one golfer will be in Dubai in February 2014 to participate in the Omega Dubai Desert Classic.

With its recent rights issue being 30% oversubscribed, Arabtec has seen 1.46 billion new shares (at US$ 0.41 per share) issued with a total value of US$ 654 million. At the end of the week, the company’s shares were trading at US$ 0.57, giving a market capitalisation of almost US$ 1.91 billion. In H1, the company booked projects valued at US$ 3.53 billion.

The Dubai Financial Market Index saw a Q2 4.5% rise in its market capitalisation to US$ 58.14 billion and a massive 82.4% hike in shares traded to US$ 10.4 billion, Meanwhile trade remains robust with the Index continuing to defy gravity and logic by posting a weekly gain of 7.6% from a Sunday opening of 2222 points to a Thursday close of 2392. In Q2, it had a 21.5% jump and so far this year, it has surged 53.64%. It may not be too long before this market runs out of steam.

Following HH Sheikh Mohammed bin Rashid’s recent directives in relation to setting up Dubai Smart Government, an agreement has been signed with the Department for Economic Development to provide support in upgrading shared IT services. The ruler’s vision of government excellence will ensure that all authorities and departments will work to best practices and that shared infrastructure and systems will benefit the whole community.

In their latest report, the IMF was effusive in their praise for the economic progress made by the UAE. It has highlighted the growth in tourism, the stability in real estate and the large amount of money pouring into the country as indicators of the growing local confidence.

Unemployment in the eurozone continues to rise with levels at 12.2% compared to the likes of Japan, Canada and USA at 4.1%, 7.1% and 7.6%. More alarming is the number of under-25s out of work with over 66% in Greece and Spain and 33% in Portugal, Italy and the Slovak Republic.

There was a sharp fall in German exports with its May trade surplus of US$ 16.7 billion well down on analysts’ estimates of US$ 22.6 billion. The country’s exports fell 6.5% to US$ 113.1 billion with imports lower by 1.6% to US$ 96.4 billion.

The Indian rupee continues to drop to historic lows of over 61 to the US$. Overseas fund managers are getting spooked by a combination of a domestic economy on the skids and expectations of Ben Bernanke scaling down economic stimulus measures in the US. A fall of almost 12% has marked the rupee as Asia’s worst performing currency this year – and there may be worse to come!

Two of the largest UK security companies, G4S and Serco, have been accused of overcharging the government of tens of millions of dollars for tagging criminals – some of whom were dead or back in prison or out of the country. The former, still reeling from its 2012 Olympic debacle where it could not provide enough staff as part of its US$ 426 million contract, is being investigated further by the Serious Fraud Office. Last year, the company saw its government-related contracts surge 19.8% to US$ 550 million. Meanwhile Serco has agreed to an independent forensic audit and has, rather magnanimously, agreed to repay if it is found to have received too much!

Unfortunately, this sort of corrupt practice – whether it be governments, financial institutions or big business – is becoming increasingly common Here, There and Everywhere.

Posted in Finance | Tagged DFM, Dubai, Dubai Financial Market, Dubai Mall, Dubai Properties Group, Emaar, Emirates, emirates airline, Emirates NBD, HH Sheikh Mohammed bin Rashid Al Maktoum, Nakheel, Tiger Woods, UAE | Leave a comment

Reason To Believe

Posted on July 11, 2013 by howesdubai

The property boom continues unabated with May seeing a jump in prices of 2.01% over the previous month – with apartments and villas up 2.13% and 1.56% respectively. On an annual basis, the trend was similar at 17.3% and 12.2%. An earlier June report indicated that on their global scale, Dubai Q1 price rises of 9.0% were the second highest to China’s 10.7%. How long this can go on for – before a damaging asset bubble becomes a problem – is a matter of some conjecture.

There is no doubt that consumer confidence has returned and this is borne out by the fact that Majid Al Futtaim Holdings (MAF) is planning to invest US$ 817 million in its Dubai businesses over the next five years. These will include two hotels, four Carrefour supermarkets and two hypermarkets and a new cinema.

Scarcely a week goes by without a major Emaar Properties announcement. Now the developer is teaming up with Meraas Holding to build budget hotels under the “Dubai Inn” portfolio. This will be a welcome addition to the hospitality sector which is dominated by 5-star hotel brands – currently making up 62% of the total available rooms. With a raft of affordable hotels planned, this will introduce a new type of tourist to the city who hitherto may have been put off by high hotel prices. This will be Emaar’s fourth type of hotel branding following its Address, Armani and, its recently launched, Vida hotel ranges.

Following the success of its recent launch with Paramount Hotels & Resorts, with reported sales in excess of US$ 272 million, Damac Properties have announced their latest offering – Damac Villas by Paramount. This gated community will be located in the Akoya development which will include the up-market Donald Trump Golf Club.

Even the Dubai Multi Commodities Centre is getting in on the act, with plans to build the world’s tallest commercial tower, replacing Taipei 101 which stands at 508 metres. The tower may well be needed as the DMCC has attracted more than 4k companies since 2009 and expects the current trend of 200 new companies a month to continue.

Troubled developer Nakheel has sold two more hotel plots on Palm Jumeirah which brought in US$ 191 million. The company expects work to commence shortly on its two planned Palm developments – The Pointe and Nakheel Mall and Hotel – as well as its 240-room hotel at Dragon Mart and an economy class one at Ibn Battuta.

It has been reported that 736 buildings were completed in Q1 with a value of US$ 1.02 billion – a reflection of the buoyancy in the Dubai market. This was a 6.6% increase on already impressive Q4 2012 returns. 39% (or US$ 393.4 million) of this total were for multi storey buildings.

Not so good news for certain landlords with reports that some local developers have upped their service fee charges. It seems that owners in JBR, built by Dubai Properties Group, fall into this category as the company tries to recoup earlier losses and hike prices to reflect current market conditions.

On the Palm, DEWA has launched a new water pipeline at a cost of US$ 15.7 million which will help meet future demand. The laying of the water transmission pipes, covering 3 km, will take eighteen months to finalise.

The newest tourist attraction is a proposed crocodile theme park. Dubai Municipality will develop the US$ 2.7 million facility in liaison with entertainment company, White Oryx. The 20k sq mt attraction will be ready by Q2 2015.

Memon Investments have sold their 40% built Dubai Sports City Frankfurt Tower 1 to Orion Holdings for a reported US$ 6.0 million. When complete, the project will have 224 residential units of varying sizes.

HH Sheikh Mohammed bin Rashid Al Maktoum has approved Ministry of Works projects, totalling US$ 545 million, including the first phase of the US$ 163 million Al Ruwayyah hospital which will be finished within two years. Also announced was the Al Ittihad Bridge which will span the Creek and will replace the temporary floating bridge. Construction of the 61 metre wide, 15 metre high and 12 lane bridge will start next year and will cost an estimated US$ 300 million.

The world’s largest container ship at 366 metres – MSC La Spezia – was the main attraction at the opening of the new extension to Jebel Ali Port’s Container Terminal 2 (T2). The terminal wall has been extended by 15% to 3k metres and has seen its capacity increase by 9.3% to 15 million TEUs (twenty foot equivalent units).

Despite numerous false starts, it does now seem likely that Dubai will finally be home to the world’s first underwater hotel, currently being developed by Dry Docks World and Deep Ocean Technology, a Polish company. Eventually the luxury hotel will be located in 30 metres of water off the emirate’s coastline.

With a further sixty Airbus 380s still on order, Emirates is in the throes of arranging finance for four of these aircraft by means of an instrument, known as an enhanced equipment trust certificate (EETC). The US$ 630 million facility will comprise Class A notes, valued at US$ 462 million – with a final maturity of 10 years – and the balance of Class B notes.

The Emirates Air Line, a 1.1 km cable car system crossing the Thames, has carried over 2.4 million passengers in its first year of operation. Later this month, the world’s best airline will open another London tourist attraction – the Emirates Aviation Experience – to be located in Greenwich.

Dubai Duty Free once again saw its sales surge – for the first six months up by 13% to US$ 872 million. Not many duty frees can boast of every departing passenger spending US$ 48 on their way out. With the future opening of Concourse D, as well as Al Maktoum International, the future for the airport retailer is indeed rosy.

Due for completion by late next year, work will soon commence on a food processing facility in Dubai Investment Park. Al Islami Foods is planning to spend US$ 27.2 million on the plant, that will cover an area of 11.5k sq ft, and will be able to produce 18k metric tonnes of food a year.

