A Dedicated Follower of Fashion

Posted on August 10, 2013 by howesdubai

Beau-BrummelDubai’s hospitality sector continues to confound its critics with all pointers showing sustained growth patterns – in June, occupancy rates by 3.6% to 79.2%, Average Room Rates (ARR) by 6.2% to US$ 207.29 and Revenue per Available Room (RevPAR) by 11.2% to US$ 164.22. It seems that Dubai is succeeding in its aim to make the emirate an all year holiday destination.

The Director-General of the Dubai Land Department, Sultan Butti bin Mejren, has announced  that seven proposed pieces of legislation will be introduced over the next two years to better control the burgeoning real estate sector. These measures will protect the market from speculators and other damaging factors that have blighted the industry over recent times as well as enhance current legislation in relation to tenants’ rights, landlords’ associations and stalled projects.

Depa, the Dubai-based interiors contractor, has bought Loher Raumexklusiv, the German private jet and yacht outfitter, for an undisclosed amount. The company, based in Munich, had been facing bankruptcy earlier in the year and the sale will help with Depa’s aims of diversifying into an ever growing niche market.

Nakheel, has awarded five contracts to the value of US$ 127 million, the two largest for the building of villas in its Jumeirah Park location (US$ 82 million) and for the expansion of Ibn Battuta Mall which will cost US$ 25 million.

A raft of Q2 corporate earnings results hit the market this shortened week and most continued the trend of earlier announcements with increased revenue and profit levels – a sure sign of the upturn in Dubai’s economic fortunes.

Union Properties saw a 35.5% hike in Q2 profits to US$ 30.9 million compared to a year earlier and this despite a fall in revenue from US$ 151.8 million to US$ 116.3 million. The reduction in expenses came about because of liability settlements, totalling US$ 21.8 million, with various creditors during the period.

Another property company, Deyaar reported a 46.8% rise in Q2 profit to US$ 7.4 million and an even bigger H1 jump of 66.8% to US$ 12.7 million. The company has two new projects in the pipeline including a US$ 136 million residential project in Business Bay.

Even better results emanated from Drake & Scull International that saw both Q2 contract revenue and profits heading north – 86.8% up to US$ 365 million and 63.0% to US$ 14.2 million respectively. As a sign of the good times returning to these shores, the company has an order backlog of US$ 3.19 billion, 58.1% higher than in June 2012.

Meanwhile Dubai Islamic Bank – in line with most other Dubai-based financial institutions – announced a 34.8% surge in Q2 profits to US$ 113.9 million on a nominal 1.7% rise in its revenue to US$ 351 million.

After seven consecutive quarters of losses, Shuaa Capital finally turned the corner with a Q2 profit of US$ 354k – only the sixth time the troubled investment bank has not recorded a quarterly deficit over the past five years. The bank’s loan book has increased by some 15% to US$ 199 million.

Dubai Investments have seen its H1 profits swell by 116.4% to US$ 101 million but only on a 15.2% rise in total income of US$ 351 million. With total assets of US$ 3.43 billion and a net worth of US$ 2.34 billion, the company is the largest investment company listed on the Dubai Financial Market.

The Dubai Financial Market Index closed trading on Tuesday because of the upcoming Eid al Fitr holidays. However even in a three-day week it still managed to close 3.0% up at 2674 after a Sunday opening of 2595 points. Over the past year, the market is 79.04% in front and has risen 71.79% already in 2013. (in Q2 the Index rose 21.5% being only surpassed by the Damascus bourse which jumped 44.7% mainly on technical – rather than market – influences).

Official data confirms that UAE’s real GDP expanded 4.4% in 2012 to a record US$ 278 billion with the non-oil sector accounting for US$ 188 billion of this figure or an impressive 67.7%. The continuing positive move away from reliance on the oil industry is welcome news. Surprisingly, the official inflation rates last year was only 0.66% with more of the same expected this year coming in at just over 1%.

Greek prime minister, Antonis Samaras, is due to meet Barack Obama later in the week in an attempt to secure US approval to introduce stimulus policies for the embattled Ionic economy. The country is in its sixth straight year of recession and has 1.4 million of its population unemployed; this equates to 27.6% (compared to the eurozone rate of 12.1%) and even more depressing is the rise in youth unemployment which is now at 64.9%.

