Leader of the Pack

Posted on September 1, 2012 by howesdubai

A great start to the week with the news that HH Sheikh Mohammed bin Rashid Al Maktoum had won the World Endurance Championship beating 150 riders from 38 countries over a distance of 160km; furthermore the UAE retained the team championship title. He added that the victory was a reflection of the country’s ability to remain ahead of the game and how right he is. One just has to look at what is happening in other parts of the world to witness the benefits of decisive and visionary leadership that is Dubai’s hallmark.

Despite the global economic downturn, Dubai has managed to buck the trend and post steady economic progress as shown by H1 figures released by Dubai Customs indicating a 12% growth in trade to US$ 163 billion. The top five  nations – accounting for 37% of Dubai’s overall trade – were India (13% of the total or US$ 21.0 billion), China (9% or US$ 14.4 billion), USA (6% or US$ 9.8 billion), Switzerland (5% or US$ 8.7 billion) and Saudi Arabia (4% or US$ 6.3 billion). It is no surprise to see that the City of Gold has that metal as its most valuable trade, with a value of US$ 16 billion.

Likewise luxury car sales are booming in Dubai due to a combination of an influx of super-rich residents, many fleeing the troubles of the Arab Spring, and increasing consumer confidence. BMW Group Middle East has seen a 13% rise in H1 sales with over half of the total from the UAE.  Rolls-Royce saw its sales rise 22% in the first half of the year across the region. Bentley sold 346 cars in H1, up from 234 in the same period last year, whilst their Dubai-based agent, Habtoor Motors, expect sales to double this year making this the German car company’s second largest market after China.

This surging confidence in Dubai is almost palpable and is also mirrored in the growing maturity of the realty sector with the latest figures from the Government’s Real Estate Appraisal Centre. During H1 – and at specific owners’ requests – it had valued almost 1,100 properties totalling US$ 11.4 billion. Year on year these figures were 3% down in numbers with a 28% decrease in value. An average 10% increase in the value of Dubai land is further evidence of stabilisation in the local market.

It is not only land prices heading north but also building costs partly because of increased activity in Qatar, even thought the FIFA World Cup is still a decade away, and an infrastructure boom in neighbouring Saudi Arabia (where costs have rocketed 13% in a year).This surge in demand has added increased pressure on capacity impacting on the UAE where annual costs are up by 8%. Current estimated costs for apartment buildings range from US$ 1,450 to US$ 2,850 whilst premium offices come in at between US$ 1,750 and US$ 3,700 per sq mt.

In Dubai Marina, Elite Residence is set to open its 700 new apartments. Standing at 381 metres, the 91-storey monolith becomes the world’s third highest residential tower – Dubai now boasts the planet’s four such highest buildings. (This does not include the 828 metre tall Burj Khalifa which has offices and a hotel in addition to its apartments).

In addition, Meraas Holding has been commissioned to construct a 1 kilometre stretch of shops and restaurants on the already iconic – and congested – Jumeirah Beach Residence. The proposed interactive retail and leisure area will further enhance JBR and is hoped to be completed within 18 months. Will the consultants also incorporate features that will alleviate the current traffic problems?

As a matter of interest, a recent report by Expedia has ranked 650 of the most luxurious hotels in the world, three of which are to be found in JBR – Sofitel, Movenpick and Hilton.

In addition, Meydan, better known for its horse racing, has just launched Meydan Beach situated in JBR. As the only stand-alone beach facility in that location, it has two infinity pools, a chill out lounge, spa, gym and the renowned Milanese restaurant, Giannino. This will prove a favourite attraction for both residents as well as visitors to Meydan’s two inland hotels – Meydan City and Bab Al Shams Desert Resort and Spa.

Although final figures have yet to be published, it would appear that the hospitality sector did roaring business especially over the Eid period. Unsurprisingly, the majority of visitors were from the GCC with half of that figure from Saudi Arabia. No doubt troubles in destinations such as Egypt, Lebanon and Syria resulted in increased business for Dubai.

In line with the hospitality sector, all flights arriving to Dubai were almost at capacity. Although August growth was impressive throughout the region, Dubai was the major winner with a 12% increase (2,700 flights) and almost 800,000 additional seats (or 14%) compared to the same month in 2011. (In comparison, latest statistics show 21,400 fewer flights – or 950,000 seats – in the USA).

On the corporate front, good news for the local Dodsal Group which has just been awarded a US$ 450 million contract to build 300 km long pipelines for an Abu Dhabi processing plant.

This week saw a special Dubai court formally approve the US$ 2.2 billion restructuring of Drydocks World after agreement from nearly 98% of creditors. Most of the restructured loans were for funding of their 2007 expansion plans in the Far East.

A related company, DP World, announced a 12% H2 jump in profits to US$ 310 million (including profit on the sale of its Australian portfolio) following a 10% increase in Revenue to US$ 1.52 billion.  As one of the largest ports operators in the world, it will be adversely affected by the expected downturn in world trade. The company is one of only two companies listed on Nasdaq Dubai where its shares are currently trading at US$ 10.2.

The other local bourse, The Dubai Financial Market, has had a quiet week down 39 points to 1548. Despite this week’s fall, the market is 14.4% up on the year – another reflection of the growing confidence in the market.