On the local bourse, the Dubai Financial Market Index ended the week on 2264, with all indicators heading north – weekly by 1.89%, YTD by 45.45% and yearly by 58.43%. With the double whammy of the holy month of Ramadan and school summer holidays, the next few weeks will witness subdued activity, despite what should be an impressive Q2 reporting season

With the price of gold having dropped 35% since its September 2012 high of US$ 1,922, the Canadian miner Barrick Gold, the world’s largest, is considering a write down of a massive US$ 5.5 billion on an investment in its Pascua-Lama facility on the Chile-Argentina border. (Gold closed on Thursday at US$ 1,251).

The week has not been a good one for the eurozone with previously unresolved problems resurfacing. The troika is not happy with the lack of promised reform in the Greek civil service and, if no agreement is reached about future progress, there is a possibility that the country will be unable to repay a US$ 2.86 billion loan next month and, even worse, the IMF may stop a US$ 10.5 billion payment – part of its US$ 240 billion bailout package. With unemployment levels at 27%, the country is in its sixth straight year of recession and, with its citizens having lost over 30% of their disposable income, there is no way that Prime Minister Antonis Samaras can consider imposing further austerity measures.

It is reported that the French government is to make cuts of US$ 18.2 billion in state expenditure as the country continues to struggle. Even the Italian Economy Minister, Fabrizio Saccomanni, is forecasting possible civil unrest as it embarks on another round of public spending cuts. To add to his problems, the country is burdened with debts of over US$ 2.59 trillion!

Spanish banks are still in the doldrums as the country has still got grave economic problems and some consider that there is still plenty of mess to be cleaned up. The Central Bank has directed lenders to review their refinanced loan portfolio of US$ 270.8 billion and expect to write off at least another US$ 13 billion.

In 2010 and 2011, HSBC launched two US$ 100 million funds and added a further US$ 72 million last year, to help local SMEs. Now the bank has announced that it is in the throes of closing some accounts of companies for the apparent reasons that it wants to increase capital returns and streamline its operations. Having already pulled out of sharia banking here, this is another step that seems to point to the fact that the bank wants to cherry pick and is not too concerned about Dubai’s economic future. It will give “departing” customers 60 days’ notice, many of whom are asking for a Reason To Believe.

Posted in Finance | Tagged DEWA, DFM, Dubai, Dubai Financial Market, Dubai Multi Commodities, Emaar, Emirates, emirates airline, Emirates NBD, HH Sheikh Mohammed bin Rashid Al Maktoum, Majid Al Futtaim, UAE | 1 Comment

I Can See Clearly Now

Posted on June 28, 2013 by howesdubai

May was another great month for Dubai’s burgeoning hospitality sector with returns showing an 18.8% hike in hotels’ RevPAR (Revenue per available room) to US$ 173.09. ADR (average daily rate) also had a double-digit growth to US$ 216.22.

There will be yet another tourist attraction with SkyDive Dubai constructing the world’s largest vertical wind tunnel, due to open as early as this August. The four-storey glass structure has a 16.5ft diameter and will give visitors the opportunity to float in mid-air. The facility will be powered by four electric motors that will generate wind speeds up to 280kph. Being Dubai, it will only be a matter of time before they break the world record of having most jumpers simultaneously in a vertical wind tunnel – currently at 22 people.

China State Construction Engineering Corporation has bought an equity stake in the recently announced US$ 1 billion Viceroy Dubai Palm Jumeirah. Already the main contractor on the project, this massive Chinese construction company becomes the first from that country to make such a major property investment in Dubai. The SKAI Holdings venture – with 481 rooms and 221 residences – will be completed in 2016.

Drake & Scull have won a Saudi contract with Habtoor Leighton Specon for the National Institute of Neurosciences in Riyadh. The project, worth US$ 139.6 million, is for MEP work and forms part of the US$ 615 million to be spent building the region’s largest medical complex.

This week saw the launch of phase 3 of the Cedre Villas project, developed by Dubai Silicon Oasis Authority. The 160 luxury villas – with a cost of US$ 77.7 million – will be ready within the next fifteen months, with features including two parks, a pool and a cycle track. As the company was responsible for the first two phases, it was no surprise to see Arabtec being awarded the building contract valued at US$ 48.8 million. (The company also extended the subscription period for its US$ 627 million rights issue to 04 July).

Dubai Properties Group expects completion of six buildings in Business Bay this year, two of which have just been handed over. Their Bay Square development covers an area of 5 million sq ft and will eventually include twelve towers and comprise I million sq ft of commercial space and residential units.

Although it is estimated that up to 45% of current commercial property is vacant, Dubai now ranks 25^th most expensive city for office space in the world. Compared to the top two – Hong Kong (US$ 235.23 per sq ft) and London’s West End (US$ 222.58) – Dubai rates are comparatively cheap at US$ 92.64.

Just three years after its first flight, budget carrier, flydubai, has announced that it will introduce a business class service across its 60-destination network. Benefits will include dedicated staff, seat pitch of 42 inches, enhanced entertainment system, priority check-in and preferred car parking.

It will come as no surprise to see that Emirates scooped the Skytrax ‘World’s Best Airline’ award at the Paris Air Show. In addition, they picked up ‘Best ME Airline’ and ‘World’s Best Inflight Entertainment’.

According to a study by Brand Finance, Emirates Airline has a brand value of US$ 4.1 billion and UAE companies have fifteen brands in the top 50. Others on the list include Etisalat (US$ 3.4 billion), DP World (US$ 681 million) and Emaar Properties (US$ 468 million).

Emirates International Telecommunications, owned by Dubai Holding, is evidently considering a sale of its remaining 26% shareholding in Axiom Telecom. It is estimated that if the deal went through, it would be worth in excess of US$ 300 million. Furthermore, there are reports that EIT have divested its 35% share in Tunisie Telecom for US$ 2.25 billion.

Troubled government property developer, Nakheel, is reportedly in talks to refinance a US$ 2.2 billion loan due for repayment in 2015.This comes two years after the company agreed a US$ 16 billion restructuring with its creditors. If, as is expected, the Fed slows down or phases out its asset buying policy, global borrowing costs are bound to rise which would impact on future repayment plans.

To keep up with growing demand, DEWA have now completed almost 40% of work on its new US$100 million pipeline extension. Spanning 65 km, the final phase is due to start in Q3 2014.

Dubai International saw a massive 18.9% surge in May passenger traffic. With 5.2 million passengers last month, the five-month total of 27.1 million shows a 16.8% increase over the corresponding period last year. Cargo saw similar growth with YTD returns of 995k tonnes – up 11.6%. May aircraft movements rose by 10% to 31k.

Covering 132 countries, the UAE was ranked 19^th in the World Economic Forum’s recent Global Enabling Trade Report and even made the top ten for efficient trading procedures and security. In yet another study Dubai was placed fifth in AT Kearney’s Index for Retail Trade Growth – the highest-placed country in the region.

With a low inflation rate (slated to be at no more than 1.6%), and an economy that the IMF expects to grow by 3.1% this year and 6.4% in 2014, the economic outlook for the country looks promising. The main drag factor, that will cause problems, will be the real estate sector. According to REIDIN, the rental index has risen by 11.62% over the past twelve months and property prices continue to surge. However with the present demand, it would seem that any downturn will not be felt until mid-2014.

Another indicator of business confidence was the fact that local banks are lending more – for the first four months of the year, they approved personal loans of US$ 2.2 billion out of a total loan book of US$ 6.0 billion. At the end of April, total loans stood at US$ 305.8 billion with a bad loan provision of US$ 19.3 billion – still on the high side.

2012 was a bumper year for Foreign Direct Investment into the country, with an estimated US$ 9.6 billion pouring into local coffers – the third straight year of growth. On the flip side, UAE is the Arab world’s largest exporter of capital.

The Dubai Financial Market Index closed the week on 2222 – an 8.6% drop from its 02 June high of 2430. However, it is still up – 42.77% on the year and 59.52% over the past fifty two weeks.

Global financial markets have definitely been spooked following Fed Chairman Ben Bernanke’s recent mumblings of an early exit from the US QE policy. As global bond yields surge, investors face an uncertain future with the possibility of losing trillions of dollars which, in turn, would be the precursor of another financial crisis – just six years after the last one brought economies to their knees.

Gold producers were probably the main casualty of Bernanke’s comments and shares in many of the leading miners took a pasting during the week. When the Fed was printing money, at an unprecedented rate, by the issue of bonds to the monthly value of US$ 85 billion, the price of gold touched US$ 1,920 last September – since then, it has fallen by almost 37%. Simultaneously, production costs rose resulting in the double whammy of lower margins and lower prices. Indeed as the US Treasury bond yield increases, the price of gold will inevitably head south.