In stark contrast to its continental neighbours, the UK economy is showing signs of a grand revival. The world’s seventh largest economy recorded a major rise in the latest PMI (purchasing managers’ index) with the Markit/CIPS services survey posting a monthly jump from 56.9 to 60.2 – its highest level in six years. Other indicators are also heading in the right direction in July  – retail sales were at their highest level in seven years, industrial production was up 1.2% and vehicle sales were 12.7% up. Despite the promising data, the country is still way behind the levels reached pre-GFC.

The Indian rupee continues to fall – this week sinking to all-time lows of 61.8 to the US$ with no apparent Reserve Bank of India intervention in sight. Unless the authorities rectify the country’s underlying economic problems and rein in its ballooning current and fiscal deficits, standing at 6.7% and 5.0% respectively, the currency will continue its descent – now 40% down over the past two years. Introducing half-baked measures, such as raising the gold import duty to 8% and lifting the price of fuel five times since June, have not appeased investors – both domestic and overseas – who are taking their money out of the country at record levels. High inflation and a slowing of growth to around the 5% mark will continue to drag the economy in a downward spiral.

Despite avoiding a recession during the GFC, the Australian economy is now going backwards as commodity prices tumble and growth forecasts are cut once again – this time to 2.5% for this year. The lucky country is now bedeviled with rising unemployment levels (expected to hit 6.25%), flat retail sales, slowing tax receipts and falling business confidence. The Rudd government has seen the currency drop 14%, in a matter of months, to AUD 0.90 to the greenback and its budget deficit expected to double to US$ 26.8 billion this tax year. Whether this week’s move by the Reserve Bank to cut interest rates to its lowest ever level of 2.5% will help the struggling economy remains a matter of conjecture.

Over 4,000 families were directly affected by the April Bangladeshi factory collapse that claimed 1,132 lives and injured over 2,500. It is no surprise to see that much of the promised compensation by the government and the federal garment association remains outstanding. With earlier pledges indicating individual payouts of US$ 21,000, it is reported that the government has paid between US$ 1,200 and US$ 3,500 to only 350 of the survivors and family members and will only pay those who actually turn up at the prime minister’s office in Dhaka.  Furthermore no payments of three months’ wages, promised by the Bangladesh Garment Manufacturers and Exporters Association, have been made to any of the victims. If these reports are true, it may be time for the likes of H&M, Abercrombie & Fitch, Walmart and Gap to take more positive action.

As part of Dubai’s overall strategy, HH Sheikh Mohammed bin Rashid Al Maktoum has issued a decree to set up the Dubai Design and Fashion Council and has ambitious plans to grow small businesses, develop the global market for locally produced goods and increase employment levels across the industry. If all goes to plan, within five years, the emirate could rival the likes of Paris, London and New York. Soon Dubai could be seen to be A Dedicated Follower of Fashion.

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Catch Us If You Can

Posted on August 3, 2013 by howesdubai

barclaysTo many observers, the local property market is perhaps growing at a faster rate than would be considered appropriate, bearing in mind that it is less than five years since over-inflated property prices saw a 50% diminution and brought Dubai to its economic knees.  Latest figures indicate housing rentals up 30% over the past twelve months and residential property valuations up at almost the same level. In H1, recorded sales totalled US$ 7.85 billion of which a staggering (and worrying) US$ 6.32 billion, or 80.6%, were for cash. The most popular location was Dubai Marina where total transactions amounted to US$ 1.8 billion. Commercial sales were also up with H1 figures of US$ 21.6 billion.

A recent IMF report shows that Dubai government debt grew by over 10% to US$ 142 billion in the year ending 31 March 2013. Of this total, which is estimated to be 102% of the emirate’s GDP, 45% or US$ 64 billion falls due within the next three years. Could a double whammy of a crashing real estate sector and an unsettling financial market see history repeating itself.

Meanwhile, the Ruler of Dubai has issued a decree appointing a committee to deal with all court cases for stalled real estate projects, currently going through the legal system. It seems that the new body will have total responsibility for settling legal disputes between investors and developers in any scheme that has been cancelled by Dubai Real Estate Regulation Agency (RERA) – late last year, it reported that it had cancelled 217 projects between 2009 and 2011.

