Only Fools Rush In

Posted on January 13, 2014 by howesdubai

Barack_Obama_and_Sepp_BlatterHH Sheikh Mohammed bin Rashid Al Maktoum has issued a decree appointing his son, the Crown Prince, HH Sheikh Hamdan, to head up the committee to supervise preparations for Expo 2020. His great uncle, HH Sheikh Ahmed bin Saeed Al Maktoum, president of the Department of Civil Aviation and Chairman of Emirates Airline, will be the chairman.

Emirates Cargo had a record 2013, with an 8% increase in revenue to US$ 2.8 billion and an impressive 16% rise in tonnage to 2.1 million tonnes, in a moribund sector where global increases were less than 2%. Not surprisingly, the airline, which operates ten B777 Fs and two B747s, is the world’s biggest in scheduled Freight Tonnes flown. The carrier is expected to move to Dubai World Central as from this April.

Qantas is becoming a harbinger of bad news as Moody’s downgrades its credit rating to junk status following S&P’s similar earlier decision. The immediate impact is that financing costs will increase adding to the airline’s woes that indicated a US$ 267 million half year loss plus the axing of one thousand jobs. It seems that last year’s partnership agreement with Emirates has failed to lift the carrier out of the doldrums.

Dubai Land Department’s Sultan bin Mejren has reportedly indicated that property prices in the emirate may increase by as much as 40% in 2014. Measures will be put in place to avoid any undue speculation and may include new regulations concerning properties sold on before they have been built.

As Dubai has more than fifty hotels – with 16.6k rooms – currently being built, it is no surprise to note that Rotana is planning to double the number of its UAE hotels over the next five years to sixty properties and over 17k rooms. Already with a presence in Dubai, the Hong Kong-based Shangri-La group is expected to open further hotels here and in the GCC. In similar expansion mode is Accor which plans to increase its UAE room inventory by 45% to 8k over the next two years.

With the global digital signage business worth around US$ 15 billion, there was much interest in this week’s SGI Dubai (Sign and Graphic Imaging) exhibition. In its 17th year, the 400-exhibitor show is expected to attract over 10k visitors from 75 countries.

Dubai Silicon Oasis announced the launch of the US$ 272 million  University Hospital – a combined medical and learning facility to be developed by the Saudi Dr Soliman Fakeeh Hospital. Covering 150 sq mt, the facility will be built in two phases, with the 300-bed hospital ready by 2017 and the college two years later. This will prove a welcome boost for the local economy on two fronts – creating 4k jobs and complementing the medical tourism sector which is growing at an annual rate of 15%.

Emaar are adding to the burgeoning Arabian Ranches with a further 219 Lila villas which follows closely on recent successful releases there such as CASA, Palma and Rosa. No doubt the offering will be sold out on their release this Saturday.

According to its Chairman, Ali Rashid Lootah, government-owned Nakheel plans to repay US$ 1.09 billion of its bank debt this year – 12 months ahead of schedule. This sends a strong signal to the market that the formerly troubled developer is on the road to recovery following its US$ 15.5 billion bailout in 2011. It was also revealed that the company is planning to spend US$ 1.28 billion in 2014 on new retail and hospitality projects, including four hotels.

Another government entity performing well is Dubai Investments which expects a massive 150% surge in its 2013 profits to around US$ 220 million.

Meanwhile Emirates Extrusion Factory, part of Dubai Investments, is spending US$ 3.5 million to enlarge its aluminium extrusion plant. The facility, located in Techno Park, is looking at expanding its exports which currently account for almost 70% of its production. UAE accounts for 35% of the GCC’s current demand of 500 metric tonnes.

Shareholders in the troubled Gulf Navigation have finally agreed to a rescue package that includes writing off accumulated losses of US$ 300 million, a US$ 130 million convertible bond sale as well as agreeing to the sale of two VLCC (very large crude carriers). Shares in the listed crude shipper slipped 6.9% following the announcement.

Dubai Mercantile Exchange (DME), with over sixty active traders, had a record year in 2013. The region’s leading commodities and energy futures exchange saw its premier product, Oman Crude Oil Futures contracts, up over 36% in 2013,trading over 1.6 billion barrels.