Australia has received the brunt of recent market falls as their commodities and mining boom fizzles out. Both its stock market and currency have been on the receiving end of a beating with both down – the former by almost 10% since its 14 May high and the dollar by almost 9% to US$0.92, since the beginning of May. There will be even more turbulence as the lucky country, with the demise of PM Julia Gillard, heads towards federal elections in September.

In the UK, Starbucks has still not woken up and smelt its own coffee. Although it has had sales of US$ 4.6 billion since 1998, it has managed to pay tax of just US$ 13.1 million. But to placate its ever-growing disgruntled customer base, it has decided to “pay” the Treasury US$ 15.4 million this year! There cannot be too many companies that are still operating after fifteen years of apparent losses.

Meanwhile there are indicators that the UK economy has now come off life support and recovering at a faster rate than most of its European neighbours. The boost in economic confidence can be seen from a 4% monthly jump in consumer spending, a 12% hike in on-line spending and a welcome improvement in household financial outlook.

And despite all the apparent good news emanating from the US, the country has debts of over US$ 16 trillion. If, and when, interest rates rise, this will become a huge millstone around Obama’s neck.

Dubai is the place to be where this week, HH Sheikh Mohammed bin Rashid Al Maktoum launched a platform, utilising Google’s Street View technology, showing all facets and a 360 degree view of Burj Khalifa. Users will be able to have a virtual tour of any part of the world’s tallest building with the Burj Khalifa Select application – the first time the technology has been used in the Middle East. The results are impressive, the views are stunning and maybe the Dubai Ruler was humming I Can See Clearly Now. (His view is a lot a brighter than for most other global leaders).

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

Against The Wind

Posted on June 16, 2013 by howesdubai

HH Sheikh Mohammed bin Rashid Al Maktoum is to develop a one-stop, full-service, commercial hub to accommodate the emirate’s rapidly developing fashion and design business. TECOM, a subsidiary of Dubai Holding, will operate the Dubai Design District and invest US$ 1.1 billion in phase 1, due for completion early 2015. Work on the initial ten buildings, located in Business Bay, has already started.

Emaar has also begun a 1 million sq ft expansion on the world’s largest shopping destination – Dubai Mall. The centre, currently hosting 1,200 retail stores and 200 F&B outlets, will see added impetus to its fashion portfolio.

The building boom continues unabated with Emaar announcing two JVs. The first, with Dubai Holding, is to build a 6.5 million sq mt urban centre – Dubai Creek Harbour – to include a business district along with retail, leisure and entertainment amenities. The other with Meraas Holding is to build a massive residential and commercial centre in Downtown. As yet, there is no news on the project cost, financing arrangements or completion date.

Damac have released the first of at least ten stages of their massive Akoya development, with villa prices starting at US$ 654k, scheduled for completion within two years. The project, that will eventually cover 2.8 million sq ft, is to include an exclusive Donald Trump golf course and be located off the Umm Suqeim Road.

Even previously troubled Dubai real estate firm, Deyaar has announced further plans for this year – as well as restarting on other unspecified, stalled projects. The first is a US$ 136 million Business Bay residential development whilst the second will be a 1 million sq ft project located on the SZR side of the same location. In Q3, it plans a sales launch of 420 apartments in DIFC – this being a JV with Dubai Properties Group.

With so much dramatic activity in the real estate sector are we in another property bubble? At the same time, the IMF has estimated government-related entities account for 65% of Dubai’s US$ 142 billion debt. Whilst the realty segment remains strong, lending costs low and oil prices high, this debt is probably manageable but what happens if circumstances change?

Another record for Dubai – this time boasting of being home to the tallest twisted building in the world. Located in Dubai Marina, the impressive 75-storey Cayan Tower is 307 metres high and cost US$ 273 million; its first tenants moved in to the 570 residential units this week.

The Investment Corporation of Dubai has raised US$ 2.55 billion through a syndicated loan for refinancing a US$ 2 billion debt due for repayment in August – the final repayment of a US$ 6 billion facility secured in 2008. Currently, demand for Dubai debt is robust and continues to grow.

A further sign of consumer buoyancy is an unprecedented surge in the local auto industry – up 22.9% in the first four months of 2013 to 118k units. Latest estimates show that this year will be the best ever with sales peaking at 380k. Whilst on the flip side, Europe continues their five-year contraction with vehicle sales lower than they were twenty years ago. As an aside, Dubai’s auto spares part foreign trade rose to a high of US$ 10.1 billion last year.

In London, Emirates is to open the world’s first aviation-themed attraction next month. Visitors will have the thrill of using any of the four flight simulators (two A380s and two 777s) and practice take-offs and landings. The state-of-the-art educational and infomational indoor facility covers 300 sq mt and is close to the airline’s other cable car attraction by the Thames.

Overseas, Arabtec will lead a three party consortium, along with Drake & Scull and CCC, to build the first phase of a tourism project in Aqaba, Jordan. The contract is valued at US$ 629 million and will include a man-made lagoon with four international hotels.

A recent cost of living report by ECA International has placed Dubai as the world’s 174^th most expensive city, with Oslo, Luanda and Stavanger filling the top three positions. This may surprise many until they read the fine print, which indicated that rentals, school fees, car purchases etc were not included. The study mainly considered exchange rates, inflation and the availability of goods. That being the case, the report would appear to have limited value.

Another top trading month for the Dubai Gold and Commodities Exchange with May volumes of 1.45 million contracts totalling US$ 48.5 billion, up 70% on last year. Currency contracts accounted for 96.6% of the total with the Indian rupee again dominating the market. Expat Indians besieged financial institutions to take advantage as the rupee plunged to its lowest-ever level against the US$ at 56 to US$1.

Finally, after six years and perhaps not before time, Morgan Stanley Capital International (MSCI) upgraded UAE bourses from frontier to emerging market status, commencing next May. The knock-on effect for the Dubai Financial Market Index is that up to US$ 800 million could flow into the local capital markets, as investors, with an estimated US$ 7 trillion, follow MSCI market assessments. The effect on the DFMI was muted as it ended the week down 22 points to 2400 but overall the market is still heading north – up 54.15% this year and 69.24% over the past fifty-two weeks.

For the second consecutive year, UK-based Vodafone once again got away with paying no corporation tax in their home country, despite earning US$ 7.6 billion in Revenue. However, it did manage to pay in excess of US$ 4.6 billion in overseas tax! Sadly the CEO, Vittorio Colao saw his annual remuneration slashed by 30% to a meagre US$ 17 million. Sadly, Thames Water, with revenue in excess of US$ 3 billion, joined the ranks of Amazon, Starbucks and Google in not paying any corporation tax to the UK exchequer. Something will have to change.

Meanwhile, official figures released this week indicate that Dubai’s 2012 GDP growth hit 4.4% to US$ 86.8 billion, with Q4 up an impressive 5.3%. The best performing sectors were transport, construction and real estate – all up by 7.5%, 6.5% and 6.1% respectively. This may slip to around 4.0% this year – still way above the World Bank’s estimates for Europe to contract by 0.6% and the global economy to rise by 2.2%. The growth forecast for China has been cut from 8.4% to 7.7% as the global slowdown shows no signs of improving – with the knock on effect of a reduction in demand for that country’s exports. Obviously it is time for the Chinese to start boosting their domestic market and undertake a long overdue reform of their economic structure.

The world’s stock markets fell on Thursday following yet another sell-off on Japan’s Nikkei 225 Index which has now dropped almost 22%, since hitting a five year high in early May. This is the third consecutive Thursday that market has dropped by more than 5% in a day. Questions are now being asked about the efficacy of Prime Minister Shinzo Abe’s brand of “Abenomics”.

The last word comes from the French President, Francois Hollande, who has unilaterally declared an end to the eurozone debt crisis. This revelation comes despite the fact that the bloc is still reeling from continuing high unemployment levels (currently standing at 19.4 million) and an on-going recession with Q1 returns showing a 0.2% contraction. Even the ECB President, Mario Draghi, has revised downwards 2013 growth forecast to contract by 0.6%. The IMF has warned France to introduce more economic reforms to stop it lagging even further behind its European neighbours. No wonder many think that M Hollande is p…… Against The Wind.

Posted in Finance | Tagged Arabtec, Cayan Tower, Damac, Deyaar, DFM, Dubai, Dubai Financial Market, Dubai Holding, Dubai Metro, Emaar, Emirates, emirates airline, Emirates NBD, HH Sheikh Mohammed bin Rashid Al Maktoum, UAE | Leave a comment

Shelter From The Storm

Posted on June 10, 2013 by howesdubai

The major news story of the week came with the announcement that Dubal, 100% owned by the Investment Corporation of Dubai, was going to merge with Emirates Aluminium (Emal) – a 50:50 JV between Abu Dhabi’s Mubadala and Dubal. The end result is that the new entity – Emirates Global Aluminium – will become the world’s 5^th largest aluminium producer, with an annual capacity of 2.4 million tonnes, and have an estimated value of US$ 15 billion. This comes after Q1 global aluminium sales fell by over 10% and that up to 50% of producers are struggling to break even.