Latest figures show that there has been an 11.1% increase in Dubai visitors to 5.58 million with hospitality revenues up by 18.6% to an impressive US$ 3.17 billion. All indicators are heading north including hotel occupancy up from 81.8% to 84.6% – this despite a jump in inventory with sixteen new hotel establishments opening in the past year increasing the number of rooms available to 81.5k.

The week started with a formal announcement from Arabtec Holdings that it had raised US$ 654 million in a rights issue to double its equity. The 1.56 billion shares will have an issue price of US$ 0.41 (compared to its opening price on Sunday of US$ 0.61). It is expected that the money will be used to help with the company’s regional growth plan which has already seen 2013 orders of US$ 3.54 billion. The company may tap into the bond market later in the year to raise further finance.

Emaar Properties announced a 9.9% increase in Q2 profits to US$ 184 million on a 47.6% surge in revenue to US$ 845 million, compared to the same quarter in 2012. Its Dubai H1 sales of US$ 1.72 billion were four times higher than in the previous year but profit of US$ 335 million  was less than 1% up on last year’s comparative figures. 45% of revenue (US$ 634 million) came from its hospitality and retail business.

One of Russia’s largest energy providers, Lukoil, is planning to move its head office from Moscow to Dubai in the near future. It is expected that up to 400 employees will make the move – a further indication of how the emirate is becoming a focal point for major players in the energy sector.

No surprise to see that Dubai International Airport recorded a 17.5% increase in June traffic to 5.54 million with the H1 total hitting 32.6 million – an increase of 16.9% over 2012 returns. Despite a slowdown in world trade, cargo figures also headed north with a 10.2% H1 hike to 1.2 million tonnes. Since the start of the year, the facility has seen the introduction of 84 new services to 25 destinations.

With lower cargo volumes in Asia, Africa and Europe, DP World reported a 5.7% decline in H1 container volumes, handling 12.8 million 20’ equivalent units, compared to 13.6 million TEUs in the same period of 2012. The world’s third biggest port operator remains upbeat for the rest of the year.

Dubai-based Adenium Capital, has doubled its solar portfolio by buying an Italian 24 MW solar farm in partnership with ForVEI. The company, that deals in renewable energy investments in Japan, Italy and Jordan, reportedly paid US$ 69.1 million for their new asset.

Following last week’s reports that Etisalat was in exclusive talks to acquire the 53% shareholding of the French operator Vivendi in Maroc Telecom for around US$ 5.1 billion, the telecoms provider is reportedly showing interest in Pakistani firm Warid Telecom. Warid, currently owned by The Abu Dhabi Group, is the smallest of that country’s five operators, and would probably sell for around US$ 1 billion.

Emirates Central Cooling Systems Corporation, a JV between Dewa and Tecom, is building the first green district cooling plant in the region. Empower have awarded Transgulf a US$ 42.2 million contract to build the facility, with a capacity of 45k Refrigeration Tonnes, in Business Bay.

Joyalukkas, the locally based jewellery trader, is planning an 18% increase in outlets to one hundred, covering ten countries. The company currently employs 6,000 and has expansion plans for its money exchanges.

The “Dress One Million Children” campaign, initiated by HH Sheikh Mohammed bin Rashid Al Maktoum, was extended after meeting its initial target of US$ 10.9 million. This week, it reached US$ 16.3 million which has now doubled by the fact that the Dubai ruler donated a similar amount. The end result is that children in forty six countries will benefit from the largesse of the Dubai community.

The Dubai Financial Market Index had another hectic week closing 3.0% up at 2595 after a Sunday opening of 2519 points. In what is usually a tranquil period for the market, July’s trading saw the Index start the month on 2221 and close 16.6% up at 2589. Over the past year, the market has been on fire and is 67.3% up (2589 to 1548) compared to the comparatively minor gains of FTSE 100 – 15.9% (6621 to 5712), S&P 500 – 21.7% (1686 to 1385) and All Ords – 17.4% (5036 to 4289).

The IMF has indicated that it expects the US economy to grow at a slower than expected rate in Q2 following a lacklustre 1.8% return in Q1. This comes despite the fact that house prices have been on the up and unemployment levels begun to drop. However, consumer spending, which accounts for 66% of US economic activity, has slowed down reflected in poor June retail sales figures.