With an Islamic population of an estimated 1.6 billion, it is no surprise to see that Dubai Municipality is planning to establish an international accreditation centre, specifically targeting Halal food. The aim of the centre would be to issue compliance certificates once products have been found to comply with Islamic law and be acceptable on a global scale.

The Egyptian investment bank, EFG-Hermes, has sold the 7th floor of Index Tower to Emirates Reit, a US$ 327 million property investment trust, in return for a 4% stake in the trust fund. Last year, the company increased its capital base by a further 9%, with Emirates NBD taking 5%.

The Securities and Commodities Authority (SCA) is keen to tighten regulations in relation to unofficial lending to investors on the local bourses. It appears that over 75% of the forty-eight brokerages have no authority to offer margin trading which allows their clients to leverage their shareholdings. Initial fines will be up to US$ 27k.

Al Ansari Exchange estimate that last year, the 6.6 million UAE expatriates repatriated US$ 35.4 billion with India, Pakistan, Bangladesh and Philippines being the main beneficiaries. Saudi Arabia, home to some 9 million foreigners, saw over US$ 67 billion leave the kingdom. The other four countries of the GCC – Bahrain, Kuwait, Oman and Qatar – with almost 5 million expatriates saw remittances total almost US$ 28 billion.

Not before time, the UAE is set to launch the Al Etihad Credit Bureau which will allow consumer creditworthiness to be checked by financial institutions. The idea behind the scheme is that all banks will be able to access a database to verify online whether potential borrowers present a risk prior to extending any loan / credit card type facility.

After profit taking earlier in the week, the Dubai Financial Market General Index bounced back to close on 3505 points – 2.4% up from its Sunday opening. Bellwether stocks, Emaar and Arabtec, were trading at US$ 2.13 and US$ 0.79 respectively.

It has been a torrid twelve months for JP Morgan Chase. Having already paid US$ 18 billion in government penalties for various misdemeanours, it is set to settle with US authorities regarding its nefarious role in its dealings with Bernie Madoff. The reported US$ 1.7 billion fine will help the US’s biggest bank by assets avoid further government action. (Madoff ran a so-called Ponzi scheme and when he was busted in 2008, it was found that he had claimed that his company had US$ 65 billion in client assets whereas the true figure was closer to US$ 300 million).

Although unemployment remains the biggest problem facing the eurozone, as one in eight of the working population (or 19.24 million) remain without a job, another dilemma is the danger of deflation. December inflation rate fell to 0.8% which is worryingly low when compared to the target 2.0% rate. On the positive side, the 17-country bloc saw a 1.4% jump in retail sales – the fastest monthly increase in twelve years. Any revival in the economy this year will be at best muted and a meaningful recovery can only take place when more people get back to the workplace.

In contrast, the US has witnessed a December job growth of  a highly respectable 238k, following a revised 215k for November. Although most of the jobs were at the lower end of the scale, an economic recovery will be helped by reducing the jobless numbers.

The cronies running world football appear to be in some disagreement after FIFA’s Secretary General, Jerome Vaicke indicated that the 2022 Qatar World Cup would have to move to later in the year. With Sepp Blatter heading an apparent fiefdom of an organisation that seems to lack any transparency and corporate governance, two questions will have to be answered. How on earth did Qatar win the bid for a July event in the first place and why was the decision made four years earlier than normal? Only Fools Rush In!

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Rock The Boat

Posted on January 7, 2014 by howesdubai

dubai-fireworksHH Sheikh Mohammed bin Rashid Al Maktoum issued a decree allowing rental increase of up to 20% dependent on circumstances. Rent hikes can come into play, once the rent being charged is 11% below the official RERA guidelines, with incremental rises at predetermined levels. Between 11% – 20%, a 5% rise is permitted followed by 10%, 15% and 20% if the prices are between 10% – 20%, 20% – 30% and 30% – 40%. This comes on the back of an estimated 17.8% jump in 2013 residential rents.