In line with recent property releases, Nakheel announced sales of US$ 381 million of its 350 Legacy Nova Villas within five hours of their Sunday launch. With such high demand, the property developer decided to increase the original number of 226 units to be sold by a further 50%. Construction will start later in the year and be ready by 2015.

Dubai largest developer, Emaar has indicated it will soon launch its ‘The Hills’ development with luxury homes being built around the obligatory 18-hole golf course. This comes on the back of a recent Deutsche Bank report indicating that the local real estate recovery has been on track for the past 16 consecutive months along with a 6.2% growth in Q1.

As an aside, the Indian government is reportedly accusing Emaar MGF – a JV between Emaar and the Indian company MGF Developments – of violating their forex regulations with investments of US$1.5 billion. The accusation stems from their various purchases of farmland since 2005 when the rules only allow investment in construction and development of property. (Its shares fell 1.7% to US$ 1.58 following this report).

Arabtec has been awarded a US$ 220 million contract to build a 5-star, 447-room hotel and 136-serviced apartments in Business Bay. The two-tower building, with a built-up area of 125k sq mt, is slated for completion by June 2015.

Part of SKAI Holding’s sales strategy is offering deed ownership on some of the 481 hotel rooms in its US$ 1 billion Viceroy Palm Jumeirah resort project which will also include twenty-one apartments and six villas. Room costs will be in the region of US$ 450k – US$ 490k. Under the scheme, investors will receive 40% of revenue, paid out on a monthly basis, with an estimated 12% return. With such a return, it is little wonder that 50% of rooms have already been sold.

In the aviation world, IATA has just revised their previous forecast upwards in relation to ME carriers and expect them to report profits of US$ 1.5 billion in the coming year. On a global scale, profits are expected to come in at US$ 12.7 billion (US$ 7.6 billion in 2012) on Revenue of US$ 711 billion. This represents a net margin of 1.79% which equates to US$ 4 for every passenger flying.

Emirates have just spent part of their estimated US$ 272 million annual sponsorship budget by signing up Real Madrid in a five-year shirt deal plus certain other hospitality rights. A similar deal was initialled with New York Cosmos of the US MSL.

Dubai Summer Surprise is due to start this Friday with officials hopeful of topping last year’s Revenue of US$ 3.26 billion for the 32-day event. The 2012 festival attracted 4.36 million visitors of which 21.0% came from other countries. It is estimated that foreign tourists spent US$ 33 billion in the country last year and that the tourism sector contributed US$ 52.8 billion to UAE’s GDP.

A further indicator of the rising confidence in the local market was the latest PMI figures which rose from 54.0 in April to 55.3 last month. Any reading above 50 represents growth and the mid-term signs are that 2013 will be a lot stronger than last year. Furthermore, payroll numbers were up for the 17^th consecutive month.

It can only be a matter of time for the Dubai Financial Market Index to slow down following another 2.3% weekly rise to close the shortened trading week on 2422 points – up from its Sunday opening of 2367. A market that has risen 75% over the past year would normally need dampening down and this is what will probably happen over the summer months – but not before another mini surge if there is an upgrade – from frontier to emerging market status – for the bourse next Wednesday.

Interesting statistics from The Boston Consulting Group show that 4% of all UAE households have private wealth in excess of US$ 1 million with UAE’s 2012 household wealth up by 8.2% with 57k families having a total value of US$ 400 billion. Overall the wealth held in equities, bonds and cash rose by 18.3%, 9.2% and 5.2% last year.

However a cloud in the Dubai summer sky may well be attributable to the actions of the US Federal Reserve chairman who could be held responsible for the sudden turnaround in the HSBC / Nasdaq Dubai US$ Sukuk Bond index. After showing moderate gains early in the year, and an impressive 15.1% in 2012, it is now down 0.5%. The main reason for this decline is that Ben Bernanke has indicated that QE may soon be coming to an end as the US economy starts to drag itself off the ground. This in turn may well see loans becoming more expensive for local entities.

As most of the world’s bourses headed south amidst renewed volatility, the Australian dollar was again sold off and ended the week at under 95 cents – some 11% down over the past two months. Q1 saw a further dip in investment and general weak economic data may force the Reserve Bank to reduce interest rates from their current level of 2.75%. There is no doubt that further trouble is brewing down under – especially as the mining sector slows – and turbulent times lay ahead.

Surprisingly in the UK the PMI for services confounded analysts’ expectations by rising from 52.9 to 54.9 in May showing that growth is now a lot higher than earlier forecasts. If this trend were to continue, Q2 growth could come in at 0.6% – double that of the previous quarter.

This is in contrast to the eurozone where the 17-member bloc continues in a recession that has now gone on for the past eighteen months; there was a 0.2% contraction in Q1 with Italy and Spain both shrinking 0.5%. Even the Bundesbank has cut its 2013 growth forecast down to 0.3% as the German economy suffers from its neighbours’ problems. The prospects for any recovery in the short-term are very fragile and a continuing downturn is almost inevitable as both regional and global demand dampens.

With the global economic malaise added to theregional political turmoil, no wonder Dubai has become a Shelter From The Storm.

Posted in Finance | Tagged Arabtec, DFM, Dubai, Dubai Financial Market, Dubal, Emaar, Emal, emirates airline, Mubadala, Nakheel, Real Madrid, UAE | Leave a comment

The Gambler

Posted on June 5, 2013 by howesdubai

As the recovery in the emirate’s realty sector takes traction, Dubai’s biggest developer, Emaar Properties, has announced yet another launch for this weekend – 120 luxury apartments in its Burj Vista development. The two identical 20-storey towers will be located in the Downtown area.

Major retail developers, Al Futtaim Group Real Estate and Nakheel announced growth plans with the former adding eight new stores in Dubai Festival City with more expansion planned later in the year. Nakheel finally issued a tender for increasing the size of Ibn Battuta by 28k sq mt and adding 150 new outlets to its existing inventory of 270 shops and 50 restaurants. Contracts for its new US$ 681 million mall on Palm Jumeirah will be awarded within the next three months whilst phase 2 of its Dragon Mart will add a further 570 outlets by early 2014.

There are also reports that MAF may be interested in purchasing Abraaj Group’s share in the Spinneys ME franchise outlets excluding the UAE. Furthermore it expects to soon acquire Metro, the Egyptian supermarket chain, owned by the Mansour Group.

Emirates, along with the Canadian firm CAE, have just inaugurated a second pilot training facility in Silicon Oasis. The extra five full flight simulators will significantly enhance the airline’s pilot and technician training capacity. This is in addition to their Garhoud centre with its thirteen training bays, making it one of the largest of its kind in the world.

Dubai International reported April passenger numbers of 5.42 million and cargo of 200k tonnes – up 18.7% and 7.3% on the corresponding month in 2012. For the first four months of the year, passenger growth is up 16.3% to 21.9 million and cargo 11.5% to 704k tonnes.

Dubai Holding’s hospitality division, Jumeirah Group, is planning to take advantage of historically low interest rates by issuing a 6-year US$ 1.4 billion bond to finance future expansions including the US$ 680 million Jumeirah Madinat hospitality and shopping complex due for completion by 2015.

Likewise, it is no surprise to see reports that Majid Al Futtaim Holding is considering a bond sale – a week after buying the remaining 25% stake in Carrefour ME operations for over US$ 640 million. The company already operates fifty hypermarkets and forty-four supermarkets in the region under the Carrefour name and had 2012 revenue figures of US$ 5.9 billion.

The increased activity of Nissan in the Middle East is a reflection of the growing stature of the local car sector as its annual sales jumped by a whopping 26.2% with a 14.4% market share. Patrol and Sunny sales rose by 66% and 50% respectively.

This week HH Sheikh Mohammed bin Rashid Al Maktoum announced his Dubai Health Strategy 2013-2025 with plans to overhaul the emirate’s health sector including a major revamp of the existing Rashid Hospital. The US$ 820 million redevelopment for the hospital include twin towers to house 600 patients, a 500-bed rehabilitation centre, two hotels and staff housing for 5,400 families.

Following the collapse of Lehman Brothers in September 2008, and the start of the GFC, the UAE Central Bank pumped in US$ 19.1 billion to shore up the local banks. The Commercial Bank of Dubai has now repaid its loan of US$ 408.7 million despite it not being due until the end of 2016. This follows hard on the heels of Emirates NBD repaying US$ 817.4 million last month. Such early repayments indicate how well the financial institutions have recovered from those dark days.