The world body has also come out with concerns about the Chinese economy especially in relation to government debt (both central and regional) which stands at a worrying 45% of the country’s GDP. Even the government is concerned so much so that it has called for an urgent audit of all its debt which is measured in trillions of dollars. In addition, Moody’s Investor Services claims that the country’s shadow banking sector, at an estimated US$ 4.7 trillion, may be as high as 55% of GDP. However, China still holds a massive US$ 3.5 trillion in mainly US$ foreign reserves.

If China has a debt problem, what about Japan? The world’s third biggest economy has a debt level which is estimated to reach 230% of its GDP by 2014. The country should be wary of Abenomics which encourages more government spending and drastic monetary easing to lift Japan out of its long-standing deflationary era.

The Indian rupee continues to fall and on Wednesday it was at 61.17 to the US$. Authorities are trying – with little success – to revert its downward trend by introducing stop-gap measures such as expanding the gold duty, moving up short-term interest rates and pushing up fuel prices.  Despite these efforts, the outlook is more of the same which will be good news for the NRIs remitting money home – but not for the long-term good of the Indian economy.

In Europe, the outlook is still bleak for the PIGS and certain other EU countries. However, there are some economists who consider certain former Iron Curtain countries to be possible hotspots for increased economic growth as they strive to catch up with their western neighbours. Interestingly, Poland is the only EU country to have escaped any recession whilst Russia is expecting 2013 growth in excess of 2%.

Barclays, the mis-selling bank, having already provided for US$ 4 billion mis-selling payment protection insurance and US$ 1.3 billion for mis-selling swap products, has set aside a further US$ 3.0 billion to cover future claims. This comes after the troubled bank has been hit with recent fines of US$ 460 million for manipulating US energy prices and US$ 444 for its role in the Libor rate-fixing scandal. To further add to its woes, the bank is being investigated by the UK’s Serious Fraud Squad relating to Qatar Holding’s US$ 8.1 billion 2008 investment, that helped the bank avoid a government bailout.

Another bank facing the wrath of the regulators is Credit Suisse. The UK’s Financial Services Authority fined the financial institution US$ 9.1 million for exposing some of its customers, who invested more than US$ 1.5 billion,  to an unacceptable risk, when selling them Scarps (structured capital at risk products).

Not to be outdone, JP Morgan Chase have settled with the US authorities and agreed to pay a fine of US$ 410 million for its alleged power market manipulation – slightly less than Barclays penalty.

Long gone have the days when banks did what banks were supposed to do – taking in deposits and lending out to customers. Nowadays it seems much of  their work is done in the twilight zone carrying out risky business transactions and shonky deals. In some cases, their simple message to the regulators is – Catch Us If You Can!

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Heart of Gold

Posted on July 28, 2013 by howesdubai

titanic-dubaiJust as one famous ocean-going liner, the QE2, leaves these shores, there are plans to bring another one to Dubai. Australian business tycoon, Clive Palmer, is to build an exact replica of the Titanic – with work commencing soon at the Chinese shipyard, CSC Jinling. If all goes to plan, it could be ready to sail to Dubai sometime in 2016.

After a relatively slow start, the world’s first purpose built maritime city will see at least fifteen mixed-use tower buildings ready within the next four years. Dubai Maritime City, which covers an area of 2.27 million sq mt and is located between the Dry Docks and Port Rashid, , will include a range of hotels ranging from budget to luxury 6 star as well as the usual mix of residential, retail and commercial.

Q2 data indicates that Dubai’s economy is steaming ahead at a faster pace than first expected with its GDP surging 4.7% compared to 4.1% in Q1. Most sectors showed growth as the emirate continues in efforts to ease its reliance on oil which now only contributes 12 % to Dubai’s budget – compared to trade (28%), manufacturing (16%), financial enterprises (14%), real estate (13%) and construction (8%).

Three of Dubai’s leading banks reported second quarter earnings. Emirates NBD defied market expectations by posting a massive 50.2% increase in Q2 profits to US$ 264.9 million at the same time as it recorded an impairment provision of US$ 271.7 million. However, it still has an outstanding repayment of US$ 1.31 billion to the federal government – the balance of the US$ 3.43 billion support received at the time of the GFC.