At the same time, as property prices have surged more than 20% in 2013, Knight Frank’s Prime Global current year forecast is predicting that, although growth levels will weaken, Dubai will still lead the world with another annual double digit growth forecast of up to 15%, well ahead of Beijing, Shanghai, Paris and Sydney, with estimated rises of between 5 – 10%.

There have been moves afoot to curb too much real estate speculation by the UAE Central Bank doubling its stamp duty equivalent to 4%, banks discussing mortgage deposit increases to 25% and Emaar banning agents selling off plan inventory before completion.

Meanwhile commercial property is beginning to fight back with Dubai now the 23rd most expensive city according to a CBRE report. At US$ 93 per sq ft, prime Dubai office space has still a long way to go to equal the most expensive location, London’s West End, at US$ 259 per sq ft, followed by Hong Kong (US$ 234) and Beijing (US$ 198).

With the groundwork now complete, Nakheel is expected to award the construction tender for its 136k sq mt The Pointe. The entertainment and retail complex, with over 800 outlets, will be located opposite Atlantis on Palm Jumeirah. The company has also recently sold 91 plots in its Al Furjan project for US$ 19.1 million and a further 45 in Jumeirah Village Triangle for US$ 17.9 million.

Reports indicate that local airlines are cashing in on next year’s FIFA World Cup by increasing prices to Brazil by as much as 70% in June (as compared to March). As an official “FIFA partner”, Emirates June economy fares are quoted at US$ 2.9k, whilst business class comes in at US$ 8.3k.

November saw yet another record month for Dubai International with a 9.5% year on year jump in passenger numbers to 5.34 million. With YTD figures of 60.4 million, 2013 should prove yet another record year, with numbers nudging 66 million by the end of December.

These numbers explain the surge in Dubai Duty Free results as the company announced an annual 11.4% increase in its 2013 sales to US$ 1.81 billion.  20 December saw the operator celebrate its 30th anniversary, with sales on the special day  reaching over US$ 30 million, with some items being sold at a 30% discount.

There is no stopping the current on-going hospitality boom with the release of official November figures. These indicate hikes in RevPAR (revenue per available room), occupancy and ADR (average daily rate) by 11.5% to US$ 264, 1.7% to 87.5% and 9.8% to US$ 301 respectively. Supply was also up by 6.9% which was more than offset by an 8.8% jump in demand. It would be no surprise to see guest numbers test the 11 million level by the end of the year.

The 19th edition of Dubai Shopping Festival takes place from 02 January for a month, during which time it is expected to welcome over 4.4 million visitors. It is estimated that since its opening in 1996, it has attracted over 51 million visitors who have added over US$ 35 billion to the local economy.

Arabtec announced that it would set up a real estate development company in Dubai to take advantage of any local projects. The Dubai-based company has over US$ 8.1 billion in its order book. Among its investments to date is a 24% holding in Depa Limited, whose shares have shot up over 8% since Arabtec announced it was interested in more investments and acquisitions.

Majid Al Futtaim (MAF) is planning a US$ 467 million investment for a shopping centre in Muscat. The Mall of Oman will cover an area of 157k sq mt and host over 350 retail outlets. Meanwhile, Al Futtaim Group has just signed a JV – with Marjana Holding and Portugal’s Sonae Sierra – to develop Morocco’s largest shopping mall. 21.7% of the retail space of 126k sq mt will be taken up by Ikea. This is the Dubai-based conglomerate’s fourth shopping centre, with the others located in Oman, Qatar and Egypt

Dubai-based Drake & Scull has won a US$ 110 million contract for MEP work on the Mall of Qatar, due for completion within eighteen months. The company was also successful with a US$ 16 million contract for similar work on the four-tower New Culffe Project in Mumbai.

The Dubai Financial Market capped a boom year by closing at 3370 points – 21.96% up on Q4 and 107.7% for the year. On Thursday, the first day of trading in 2014, it showed a daily jump of 3.04% to close the week on 3472.The last time the local bourse had such a stellar year, the exact opposite happened the following year. History is unlikely to repeat itself but the market will definitely slow this year, with a possible correction on the cards.