Signs of the good times returning to the UAE were a 30%+ jump in the country’s 2012 current account balance to US$ 66.6 billion (with the surplus accounting for 17.3% of its GDP) and an impressive balance of payments surplus of US$ 10.0 billion. The country recorded a 15.9% surge in 2012 exports to US$ 350 billion comprising a 5.9% increase in hydrocarbons to US$ 118 billion and non-oil of US$ 232 billion. Total imports rose by 13.5% to US$ 222 billion.

With the value of oil at an average of US$ 112 last year, there are signs that this will drop to around US$ 105 in 2013. That being the case there will be a lag in revenue which will see revenue fall by around 3% and GDP may fall from 4.4% to 3.9%.

The Dubai Financial Market Index continues to defy gravity closing at the end of May on a high of 2367 points – with weekly, monthly, YTD and annual rises of 3.1%, 10.8%, 52.0% and 67.6%. These are impressive returns in anyone’s language but how long can it last? During the week, global equity markets saw renewed volatility which will continue into June mainly because of growing uncertainty about US monetary policy. Once again, Tokyo’s Nikkei 225 was down 5.2% on Thursday – slightly better than its 7.3% plunge a week earlier.

Overseas, Liberty Reserve’s founder, Arthur Budovsky and five others have been arrested and accused of aiding abetting criminals in illegal funds laundering more than US$ 6 billion. According to authorities, this could be the largest case of its kind in US history. The company operated as a virtual currency exchange and acted as a conduit for global cyber criminals to distribute and store their ill-gotten gains. Liberty’s virtual currency was used to trade illegal software designed to steal money from unsuspecting parties and financial institutions.

Two of the Big 4 accounting firms were in the news this week for the wrong reasons. Scott London, a former partner in KPMG, has pleaded guilty to insider trading in two companies that his firm audited – Skechers and Herbalife. This comes after his golfing partner had admitted receiving more than US$ 1 million in illegal profits as a result of London’s “advice”. The disgraced accountant is now facing up to twenty years inside as well as a US$ 5 million fine.

Deloittes have just appointed Dave Harnett as a tax consultant, ten months after he resigned as the UK’s top taxman with HM Revenue & Customs. This comes a week after several companies – including Amazon, Google Starbucks and Apple – were explaining why they paid so little UK tax. One of the main reasons was that tax experts found crucial loopholes in legislation – a definite tale of gamekeepers turning poachers.

Although no longer ruling the country, it is no surprise to see the earning power of four of the Labour grandees raking in money after life in government. Gordon Brown, still an MP, is also a special UN envoy as well as chairman of the Policy and Initiatives Board of the World Economy Forum. Last year, he managed to earn an additional US$ 2.1 million.

Then there is BMM. Speculation around the ex-PM puts his personal wealth at over US$ 90 million, with most of this via his company, Tony Blair Associates, having apparent lucrative contracts with the likes of JP Morgan, Zurich Financial Services, the Korean UI Energy Corporation and the Kazakhstan government. Former Business Secretary, the Machiavellian Peter Mandelson has links with banking firm, Lazard Ltd, and is chairman of Global Counsel LLP a consultancy firm that advised Asia Pulp & Paper – a company linked with illegal logging and damaging habitat in Indonesia. Still recovering from his brother’s 2010 leadership coup, David Miliband has quit politics to take up a lucrative New York position as head of the International Rescue Committee.

What these examples illustrate is the cosy link between politics, big business, banks and quasi-government entities and the benefits that can accrue from contacts made (and probably assistance given) in the course of government work.

The eurozone crisis deteriorates by the day. Last month was the 24^th consecutive month that the unemployment level rose in the bloc topping out at 12.6% in April with youth unemployment now at 24.4% as Greek and Spanish levels are at abysmal 62.5% and 56.4% respectively. Furthermore, twenty of the twenty-seven countries in the EU are on surveillance for breaking their own deficit and debt rules at 3% and 60% of GDP.

Even the European powerhouse, Germany, is struggling with a Q1 growth of just 0.1% (down 1.4% on the year) as exports and investments shrank.

Surprisingly, the UK is one of the best performing countries in Europe with growth rates of 0.8%. Despite this recent optimism, do not be surprised to see a mini devaluation (of around 10% to say Dhs 5 to the pound) over the coming months. With the departure of BoE Chairman Mervyn King, and the arrival of Canadian Mark Carney, there is a feeling that there will be a more aggressive approach to try and increase exports and UK competitiveness – and thus a weaker sterling currency. A sure case of the King of the Road being replaced by The Gambler.

Posted in Finance | Tagged Al Futtaim, DFM, Dubai, Dubai Financial Market, Emaar, Emirates, HH Sheikh Mohammed bin Rashid Al Maktoum, Jumeirah Group, Nakheel, UAE | Leave a comment

What’s Up?

Posted on May 29, 2013 by howesdubai

In only its fourth year of operations, it seems that flydubai will be make an even bigger profit than the US$ 41.4 million made for the year ending 30 June 2012. Last year, the carrier saw passenger traffic at over 5.1 million accounting for 8.9% of all traffic at Dubai International. It now services 57 destinations and has a fleet of 29 Boeing 737s – with a remaining 23 on order for delivery before 2015. With such a rapid expansion, the airline is expected to make a substantial order – for either 737 Max or Airbus A320 neo – at this year’s Dubai Air Show in November.

On the aviation front, dnata has just acquired the remaining 50% in the Italian in-flight caterer, Servair Airchef. The company, part of the Emirates Group, will now have a presence at all the major Italian airports, providing more than 40k daily meals.

Tourism continues to be a major driver in the country’s economic recovery. The UN World Tourism Organisation’s latest report shows that the UAE was ranked 31 in the world for international tourism receipts raking in about US$ 10 billion out of a global total of US$ 1.04 trillion.

It is estimated that over 4% (or 400k) of all visitors to Dubai arrive by means of a cruise liner and this figure is set to grow in the coming years that might bring in US$ 270 million by 2015 and contribute up to 5% to Dubai’s GDP. This week saw the maiden call of the Royal Caribbean’s “Mariner of the Seas”, which can host over 3,800 passengers.

Another tourist attraction is taking shape in the Ilyas & Mustafa Galadari development, City of Arabia. The brothers plan to open a new four-zone 1.5 million sq ft theme park – IMG Worlds of Adventure – which will be the world’s largest indoor facility and be based on Marvel comic characters from Cartoon Network.

The influx of tourists is a huge boost for the retail sector with the emirate now ranked the second most important global retail destination after London. The recent CBRE report puts the likes of New York, Paris and Moscow behind Dubai. With twenty five new retail brands entering the local market in 2012, it ranks as the world’s fourth “hottest” retail market.

The MAF Group spent US$ 680 million this week to purchase the remaining 25% minority share to gain full ownership of the French hypermarket Carrefour’s regional franchise, located in 19 countries. The company is looking at a further capital investment of up to US$ 1 billion this year.

After some considerable time, the stalled Lagoons project on Dubai Creek is back with confirmation that Dubai Holding is going to proceed with a JV – Emaar probably being the likely partner. The original US$ 17.4 billion plan was initially launched in April 2006 by Sama Dubai before that developer, along with Dubai Properties and Tamweer, came under the auspices of Dubai Holding in August 2009. The seven island development will have residential, retail and commercial property with unconfirmed reports of a tower bigger than Burj Khalifa.

Having recently announced three major developments in Dubai, Damac Properties have now begun construction of a 25-storey furnished apartment building in Baghdad. It is their first foray into the Iraqi market with the US$ 100 million Princess Tower due to be handed over in 2016.

Also overseas, Dubai-based Drake & Scull has been awarded a US$ 459 million Saudi contract to complete the Lamar Towers in Jeddah. The twin towers – with a total built up area of 410k sq mt – is expected to be ready in two years. DSI recently announced Q1 creditable results with Revenue and Profit up to US$ 334 million and US$ 17 million repectively.

Meanwhile Arabtec Terma, a 60:40 venture between the Dubai-based contractor and Greece’s Terma, has won a US$ 108 million bid to build a hospital in Riyadh. The six-storey, 105-bed hospital will be completed within two years. Saudi is becoming an important revenue stream for Arabtec and is a big contributor to its current backlog valued at US$ 5.7 billion.

Intermetal, the largest banquet and outdoor furniture company in the country, is planning to build a US$ 20.4 million facility in Dubai Investment Park. Costing US$ 20.4 million, the 300k sq ft factory will help this Group Harwal Company maintain its current 80% of the local market.