Commercial Bank of Dubai had a 2.3% rise in H1 profit to US$ 135.4 million on operating income of US$ 267.8 million, of which net interest income of US$ 189.1 million  accounted for 70.6% of the total, and non-interest of US$ 78.7 million. During the period, it made impairment allowances of a further US$ 55.9 million on its non-performing loan balances.

Mashreq, controlled by the Al Ghurair family, showed a 25.6% jump in Q2 profits to US$ 109.7 million as its net loans and advances increased by 10.9% to US$ 12.9 billion.

Mortgage lender Tamweel got in on the act reporting a 40.4% hike in profit to US$ 7.1 million. The company is due to delist from the Dubai Financial Market as Dubai Islamic Bank becomes its 100% owner.

Further impressive Q2 results came from Dubai-based logistics firm, Aramex announcing an 11.9% surge in quarterly profits to US$ 19.7 million compared to the same period in 2012. Revenue jumped 8.8% to US$ 230.2 million as it continues its two-prong expansion strategy in the region and Africa.

With assets of US$ 10.6 billion and net debt of US$ 2.3 billion at the end of June, Majid Al Futtaim Holdings reported a 10% rise in H1 revenue to US$ 3.1 billion resulting in an operating profit of US$ 436 million. It is expected that Dubai’s leading property developer will shortly issue a perpetual hybrid security to partially fund its recent purchase of a 25% minority stake in MAF Hypermarkets from the Carrefour Group.

DP World lost a court battle with the UK tax authorities over an “elaborate trick” by the then independent P & O to reduce its 2004 tax bill. The Dubai-based global port authority now has to pay a US$ 21.4 million tax bill plus, one assumes, legal fees.

As already mentioned in a previous blog,  Etisalat is in the final stages of acquiring the 53% shareholding of the French operator Vivendi in Maroc Telecom for around US$ 5.1 billion. Earlier, Qatar’s Ooredoo had shown interest in the Moroccan venture but is now out of contention.

Meanwhile the UAE telecoms operator has reported a 20% jump in Q2 revenue at US$ 2.7 billion and a smaller 9% rise in profit to US$ 537 million. Almost 64% of the company’s revenue (US$ 1.72 billion) emanated from the local market – 12 % up on the same quarter in 2012.

Du, the other provider, recorded a 12.2% increase in Q2 revenue to US$ 725 million with an H1 total of US$ 1.44 billion. After paying a royalty fee of US$ 82.8 million, it returned a net profit of US$ 129 million – up 45.4% on Q2 2012. The company also declared a US$ 0.0272 dividend amounting to a total of US$ 272 million.

Growing confidence in Dubai is reflected in the fact that even bank lending has begun to improve with news, that in the first four months of the year, total credit extended to residents jumped by US$ 6.3 billion to US$ 228.8 billion. 69.5% of this total (US$ 159.0 billion) was attributable to the private sector with government loans creeping up to US$ 33.3 billion.

Rather surprisingly, official figures put Dubai’s inflation rate at a paltry 0.66%. Whether this reflects reality is open to some conjecture when most expenses – including rents and education – continue to surge.

HE Sultan Al Mansouri, the federal Minister of Economy, has hinted that there will be a new Commercial Companies Law introduced by the end of this year. If implemented, it will replace the existing 1984 law and the long-awaited updated version will be welcomed by most of the business community.

The Dubai Financial Market General Index had a relatively quiet week closing on Thursday at 2519 points – up 0.9% on its Sunday opening of 2496. The Index has been heading north for some time starting the year at 1623 and rising in Q1 by 12.7% to 1829 and by a further 21.5% to 2223 at the end of June. The end result is that there has been a 13.3% increase this month, 61.82% growth so far in 2013 and an even better 74.96% over the past year. The increased trading has seen the bourse’s Q2 income jump a staggering 581% to US$ 18.9 million on revenues of US$ 30.7 million and a quarterly trade of US$ 10.4 billion. It is expected that similar growth patterns will be the norm for the rest of the year.