Gold lost its glitter in 2013 with an annual fall of 28.9% from US$ 1,694 to US$ 1,204, bringing to an end a 12 year bull run. Gold is no longer considered a safe haven during troubled economic times. It is set for another difficult year and would do well to test the US$ 1,300 mark in coming months, especially if inflation takes hold on the back of global monetary policy and devaluing exchange rates, causing reductions in purchasing power.

All the so-called “fragile five” economies with widening current account deficits – Brazil, India, Indonesia, South Africa and Turkey – will face major problems in 2014, mainly as a result of the Fed’s cutting back on its QE policy of easy money. Turkey has been worst hit as the lira falls to record lows, not helped byan increase in political turmoil and its biggest ever corruption scandal involving sons of three cabinet ministers.

For the past three years, oil prices have remained static, averaging US$ 108. With an expected increased output and slowing demand, as the world economy continues to struggle, 2014 will be a volatile year and Brent prices should even out to around US$ 100 later in Q1.

There is no doubt that the global stock market rally seen in 2013 will run its course early in the new year, as the five-year US equity bull market, with record highs for both the S&P 500 and Dax, comes to the end of its cycle.

Two factors that will trouble the Chinese authorities are a marked slowdown in manufacturing, as a result of a weak demand for exports, and a massive surge in public debt, that has fuelled a real estate boom. A 2013 growth rate of 7.6% is the slowest in twenty three years and no improvement is expected in 2014.

Although the UK economy is set to strengthen even further in 2014, the same cannot be said for most of its European neighbours including France and Italy. President Francoise Hollande has had a torrid year with the country falling further behind under a “too heavy” tax burden as unemployment hovers at 10.9% and manufacturing output worsens. He would do well to still be in the job at the end of 2014. In a similar vein, Italy has much to do to reduce red tape and introduce much-needed economic reforms, so as to improve productivity.

Dubai will remain streets ahead of most other economies in 2014 and the only note of caution is that the emirate cannot expect extraordinary growth in the stock market, property and other sectors of the economy to continue at current levels. Furthermore if the Iranian entente cordiale were to come to fruition, it will be a huge boost for the region.

In the global arena, economies will be sluggish at best. What is not wanted is a catastrophic incident to occur that would derail any progress that has been made since the GFC. Fingers crossed that there are no problems with the Winter Olympics and the FIFA World Cup and that some major financial scandal does not Rock The Boat!

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It’s All Over Now

Posted on December 20, 2013 by howesdubai

AliDamac Properties were quick out of the blocks as they announced the launch of their 270-unit Tenora Tower, adjacent to the Expo site near to Dubai World Central. Prices will start from US$ 166k and should be completed within eighteen months.

Emaar is making great use of the current buoyancy in the property sector. At the beginning of the month, the first batch of 70 properties in its up-market Dubai Hills Project was sold out, within minutes, at prices ranging from US$ 7 million – US$ 10 million. The same sales mania occurred this week with its two-tower Vida Residence Project, comprising 136 units, at starting prices of US$ 790k, selling within minutes of release.

It is expected that Deyaar Development’s Fairview Residency will be complete by March next year. The 18-storey, 172-apartment building is located in Business Bay. The Dubai-based developer is fast recovering from its troubles, following the GFC and Dubai property collapse; the company’s shares surged the next day by 10% on this news.

Dubai’s latest five star hotel is set to open on Christmas Eve. The Al Habtoor Group announced that the Waldorf Astoria, located on Palm Jumeirah, will become the group’s seventh hotel, four of which are in Dubai. Three more are currently under construction on the Metropolitan site on SZR.

The RTA has announced the arrival of the first batch of eleven coaches for use on the upcoming Sufouh Tram System – with the official opening due late next year. 27k passengers are expected on a daily basis, with each coach having a capacity of three hundred users.

Designed to handle 7k passengers at any one time, Mina Rashid has been voted the best cruise port in the world for the sixth consecutive year. The DP World facility, covering an area of 24k sq mt, has recently been upgraded.

Majid Al Futtaim Group (MAF) has announced a US$ 5 billion investment programme as it launched a single branding for its numerous entities, including Mall of the Emirates, Carrefour, Ski Dubai and VOX cinemas. The conglomerate is planning to double its size within the next five years, to an asset size of US$ 20 billion. Part of the plan includes several ski slopes in the MENA region, similar to those of the eight-year old Ski Dubai, and Ski Egypt, which is due to open in 2016.