Starting the week at an impressive 2296 points, the Dubai Financial Market Index managed to hang on to its recent gains and was trading at the same level at close of trading on Thursday. There is no doubt that most global equity markets have seen growth (not necessarily at the same rate of Dubai) but there are indications that this may be coming to a shuddering halt as the train comes off the track.

Latest figures from the Ministry of Finance, for the first nine months of 2012, show a 14.4% hike in foreign trade to US$ 213.5 billion with imports jumping 12.6% to US$ 134.9 billion. Total foreign trade for last year is expected to come in at around US$ 295 billion which would represent a 17% annual increase on the previous year.

However, there is a note of caution for 2013. The IMF is predicting that the robust growth of 5.7% seen in the region last year may slow to 3.2% this year. The obvious reason is that the global economic malaise will impact on oil production, the demand for which will fall. Despite this drop in the energy sector, non-oil growth will keep going on the same track at around 4.5%.

Not so good news this week for two Australians, Matt Joyce and Angus Reed. Both were found guilty by the Ruler’s Court on property fraud, charges involving Australian developer Sunland, over a multi-million Nakheel project. In addition, Joyce, the former GM of Dubai Waterfront, was fined US$ 25 million for his alleged role in the US$ 14 million fraud.

Although there are still embargoes on some of Zimbabwe’s diamond trade, it seems that up to a half of their exports of US$ 865 million will come through Dubai; most of which will then be re-exported to the likes of India, Belgium and China. The Robert Mugabe nation has had previous problems with “blood diamonds” but restrictions have been lifted for most sites with the exception of Marange.

Three major driving forces in the local economy are planning new loan deals. Atlantis, The Palm, owned by Istithmar and still managed by Kerzner International Resorts, is raising US$ 850 million for both refinancing existing debt and for new funding. Commercial Bank of Dubai, 20% owned by the Investment Corporation of Dubai, is launching a US$ 500 million five-year bond issue, the proceeds of which will be used for general corporate business. Emirates NBD launched a Tier1 US$ 1 billion bond with a 5.75% yield; Tier 1 capital represents the bank’s core capital introduced under the Basel Banking industry regulations.

Despite some worries about whether Dubai will meet its debt obligations over the next three years, the IMF has no such qualms. The estimated repayments are in the region of US$ 48 million and represent almost 100% of the emirate’s GDP. Officials have strategies in place, including the possibility of asset sales and debt rescheduling, to ensure that this does not become a major problem.

The global financial scandals continue unabated. This time the Hong Kong Mercantile Exchange – which deals mainly in gold and silver future contracts – is under investigation by local authorities for “serious suspected irregularities”.

In addition to its economic woes – including no growth and high unemployment – it is estimated that the EU loses a massive US$ 1.3 trillion a year to tax evasion. The main offenders are multinationals (such as Apple, Google, Starbucks and Amazon), rich individuals and parasitical tax havens including Andorra, Liechtenstein, Monaco, San Marino and Switzerland.

Clouds are appearing on the Australian economic landscape as its currency continues to fall (almost 7% so far in May) and the stock market takes a battering, losing US$ 33 billion in Thursday’s trading. External factors, including a surprise contraction in Chinese manufacturing and the almost inevitable prospect of QE being phased out in the US, have not helped the Australian cause. According to a recent report, commodity price volatility accounted for a US$ 25.6 billion fall in 2012 earnings across the country’s once booming resources sector.

Last week, Treasurer Wayne Swan announced a US$ 19.4 billion budget deficit and a US$ 43 billion four-year public spending cut. Although the country escaped the worst of the GFC, consumer confidence has now plummeted with car sales being one sector hit badly.

With its costs double that of Europe and quadruple of Asia, as well as its employees earning twice as much as their US counterparts, Ford has decided to close its two Australian plants after an 88-year presence. The American company has also made losses of US$ 580 million over the past five years, When one also considers that the three main manufacturers – Ford, GM and Toyota – now sell less than half the vehicles than they did in 1970, and that the state governments have poured in US$ 11.6 billion in subsidies since 2003, the local industry is obviously commercially unviable. Furthermore at the beginning of May, the Australian dollar was 29% higher against the Japanese yen compared to a year earlier.

Ford is a good example of the need for the country to stimulate its competitiveness on the global stage. Australia will also need to take measures to revive its ailing tourism and retail sectors. For a country that has not seen a recession for 21 years, has grown 13% since the GFC (whilst most other countries have gone backwards) and has an enviable unemployment rate of 5.5%, some analysts are now asking What’s Up?

Posted in Finance | Tagged Arabtec, Damac, Drake & Scull, Dubai, Dubai Financial Market, Emaar, emirates airline, Emirates Group, flydubai, Ghaith al Ghaith, MAF, Nakheel, UAE | Leave a comment

I Started a Joke

Posted on May 19, 2013 by howesdubai

Following their 2011 joint announcement, it seems that the Investment Corporation of Dubai-Brookfield real estate fund will soon become a reality. Both entities have agreed to seed the US$ 1 billion fund and will primarily invest in the local market and especially in development opportunities. This could be an excellent time to start such a venture as Q1 figures from Dubai Land Department indicate a 63% rise in transactions totalling US$ 12.0 billion.

A sign of the burgeoning population in Dubai can be gleaned from the fact that enrolments in the emirate’s private schools rose by 8.7% last year to almost 225,000. No wonder then that their 2012 total revenue was US$ 1.09 billion (up a staggering 16.3%). There is no doubt that the cost of education is sky-rocketing and causing much concern among the expat population. Although the average annual tuition fee is put at almost US$ 5k, the top end of the market charges in excess of US$ 26k.

The retail sector received a further boost with news of luxury retailer, Chalhoub Group, announcing a 20% growth last year in the UAE. It is planning to open a further fifty stores here this year, as part of its 150-store expansion in the region, bringing its total outlets to 600.

This week’s launch by property developer Emaar will not cause the usual Dubai chaos. The Address Residence Sky View II will only be open to residents of London, Doha and Riyadh in an on-line sale. Construction of the 50-storey hotel and residential apartments will start in Q3 and is slated for completion by the end of 2016.

Palm Jumeirah will be the location for yet another luxury hotel with SKAI Holdings announcing plans for a US$ 1 billion project to be managed by the Viceroy Group. This will be the operator’s first Dubai venture and the 481-room hotel, with 221 apartments, will be ready within three years.

A good indicator of the current confidence in the realty sector is the fact that the recently launched Damac’s Paramount- branded development has already sold 40% of the US$ 680 million project.

The Dubai-based investment bank, Shuaa Capital, is still in the red with Q1 losses at US$ 1.6 million but an improvement on the US$ 2.3 million loss recorded over the same period in 2012. There was a 34.2% fall in Revenue to US$ 9.9 million as well as a 7.1% drop in Total Assets to US$ 354 million.

Although there are still six months until the host city for Expo 2020 is announced, a recent report has outlined the benefits for Dubai if their bid were successful. They include the addition of 280,000 new jobs of which 53% would in the travel and tourism sector, as well as the prospect of a massive inflow of 25 million visitors.

One visitor attraction, highlighting both old and new Dubai, will be completed within twelve months. The US$ 32.7 million completely transparent Dubai Frame – a 150 meter tall window frame, located in Zabeel Park – will feature a museum and will have elevators so that visitors can view the emirate from the top of the structure.

The Dubai Financial Market Index is still heading north with a massive weekly 5.4 % rise from 2178 to 2296 points. What has become the fastest growing exchange in the world has seen a 48.45% rise in 2013 and 64.29% surge in the past year. The other local bourse, Nasdaq Dubai, started the week with only two companies trading – Depa and DP World. It ended the week with only the latter as shares in Depa were suspended on Tuesday following their AGM at which its largest shareholder, Arabtec, with 24% holding, attempted to gain more board representation.

Rather surprisingly to many, Dubai’s April inflation rate was a paltry 0.1% whilst nudging up to 0.9% for the year. Rising rents and other price hikes have yet to impact on the emirate’s CPI.

Dubai’s non-oil trade expanded in Q1 by 16.3% from US$ 76.3 billion in 2012 to US$ 88.7 billion – and this despite regional unrest, a reduction in trade with Iran and an on-going global economic slowdown.

As the Reserve Bank of Australia cut interest rates to 2.5% – and with inflation at 2.25% – the Australian dollar is hovering below parity against the greenback for the first time in over a year. Political uncertainty and a tentative economic climate, as mining sector revenues fall, were the background for what was probably Treasurer Wayne Swan’s sixth and final budget.

Following a US$ 17 billion hit to his revenue forecast, Tuesday’s patchwork budget saw the start of a four-year US$ 43 billion spending cut which will see this year’s US$ 19.4 billion deficit return to a supposed surplus by 2018. There seems little to support the country’s ailing retail and tourism sectors and even less to revive its competitiveness on the world stage.