Two Dubai residents, Dhia Jafar and Omar Nabulsi, have been implicated for alleged insider trading involving Onyx Pharmaceuticals. The US SEC filed a lawsuit earlier in the month against unnamed plaintiffs who were alleged to have made a quick profit of US$ 4.6 million on an investment of just US$ 305k as its shares rose 51% in one day – 30 June 2013 – after it had rejected a takeover bid from Amgen and declared it would put itself up for sale. The two gentlemen allegedly made profits of US$ 2.33 million and US$ 200k respectively.

A week after the SEC filed civil charges against Steve Cohen, founder of SAC Capital and estimated to be worth US$ 8 billion, the US authorities have launched criminal charges relating to four counts of securities fraud and one of wire fraud against the company. It is alleged that the Wall St hedge fund, that once managed US$ 15 billion of assets, was involved in systematic insider trading resulting in hundreds of millions of dollars in illegal profits over a period of eleven years to 2010. Four employees have been charged – two of whom have already pleaded guilty.

Also in the US, prosecutors are following up on what has become the country’s largest ever hacking and data breach violation. The case involves the theft of a staggering 160 million credit cards by a gang of four Russians and one Ukrainian from a number of high profile companies including Heartland Payment Systems, Carrefour and 7-Eleven. The scam resulted in stolen credit cards being sold on to criminal gangs globally for amounts of between US$ 15 and US$ 150 each. Three of the companies involved have already reported losses of US$ 300 million.

Halliburton must be one lucky company having escaped this week with a nominal US$ 200k fine, after pleading guilty to deleting detailed evidence following the 2010 Gulf of Mexico oil spill. The company was BP’s cement contractor on the Macondo well that exploded, killing three, and created the biggest environmental disaster in US history. The oilfield service company and BP have blamed each other for the disaster.

The newly appointed Archbishop of Canterbury, Justin Welby, went to war this week on Wonga and threatened to put the company out of business because of their nefarious business practices. Unfortunately, he found out next day that the Church , with over US$ 8 billion in investments, had interests in the payday lender. One would think that it would be better all round if he put his own house in order before embarking on such crusades. No doubt the likes of Paddy Power, MacDonalds and Coca Cola will be future targets for the ex-Shell Oil executive.

On the accounting front, radical new UK measures are to be introduced which will see the big four audit firms – Deloitte, Ernst & Young, KPMG and PwC – losing some of their clout. Expected is a tougher stance with a move to stop the banks’ insistence of auditing by one of the Big 4 as a requirement for loans to companies and a ban on certain companies and institutions allowing only the Big 4 to apply for audit work. This follows concerns that the four firms – who audit 90% of country’s leading 350 listed companies – were too dominant and often not acting in the owners’ interests.

Who would have thought that Motor City, and the home of Tamla Motown, would have to file for bankruptcy after decades of corruption, mismanagement and economic decay? Detroit, the largest US city in history to go bust, has stopped payments on some of its US$ 18.5 billion of debts – with a repayment bill equivalent to 38% of city revenue – due to rise to an incredible 65% within three years! In a city of 700,000, the population will continue to fall as residents leave because of a burgeoning crime rate along with reduced city services and policing and 78,000 derelict buildings.

UK Q2 data indicates that the country’s recovery is moving at a quicker rate than expected with GDP up 0.6% – the best quarterly return in two years. However, any recovery is bound to be fragile and, it will be interesting to see how the incoming Mark Carney manages the Bank of England’s strategy in dealing with what is still a very weak economy that is almost 4% below its pre-GFC peak.

Despite some better news out of the eurozone, the bloc is still the main lagging factor holding back global recovery. Whilst record unemployment levels continue to head northwards, consumer confidence remains in tatters and social unrest simmers, the reality is that it will take a lot more positive news for the eurozone to move out of its stubborn recession into a state of expansion.

There are very few places in the world where citizens are paid to lose weight. In the US you may be awarded with a free burger, in the UK a certificate but only in Dubai will you be paid in gold. Open to any resident, “Your Weight in Gold” scheme will see participants receive a gram of gold for each kilogram lost before the final weigh-in on 16 August 2013. It is hoped that such initiatives will help reduce the high levels of obesity, which often result in heart problems and diabetes, caused by poor diet and lack of exercise.  Dubai indeed has a Heart of Gold!