Following their 2010 release of a US$ 500 million convertible bond, Emaar Properties has issued 18.7 million new shares at a reduced price of US$ 1.29. This is because bondholders wanted to cash in with the share value having now reached a 5-year high of US$ 2.00.

Arabtec Holdings have refuted claims that it was considering purchasing Drake & Scull – this despite the two companies working together on several local projects, including the Louvre in Abu Dhabi.

It does seem surprising that the UAE is the 11th largest importer of clothes with a value in excess of US$ 4 billion (or 0.89% of the global total). With the retail sector set to increase to US$ 41.1 billion by 2015, it seems inevitable that the clothing industry will continue to grow in tandem.

A sign that Dubai is getting more of a profile as a hub centre was news that Hino Motors Limited has opened its new parts facility in Dubai World Central. The bus and truck manufacturer will use the 5.4k sq mt facility to import directly from Japan to expedite deliveries with the GCC and surrounding region.

It has to be Dubai when a bra, costing US$ 10 million, goes on display in the Dubai Mall. Loaded with 4,200 gems, and a 52-carat ruby, the garment was designed by Mouawad, the Swiss-based jeweller.

The Dubai Investments subsidiary, Glass LLC, estimates that it has seen a marked improvement in business and has picked up at least US$ 38 million of new business in Q4.

There is no doubt that the local auto sector is thriving and set to hit record high sales by the end of the year. This expansion is set to continue into 2014 and, as a result, Arabian Automobiles, the Nissan, Infiniti and Renault exclusive dealer, has announced that it will be taking on an extra 250 staff to meet the increasing demand.

Thirteen years ago, fast food chain ChicKing did not exist. Now the Dubai-based fast food chain has 100 outlets in thirty countries and has plans to increase this number tenfold by 2020; it has just signed an MoU with Malaysia’s Dual Super Food to set up stores in that country and others in SE Asia.

Dubai Health Authority have indicated that all companies, with more than 1,000 employees, will have to introduce mandatory staff health insurance before October 2014 with smaller companies (100 – 999 employees) having to follow suit by July 2015, with another year’s grace given to entities below that size.

There was a welcome bonus this week for many in the Dubai public sector with salary increases of between 30% and 100%, paid retrospectively from June. It is reported that some doctors and financial controllers will see their pay packets double!

With his recent decree, HH Sheikh Mohammed bin Rashid Al Maktoum has laid down his three-year plan to make Dubai the centre of a potential US$ 6.7 trillion Islamic global economy. The Dubai Islamic Economy Development Centre will be set up with the specific aim of making this a reality.

The Dubai Financial Market General Index continues to flourish and is up 109.1% YTD. It started the week on 3158 points and moved 2.7% higher to close at 3243.

The Institute of International Finance have estimated that Expo 2020 will add an annual 1.5% to Dubai’s GDP for the next six years whilst official figures estimate a spend of US$ 24 billion which will inevitably add to the emirate’s debt. The end result seems to indicate an 18.7% jump in debt to US$ 168.5 billion. However with an estimated 5.5% annual growth, Dubai’s debt to GDP ratio will actually fall from its 106% level last year to 70% in 2020. Funding will be from a variety of sources including internal (profit and sale of assets), local (federal and Abu Dhabi assistance) and global capital markets.

It is reported that Istithmar World, Part of Dubai World, has sold its 50% share in the celebrated Fontainebleau Hotel in Miami which it acquired for US$ 375 in the halcyon days of 2008. (In 1976, Muhammad Ali stayed at the hotel, when filming ‘The Greatest’). The amount paid by the Florida property developer is unknown but should bring in a profit for the Dubai GRE.

European golf received a major boost with Emirates announcing that it would sponsor another nine tournaments, making nineteen in all, as well as becoming the tour’s official airline. The airline’s agreement is for the next four years, running until 2017.