Despite all this, Australia is still the lucky country when compared to most nations in Europe where recession in the eurozone continues for the sixth straight quarter. Q1 saw the 17-country bloc contract by a further 0.2% with Germany just managing a very weak 0.1% growth. Add to this the rising unemployment problem, with over 19 million looking for work, then it is reasonable to assume that there is worse to come. A good example is Tata Steel which has just written off US$ 1 billion of the value of its operations as it saw steel European steel demand fall 8% last year (and 30% since 2008).

Over the past few years, major scams have been unearthed – and they have usually involved individuals. Now there seems to be a tendency for institutions to become embroiled in fraudulent activities with many putting their corporate snouts into the trough. Just look at sporting organisations, big business, banks and the oil industry.

The fraudulent shenanigans at FIFA, headed by the roguish-looking Sepp Blatter, seem to be a regular occurrence whilst the Thursday’s IPL scandal is the latest to tarnish the game of cricket. Meanwhile Monsanto is once again apparently attempting to gain exclusive control of what many would consider to be everyday fruit and vegetables. Banks have shown their true colours with their disgraceful fat cat bonuses, Libor rate fixing, money laundering and now, potentially their biggest faux pas, price rigging interest rate swaps.

Joaquin Almunia, the EU’s antitrust commissioner, is investigating allegations of oil price fixing by some of the world’s biggest energy companies. There are concerns that, for many years, companies have colluded in reporting distorted prices which resulted in the end consumer paying more at the pump. (Maybe they can also look at other markets such as gold and currency).

Finally, Amazon’s UK subsidiary had sales of US$6.5 billion in 2012 and received government grants in the region of US$ 3.8 million. The on-line retailer employs 4,200 and has a tax bill of just 0.1% or US$ 3.7 million. Their theme song has to be I Started a Joke and the joke is on the UK taxpayers!

A good indicator of the current confidence in the realty sector is the fact that the recently launched Damac’s Paramount- branded development has already sold 40% of the US$ 680 million project.

Rather surprisingly to many, Dubai’s April inflation rate was a paltry 0.1% whilst nudging up to 0.9% for the year. Rising rents and other price hikes have yet to impact on the emirate’s CPI.

Finally, Amazon’s UK subsidiary had sales of US$6.5 billion in 2012 and received government grants in the region of US$ 3.8 million. The on-line retailer employs 4,200 and has a tax bill of just 0.1% or US$ 3.7 million. Their theme song has to be I Started a Joke and the joke is on the UK taxpayers!

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Posted in Finance | Tagged Amazon, Chalhoub Group, DFM, Dubai, Dubai Financial Market, Dubai Frame, Dubai-Brookfield, Emaar, Expo 2020, Shuaa Capital, UAE | Leave a comment

What’s Going On?

Posted on May 13, 2013 by howesdubai

Prior to the start of Arabian Travel Mart, HH Sheikh Mohammed bin Rashid Al Maktoum officially approved Dubai’s 2020 Vision for Tourism, which would see visitor numbers double to 20 million within the next seven years. The local tourist board, DTCM, will focus on three key drivers – promoting Dubai as the destination for families, events and business gatherings.

The most recent figures indicate that the Dubai hospitality sector showed a 17.9% annual growth in revenue to US$ 5.1 billion with a present inventory of 599 hotels and hotel apartments comprising 80,000 rooms. Tourism is estimated to contribute over US$ 76 billion to the region’s economy and is responsible for around 14% of the UAE’s GDP.

Some pundits are becoming worried about the prospect of another property bubble in Dubai but latest figures show that it trails in at fourth in the ranking of global luxury home price increases over the past year. Its 18.3% annual increase was well behind the top three of Jakarta (38.1%), Bangkok (26.1%) and Miami (21.1%) with Tokyo seeing a 17.9% plunge as most European cities continue to fall.

Salim Al Moosa’s Falconcity of Wonders received a boost this week with the announcement of the design and supervision of two of the three pyramid buildings which will house a large hotel along with both luxury residential and office units. These pyramids will be part of a development that will eventually include full-size replicas of the likes of the Taj Mahal and Eiffel Tower.

Nakheel confirmed that its recent launches, Jumeirah Park and Jumeirah Village Circle, had sold out the total of 417 units, with sales of US$ 518 million recorded. Its Q1 revenue was at US$ 595 million – a 61.9% surge whilst quarterly profits were up 31.6% to US$ 134 million.

Despite recent good news, Dubai World still faces problems with a US$ 4.5 billion loan repayment due in 2015 and a further US$ 10 billion three years later; this being part of the 2011 US$ 16 billion debt restructuring plan that saved the company from going under. In the unlikely event that it has to sell off some of the family silver, it does have several high profile assets such as the Mandarin Oriental in New York, CityCenter Casino and Hotel in Vegas, Atlantis Hotel on the Palm, DP World and Cirque du Soleil.

It seems that Dubai Group has restructured a US$ 10 billion debt with its creditors and at the same time become an independent entity from HH Sheikh Mohammed bin Rashid Al Maktoum’s investment arm, Dubai Holding. Although Dubai Group is expected to sell some of its assets, but not the likes of its shares in Dubai Bourse, 14.7% in Bank Muscat and 18% in EFG Hermes, the restructuring will see creditors’ repayment schedules extended.

Meanwhile the QE2 initially bought in 2007 by Istithmar, a subsidiary of Dubai World, still remains in local waters for at least three more months prior to sailing to Singapore for fit out and then ending its days as a floating hotel in Hong Kong. That is the latest plan but there are moves afoot, by some UK investors, to have the cruise liner return to London and be moored on the Thames as a tourist attraction.

As expected, Emirates surpassed market expectations with a stellar 52% profit growth to US$ 622 million on a 17% jump in revenue to US$ 19.9 billion. Over the year ending 31 March 2013, the airline carried 39.4 million passengers on its 200 aircraft with an impressive 80% load factor. Despite the global slowdown in trade, Emirates still had a strong year with an 8% jump in cargo revenue to US$ 2.8 billion and tonnage up 16% to 2.1 million tonnes.

Although future prospects are bright, Dubai Aerospace Enterprise saw Q1 profits plunge from US$ 121 million to US$ 7.3 million over the same period last year. This disappointing news came despite a 7.8% increase in Revenue to US$ 1.94 billion. The company, which employs over 4,000, has a fleet comprising of fifty aircraft including 10 Boeing 777s and 16 737s as well as 15 Airbus A320s and 11 A330s.

With the last of quarterly results being released, Mashreq saw a spectacular 57.1% increase in Q1 profits to US$ 115.9 million. The bank has consolidated its growth trend as this result follows a 60% jump in profits last year.

Yet again, UAE consumers have been rated as the most confident in the area despite its Q1 level dropping five points to 108. This is still well above the global average of 93 and streets ahead of Europe’s abysmal showing of 71. UAE saw its rating similar to China and Hong Kong but behind the leader, Indonesia (122 points), followed by India, Philippines, Thailand and Brazil. Any ranking above 100 on this Nielsen Survey indicates increasing degrees of consumer optimism.

It may be of interest to note that the UAE is now the global leader in relation to FTTH (fibre to the home) network with a penetration rate of 72%. South Korea is its nearest rival at 57% with Japan, Russia, USA and France close behind. Etisalat has spent US$ 5.2 billion in the network to get the country to its current position.

A sign of increased economic activity was a March monthly 1.0% increase in money supply MO (basically currency) to US$ 16.2 billion whilst money supply aggregate M1 (currency plus banks’ current and call accounts) rose 3.2% to US$ 89.2 billion. Total bank deposits rose at a higher rate than loans – 2.0% to US$ 337.3 billion compared with 0.7% to US$ 306.8 billion.

The Dubai Financial Market Index continues its upward spiral – gaining 2.1% this week to close on 2178 points. It may be a little late to jump on this particular bandwagon as the market has already risen 40.8% in 2013 and 53.5% over the past year.

The unelected mandarins that have helped the eurozone become the focal point of the economic malaise have finally come to their senses. After three years of espousing the doctrine of austerity for its members – and in the process tearing apart the fabric of society in many countries – they have finally determined they got it wrong. Now Olli Rehn, the EU Economic Affairs Commissioner, has decided, in his infinite wisdom, that three of the five largest economies – France, Spain and the Netherlands – will be given more time to attain previously agreed deficit targets including getting annual budget deficits down to 3%. Growth – rather than austerity – seems to be the new message coming out of Europe.