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I Believe in Miracles

Posted on July 22, 2013 by howesdubai

JBR-The-Walk-DubaiThe bounce back in local real estate can be gleaned from the fact that Dubai Land Department recorded a 30% surge in H1 business transactions, reaching US$ 29.4 billion. There was an even larger amount in the number of properties involved – up 60.8% to 30,469 units. As indicated in previous blogs, almost 75% of all transactions were for cash but only accounting for 48.9% or US$ 14.4 billion in total value.

Dubai Properties Group has announced plans to enhance The Walk at JBR with the addition of a Beach Club. This busy tourist thoroughfare had over ten million visitors last year and is slated to see increased numbers in 2013. One downside – especially for JBR residents – is accessibility, with on-going infrastructure work, including the Al Sufouh tram development, and high traffic volume.

Sheikh Ahmed bin Saeed Al Maktoum, President of Dubai Civil Aviation Authority, is confident that the emirate’s airport will serve 75 million passengers by 2015 – then making it the busiest and biggest international airport in the world. Having already seen 21.9 million passengers in the first four months of 2013, it seems likely that it will reach a record 66 million by year end. A US$ 7.8 billion capital expansion plan will see its capacity increase to 100 million by the end of the decade.

The next part of the expansion will be Concourse D, close to Terminal 1, which covers 65k sq mt and will be able to deal with 18 million passengers a year. It will service 100 international airlines and will be linked to Terminal 1 by an elevated rail system. To maximise revenue potential, Dubai Airports is inviting bids from interested parties who wish to open retail and food outlets.

However, Terminal 3 is no longer the world’s biggest building having just lost that accolade to the New Century Global Centre in Chengdu. The Chinese water park – at 1.7 million sq mt – has a floor space 0.2 million sq mt larger than T3.

Meanwhile Emirates SkyCargo – with its Boeing fleet of eight 777Fs and two 747-400ERFs – has announced that it will move its operations from Dubai International to the new Al Maktoum International as from May 2014. The new terminal will have initial annual capacity of some 700k tonnes. As cargo from its passenger operated flights will remain as is, there will be dedicated road feeder services between the two facilities. Oh for a rail service to take some of the trucks off the roads!

Further good news for the emirate was the signing of an agreement between Dubai Industrial City and Etihad Rail to build a terminal as part of the second phase of its development that will connect all UAE’s major cities and logistic hubs. This will be a huge boost for DIC that would see it linked with all the country’s major ports – Khalifa, Jebel Ali, Fujairah and Mussafah – and other major regional centres.

Reports indicate that DP World is in JV negotiations with the Maldivian government to establish an international port in Male. In bipartisan talks with HH Sheikh Mohammed bin Rashid Al Maktoum, the island’s president, Mohamed Waheed Hassan, also discussed assistance with setting up a financial hub and developing both e-government services and the health sector.

It is estimated that Nakheel has received at least US$ 8 million government support since its near 2008 implosion following the GFC. It has a reported current development pipeline of over US$ 2.2 billion and has managed to deliver 65% of the 9,300 units that were on its books at the time of its August 2011 restructuring. With the turnaround in the realty sector and increased building activity, the company’s US$ 1.16 billion sukuk has become one of the best performing Islamic debt paper, yielding nearly 10%.

Yet another international hotel chain sees the benefits of setting up operations in Dubai. This time, Thai-based Minor International expects its Anantara Palm Jumeirah to be completed by year end.

Local developer, Abdulsalam Al Rafi Group, has secured a US$ 245 million club loan to finance the Burj Al Salam Towers being built on Sheikh Zayed Road. One of the three towers will be a Starwood hotel and the other two will be commercial and residential. The deal was put together by Dubai’s largest bank, Emirates NBD, in conjunction with First Gulf Bank.

With 3,000 camels, producing 1.8 million litres of milk a year, and a 100% growth in revenue, Dubai-based Emirates Industry for Camel Milk & Products cannot keep up with demand. Products include milk, cheese, whey powder and chocolate and the company has just begun exports into Europe.

A case in the Dubai Criminal Court shows how naïve some people are. An American woman, living in Ghana, has been allegedly duped out of US$ 1.1 million by a scam involving two Nigerians and a Jordanian. The three have been accused of forging the signatures of the seven UAE rulers, on a fake US$ 80 million gold loan contract, in a “deal” with the federal government.