Good news and bad news for Ireland as the country formally exited its 3-year US$ 115 billion bailout programme but it will still face  several years of painful austerity programmes, as it battles an unemployment rate of 12.8% and depressed market conditions. Fellow eurozone strugglers – Cyprus, Greece and Portugal – are still under the control of the troika (IMF, EU and ECB) and will continue to have reduced input into their own finance policy.

In recession for six years, Greece has been relying on bailout funds for over three years and again this week, Prime Minister Antonis Samaras was requesting a further write-off of his country’s debt. This will be dependent on whether the troika consider that Greece has fulfilled the terms of its bailout deal.

There is no doubt that the Chinese economy is undergoing problems as growth levels, although still high on an international comparison, are expected to fall below a two-decade low of 7.5%. The world’s second largest market is set for a bumpy 2014 and this, in turn, will be depressing news for the global economy, with many countries still reeling from the effects of the GFC.

On the back of a slowing China, the Australian economy is going into a tailspin, as it faces a possible US$ 42 billion deficit this financial year, unless immediate action is taken. A major driver in this turnaround in fortunes is a softening in resource investment along with a weakening economy. The sorry state of the national airline, Qantas, increasing unemployment levels and a collapsing auto industry are further indicators that the lucky country is facing turbulent times.

As expected, the US Federal Reserve has announced the scaling back of its quantitative easing policy by US$ 10 billion a month, with the taper being equally split between mortgage-backed securities and treasury bonds which will both fall  by US$ 5 billion in the first month to US$ 35 billion and US$ 40 billion respectively. As the markets have become addicted to so much cheap money (US$ 85 billion a month), it comes as a relief to some that the days of easy money have ended. It’s All Over Now.

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Nobody Does It Better

Posted on December 16, 2013 by howesdubai

aus-cricketEarly signs of the positive impact of Dubai Expo 2020 were evident this week. Marriott International announced plans to increase its number of rooms, over the next six years, to 10k from its current portfolio of 2.7k. Emaar Properties have signed an MoU with Dubai World Central to establish an urban and leisure destination at the centre of the proposed Expo location. Encompassing 13.6 million sq mt, there will also be a business park, along with the usual sporting and shopping centres. It is expected that this will be the forerunner of several similar world-class developments in Dubai’s new city.

Having issued US$ 4.5 billion worth of sukuks to date, Nakheel has just made a US$ 59.4 million profit payment. Since its last US$ 16 billion restructure in 2011, the government-owned developer has paid creditors US$ 354 million in interest and profit payments and US$ 3.0 billion to creditors. As its nine-month profit figure at the end of September was US$ 482 million, it seems there is a long way to go pay off all its debts.

Moody’s expects the UAE’s annual growth to average 4.8% over the next three years, as it maintained its country rating at a stable Aa2. It is becoming less dependent on hydrocarbons as its non-oil sectors continue to flourish with the economy being further helped by a low government debt ratio to GDP of 23%, excluding government-related enterprises (GREs). It is interesting to note that the debt level of Abu Dhabi’s GREs is greater than that of Dubai. Currently it is estimated that Dubai government’s direct debt is equivalent to 30% of its GDP whilst that of its GREs is 113%, making the outstanding debt at 143% of GDP.

The Director General of the Department of Economic Development, Sami Al Qamzi, is expecting tourist spend to reach US$ 9.0 billion over the next three years, as the current boom gains increasing traction. It is expected that retail sales will increase from US$ 27.2 billion to US$ 32.5 billion over the same period. These figures highlight the impact that the retail sector has on the local economy.

Two local hotel chains have announced overseas management contracts. Jumeirah Group has just signed a management agreement with Saraya Bandar Jissah to develop a two-hotel and residential complex on a 2.2 million sq mt site in Muscat. The resort, due to open in 2017, is a JV between the Dubai-based Saraya Holdings and Omran, part of Oman’s tourism ministry. Meanwhile, Jebel Ali Resorts and Hotels made their first foray away from Dubai as it signed to manage a luxury 10-villa beach resort in the Seychelles. The UAE is that country’s fifth biggest market which is set to grow at a faster rate than the current 10%, as both Emirates (twice daily) and Etihad (daily) fly into the capital, Mahe.