Latest estimates show that five of the seventeen member eurozone bloc have sovereign debt levels of over 100% of GDP with Greece leading the way at 175% followed by Italy (132%), Portugal (124%), Cyprus (124%) and Ireland (120%). What is more worrying is that the level for the whole bloc may reach 96% by next year. Compare this to the UAE where their debt level is an estimated 16.46%!

A major area of concern has to be the amount of “easy” money that has been added by the monetary easing policy of many governments. This unparalleled flow of cash into the global economy is a sure-fire recipe for an eventual overheating of economies and the formation of inevitable asset bubbles – whether it be in stocks, commodities or property. The state of the global equity markets is a case in point – how can shares rise so much when the world economy seems to be going in the other direction? What’s Going On?

Posted in Finance | Tagged DFM, Dubai, Dubai Financial Market, Dubai Group, Dubai World, Emaar, Emirates, emirates airline, Emirates NBD, Etisalat, Falconcity of Wonders, HH Sheikh Mohammed bin Rashid Al Maktoum, Jumeirah Park, Jumeirah Village Circle, UAE | Leave a comment

Tell Me When

Posted on May 5, 2013 by howesdubai

Latest figures coming out of Dubai Land Department show that Q1 residential transactions reached US$ 1.28 billion – a 51.6% hike on corresponding 2012 returns. The total number of realty transactions was even more impressive with 14,260 transactions amounting to almost US$ 12 billion – a rise of 63.0% on the same period last year. 2012 transactions were up 7.7% on the year reaching 41,800 and totalled US$ 42 billion. If that does not indicate the strength of the bounce back in this sector, nothing will!

Following their November 2012 announcement, a joint venture agreement between Meydan and the Sobha Group was formally signed this week. The development, covering 4 million sq ft, will include 1,000 hotels, the world’s largest shopping mall and an open recreational area, 30% larger than London’s Hyde Park. Phase 1 will feature 1,500 high end villas and 7 km of lagoons. An estimated US$ 5.7 billion is expected in property receipts.

In February, Damac published details of a US$ 1 billion development with Paramount Pictures. Now they have come up with their largest ever project, Akoya, which will cover 29 million sq ft and comprise luxury residences, an 18-hole PGA Championship golf course and the usual accoutrements associated with Dubai projects.

After being on the back burner for some time, IMG Group (Ilyas & Mustafa Galadari) has resurrected plans for a dinosaur theme park with the Lost Valley boasting robotic dinosaurs and the largest temperature controlled indoor entertainment space in the world. This will be their third park in the same location, with the other two being based on Marvel Comic and Cartoon Network characters.

Developer, Seven Tides, has announced the initial launch of its Anantara project on Jumeirah Palm, comprising 442 luxury apartments (ranging in size from 1,158 to 1,524 sq mt) and 14 penthouses. The development will be in conjunction with the 293-room Anantara hotel due to open this September.

Although the residential, hospitality and retail property sectors are experiencing a renaissance, one sector that is lagging behind is office space. In certain areas, such as Business Bay and Silicon Oasis, 50% of inventory is vacant and, with new projects coming on stream, the problem is set to worsen. Indeed some developments in Business Bay have already converted former office towers to housing units.

Following on from last week’s update on the new zoo project, Dubai is now planning a hotel for dogs and cats. The facility is part of a birds’ market project, costing US$ 14.7 million, and will be completed by year end. Located in the Al Warsan area, the “hotel” will cover 835 sq mt.

To keep the other type of hotels busy during summer, there is an-going three-month “Summer in Dubai” campaign with the aim of making the emirate the ultimate family destination of choice. Apart from Dubai Summer Surprises and Modhesh World, there will be a range of events such as Dubai Rock Festival and Dubai Sports World.

Next week will see the 20^th edition of the Arabian Travel Market with the four day event attracting more than 20,000 trade visitors and 2,500 exhibitors. The region’s biggest travel and tourism event will help showcase Dubai’s booming hospitality sector to professionals from over 100 countries.

No surprise to see that March passenger traffic at the world’s second busiest airport jump 20.6% from a year earlier to 5.8 million and a YTD increase of 15.6% to 14.26 million. March cargo figures increased by 14.7% to 185k tonnes whilst YTD shows a 13% jump to 585k tonnes, at a time when global cargo figures continue in decline.

There was mixed news from Emaar with Q1 profit of US$ 151 million, down 8% on the same period in 2012 but 9% up on Q4 2012. This drop in profit came despite a 16% increase in revenue to US$ 575 million, 55.3% (US$ 318 million) of which came from its retail, hospitality and leisure sectors.

In similar vein, Arabtec Holding saw its Q1 profits drop by 26% to US$ 17.0 million, despite a 20% rise in Revenue to US$ 422 million. A tightening of margins saw its Gross Profit drop by 9% to US$ 52.0 million but an expanding project backlog should see better returns later in the year.

Drake & Scull appeared to fare better with a 47% increase in Q1 profits to US$ 17.2 million on revenues of US$ 334 million. 78% of the revenue came from operations in Saudi Arabia (59%) and UAE (19%) whilst its order backlog at 31 March was up 17% to US$ 2.45 billion.

Meanwhile Deyaar Development reported a Q1 net profit of US$ 5.3 million – well up on the US$ 2.6 million the corresponding period last year.

Du, the UAE’s second telecom provider, benefitted from a double whammy of increased Q1 revenue (7.3% up to US$ 717 million) and reduced costs to see their net profit jump 40.5% to US$ 127.5 million. With such impressive results and a 19.9% annual increase in mobile subscribers, it is no shock to see its shares up by 46.9% in the first four months of the year.

The Dubai-listed district cooling firm, Tabreed, partly owned by the capital’s state fund, Mubadala, reported a 29.9% hike in Net Profits to US$ 13.0 million as chilled water revenue rose by 5% to US$ 55.2 million. Two years ago, the company secured an US$ 845 million finance package from Mubadala and last December it agreed to issue US$ 308 million worth of convertible bonds as part of its recapitalisation strategy – this has resulted in Q1 finance costs falling to US$ 105 million.

The Dubai Financial Market Index closed the week’s trading at 2129 – up 2.6% this week following Sunday’s opening of 2076. What must be one of the world’s best performing bourses this year has seen a stellar rise of 37.64% in the first four months of 2013 and 41.37% over the past fifty two weeks.

Habtoor Leighton Group secured a welcome US$ 68.1 million contract for the design and construction of two camps for the Satah Al Razboot oilfield development in Abu Dhabi.

Within the next five years, it is expected that the MENA region will spend in excess of US$ 740 billion in the energy sector with UAE accounting for 14.5% of that spend at a staggering US$ 107 billion – second only to Saudi Arabia’s US$ 165 billion.

on the European front, the Greek parliament finally caved in to the troika’s demands and passed a bill that would see the dismissal of 15,000 civil servants. To date, the country has received US$ 314 billion in rescue loans since 2010 and needed to pass this legislation to unlock a further US$ 11.5 billion by 20 May.

Spain’s economy continues to shrink with a 0.5% Q1 fall in GDP and an unemployment rate – currently at 27.16% – that is spiralling out of control. The country is eurozone’s fourth largest economy and is firmly entrenched in a double dip recession which many believe will take years to overcome despite Mariano Rajoy’s government forecasting very weak growth in 2014. Furthermore public deficit will reach 6.3% of its GDP – much larger than the 4.5% initially targeted as well as the 3.0% EU agreed ceiling.

Once again unemployment levels hit new records in March with 12.1% of the working population unable to find work in the EU. Even more disturbing was the fact that 25% of those under 25 are unemployed with the likes of Greece and Spain recording figures of a frightening 60%. How did governments allow this to happen in the first place and when will they take measures to diffuse this ticking time bomb?

This week, the ECB decided to cut its interest rates by a third to a record low of 0.5% as the eurozone continues to be buffered by economic problems. It is worrying that three of the largest eurozone economies – Germany, France and Italy – are seeing marked declines in confidence levels which indicates that the outlook is still dismal and no immediate end to the recessionary cycle is in sight. As eurozone GDP continues in contraction, it can only be a matter of time until we see customers having to pay banks to deposit their funds, i.e. negative interest. Even then would banks be more concerned protecting their own interests rather than trying to help kick-start economies by loaning money to the likes of SMEs?

When will eurozone bureaucrats and the ECB President, Mario Draghi, wake up to reality and realise that some of the bloc’s economies are heading towards banana republic territory? Tell Me When.

Posted in Finance | Tagged Akoya, Anantara, Arabtec, Damac, Deyaar, DFM, Drake & Scull, Du, Dubai, Dubai Financial Market, ECB, Emaar, IMG Group, Meydan, Modhesh World, Seven Tides, Tabreed, UAE | Leave a comment