The Dubai Gold and Commodities Exchange witnessed H1 contract volumes more than double to 7.72 million totalling US$ 268.85 billion, up 112% on last year. Currency contracts accounted for the major part of the business with the Indian rupee again dominating the market with 90.2% (or US$ 242.5 billion) of total trades. This week again saw that currency hovering at near historic lows of 60 to US$1.

The Dubai Financial Market General Index had another bouyant week closing on Thursday at 2496 points  – up   4.3% on its Sunday opening of 2392. Bellwether stocks, Emaar Properties and Arabtec, continue heading northwards ending on US$ 1.59 and  US$ o.61 respectively. So far this year the Index has risen by 60.34% and over the past 52 weeks an impressive 69.40%.

As Australia’s economy continues at a slower growth pace, it seems that their weaker dollar – which has fallen some 13% in the past two months – may help both the trade and tourism sectors, as its mining boom starts to peter out. It does seem likely that there will be a further rate cut to maybe 2.5% at the next RBA meeting – hopefully further help for an under-performing economy.

Despite H1 retail sales up by 13.4%, fixed asset sales by 20.1% and industrial production by 8.9%, there has been a slowdown in the Chinese economy with Q2 growth down to 7.5%, compared to 7.7% in Q1. This is the sixth straight quarter that growth levels have been below 8% and there are forecasts that next year this may drop to below 7%. However, foreign direct investment into the country rose by 4.9% to US$ 62 billion in H1.

Yet another financial scandal has emanated from China – this time involving GlaxoSmithKline. The UK-based drugs manufacturer has been accused of transferring US$ 486 million in bribes to various sections of the medical profession and government officials.

Scarcely a week goes by without a further bank scandal. In the US, Barclays and four staff members have been fined  US$ 488 million for manipulating energy markets, mainly in California, Arizona, Oregon and Washington. The bank is appealing the verdict.

A further sign of a slowdown in the US economy came with June retail sales figures which came in at lower than expected. Analysts, looking at an 0.8% jump, were disappointed to see a figure half that amount. This may mean that Ben Bernanke will not be so quick to phase out his monetary stimulus package.

Fitch Ratings lowered France’s credit rating to AA and expects to see the country’s government debt at 96% of GDP. Despite this, its budget to GDP – at 4% – is still well above the European limit set at 3%. A further problem that needs urgent attention is the country’s state pension fund which will have a deficit of US$ 27 billion by 2020, if no action is taken.

Both the Spanish and French governments continue to believe in fairy tales. This week, the Spanish Economy Minister, Luis de Guindos, has declared that the Spanish recession is over. Somebody should remind him that in Q1, the economy shrank for the sixth straight quarter by 0.5% and that unemployment levels of 27% show little sign of early improvement. Likewise, French President, Francois Hollande has again asserted that recovery has started despite continued recession, high unemployment and proposed cuts of US$ 18.2 billion in state expenditure, in a vain attempt to balance his ballooning budget.

Also in the news this week are Dr Montaser Al Mansouri and Sepp Blatter. The former is probably this country’s most celebrated illusionist who is hoping to make the world’s tallest building, Burj Khalifa, disappear later in the year. The other is an illusionist who is famous for moving the goalposts – this time, he has finally decided, following further medical information, that it will be too hot to have the 2022 Qatar FIFA World Cup played in summer!

To Messrs de Guindos, Hollande, Al Mansouri and Blatter – I Believe in Miracles!

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Here, There and Everywhere

Posted on July 19, 2013 by howesdubai

tiger-woods-burj-al-arabThe 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.

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Reason To Believe

Posted on July 11, 2013 by howesdubai

ittihad-bridge-dubaiThe 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.

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I Can See Clearly Now

Posted on June 28, 2013 by howesdubai

burj-khalifa-street-viewMay 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 25th 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 19th 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). 

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Against The Wind

Posted on June 16, 2013 by howesdubai

cayan-tower-dubaiHH 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 174th 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.

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Shelter From The Storm

Posted on June 10, 2013 by howesdubai

Emirates-Read-MadridThe 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 5th 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 17th 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.

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The Gambler

Posted on June 5, 2013 by howesdubai

Dubai-Festival-CityAs 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 24th 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.

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