It was no surprise to see Habtoor Leighton Group being awarded a US$ 395 million contract to build the Residential Towers associated with the upcoming  US$ 3 billion Habtoor City development on SZR.

With over 12.9 million contracts, Dubai Gold and Commodities Exchange (DGCX) has witnessed a credible 51% surge in YTD selling. Most of the bourse’s dealings are involved with the Indian rupee futures trade which accounts for over 40% of the total global trade in that currency.

The need for more spending on infrastructure was brought home by the 48.6% increase in DEWA’s 2014 budget to US$ 5.6 billion with projects accounting for US$ 1.92 billion. Its existing capacity of 9.6 megawatts (MW) easily meets its current requirements (with the peak load this year of 6.9 MW) whilst it produces 470 million imperial gallons of desalinated water daily.

For the first nine months of the year, there have been 9.9% increases in both trade, to US$ 272.4 billion, and tourism numbers to 7.9 million. Both these major drivers in Dubai’s economic growth should see even bigger rises as the emirate readies itself for 2020. India (21%), Turkey (13%) and Switzerland (7%) were Dubai’s main export partners. It is no surprise to see that the country’s private sector has seen faster growth than any of the BRICS nations – Brazil, Russia, India, China and South Africa.

The Dubai Financial Market General Index continues to set a blistering pace closing on Thursday 6.9% up on the week at 3158 points. So far this year, the market has risen by 103.57% with bellwether stocks, Emaar and Arabtec, closing strongly at US$ 2.01 and 0.75 respectively.

Blackstone management certainly know how to earn money as they have more than doubled their initial 2007 US$ 6.4 billion investment in Hilton, the world’s largest hotel operator. With this week’s IPO, the company’s 76.2% shareholding is now valued in the region of US$ 15 billion.

Latest UK reports indicate that the economy is steaming ahead with 2014 growth forecasts being upped from August’s 2.2% to 2.7%, following this year’s expected 1.3% expansion. Many analysts see this as a property-led growth with little movement in exports, manufacturing and business investment, whilst the finance and insurance sectors still struggle. Unemployment levels continue to fall with the BoE target of 7.0% expected within the next eighteen months at which time there will be inevitable rises in interest rates.

Another week equals more banking scandals. Despite there being sanctions in place, the behemoth that is RBS flaunted the law by dealing with the likes of Sudan, Myanmar and Iran by assisting with bank transfers of around US$ 34 million. This week the US regulators fined the troubled bank US$ 100 million. In comparison, Lloyds Bank got off lightly with a US$ 45 million fine for selling unnecessary financial products to the value of US$ 3.2 billion to some 700k customers.

Visa and MasterCard have been fined US$ 5.7 billion in the US for fixing credit and debit card fees charged to merchants. There will be more headaches for these two companies as individual lawsuits have been taken out by some merchants, which will lead to further penalties.

Although its cricket team is enjoying an Indian summer, the Australian economy is showing signs of weakness, with November unemployment rising to 5.8%, some major energy projects facing delays and cost overhangs as well as Holden planning to stop vehicle production in the country.In WA, Chevron’s LNG project has seen a further 3.8% leakage in cost overruns to US$ 54 billion and start up delayed four months to the middle of 2015. This comes after a cost overrun that saw the December 2012 expenditure rise from US$ 37 billion to US$ 52 billion!

With Ford already committed to shutting its Australian business and now GM confirming the closure of its Holden assembly operations in Adelaide and its Melbourne engineering facility, it may result in Toyota quitting as well. If that were to happen, not only direct jobs (2,900 because of the Holden decision) but some 45,000 in the supply and support industries would be forced to close as a result. Because of the relatively high currency, its crippling labour rates, small market and a cut-back in government subsidies, it now seems that cars can be made cheaper in Japan.

New Year’s celebrations will once again put Dubai in the record books with what should be the world’s biggest ever pyrotechnic display. The 6-minute spectacular will cover most of the emirate’s coast, The World and Burj Khalifa and will use 450k fireworks and feature a musical soundtrack. It is bound to usurp Sydney as the number one viewing destination at the turn of this year; yet again when it comes to Dubai, Nobody Does It Better!

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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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