(This Index is a capitalization weighted price index comprising stocks of listed companies, whose primary listings debuted on DFM on or after 01 January 2004 with the then base index value of 1000).

Two other local entities managed to divest some of their assets this week. The Varkey Group (along with GEC), with under 50% of shares in Dubai’s biggest private health care provider, were bought out by the majority investor, Mediclinic. The acquisition figure, paid by the South African hospital group for full control of Emirates Healthcare, was reportedly around US$ 220 million. Also the private equity arm of Dubai Holding, DIC, has sold its stake in a US$ 300 million MENA infrastructure fund to Fajr Capital.

The contagion effect of the eurozone crisis has been felt by Dubai Group as it sees its 2006 investment in Cyprus Popular Bank being diluted and ravaged by a falling share value from an October 2007 high of Euro 8.47 to Euro 0.04.

Another feature of Dubai is the constant and incessant use of the mobile phone so it comes as no surprise to learn that it has one of the highest mobile penetration ratios (155%) in the world. Consequently, last year, the UAE’s two telecom providers, Etisalat and Du, received over three quarters of their total income (or US$ 5.4 billion) from the country’s 12.7 million mobile phone subscribers.

The Dubai-owned oil company, Enoc, makes huge losses every year as the prices it can charge are capped by the government. Petrol continues to be subsidised to the tune of US$ 1.5 billion as current federal legislation dictates that petrol has to be sold at subsidised prices (currently at US$0.46 per litre). Unlike Abu Dhabi, which has a plentiful supply of crude, Dubai has to buy from the international market and at prices of over US$ 100 per barrel, it is hurting! Maybe if the price dropped by 50%, the company may break even. This week, the company announced a JV with Aldrees Petroleum to build 40 petrol stations in Saudi Arabia and this may help future cash flow.

With Saudi Arabia accounting for 50% of the US weapon sales to the GCC in 2011, what can be made of this tripling in value to an astounding US$ 66.3 billion? At least it can be seen to be helping the US economy which is teetering on the edge of a major recession.

Of more immediate concern is the continuing eurozone debacle with the 17-country pact heading for deeper recession. Greece is anxiously awaiting a favourable report from the troika (EC, ECB and IMF) in the forlorn hope it can continue accessing US$ 42 billion funds from the second phase of a US$ 183 billion bailout package. Its call for more time to implement tax hikes and introduce budget cuts seems to have fallen on deaf German and French ears.

In the wings, Spain is trying to avoid the inevitable but it remains firmly in the spotlight with mounting economic problems none moreso than its chronic unemployment rates. Its full unemployment rate at 24.3% and,for under 25s, at 51.5% are way above the EU averages of 10.3% and 22.4%. Only five years ago the number of unemployed stood at 8.5%!

Latest data indicates that the country’s economic output dipped again for the fourth straight quarter and the recession is worse than first thought. No wonder then that in July, their citizens withdrew record amounts of money from the banking system with deposits falling 5% in the month and that there was a 25% fall in residential mortgages.

One survey after another indicates that the world economy is deteriorating faster than first expected. Much of the cause can be put down to indecisive action by decision-makers who have turned procrastination into an art form. Two thousand years ago, Rome burnt whilst Nero fiddled – nothing much has changed!  A lot can be said of the benefits of having perceptive leadership, which is not afraid of making quick decisions. If only some of the world’s vacillating politicians and bureaucrats could learn from the actions of the  Dubai ruler – a true leader of the pack!

Posted in Finance | Leave a comment

Isn’t Life Strange?

Posted on August 25, 2012 by howesdubai

Isn’t life strange? In a recent survey, little Dubai has vanquished the likes of Vienna, Vancouver and Venice to be ranked the 10th city in the world for quality of life and its13th most important city? No wonder it is the front runner to host the 2020 World Expo.

With the Eid Al Fitr holiday now behind us, Dubai is still recovering from the massive influx of visitors, an increasing number of whom have been from Saudi Arabia. There is no doubt that the emirate is still benefitting from the Arab Spring that has seen tourists coming here rather than to troubled areas such as Lebanon, Egypt and Syria.

Many hotels have seen 90%+ occupancy rates with revenues that will surpass those reported last year. Although the Ramadan figures were apparently slightly down, Dubai has already witnessed a record number of tourists in 2012 that is expected to exceed over 10 million visitors by the end of the year.

Not only will Dubai will host the prestigious World Energy Forum 2012 in October, it will also be the venue for the 12th Forbes Global CEO Conference. This will be the first time that the convention has been held in the region and will be attended by over 400 global CEOs and entrepreneurs. Such high profile events – along with the regular seasonal exhibitions and conferences – will ensure that local hotels will continue with their high occupancies.

Having lost the management of both the Al Manzil and Qamardeen in Q2, the South African operator, Southern Sun, is hoping for a quick return to the Dubai market. It has announced that it expects to have formally signed a management agreement with a local developer by the end of 2012.

In comparison to the booming local hospitality sector, Dubai has not fared as well with at least two of its overseas acquisitions – Travelodge and Jumeirah Essex House. The former, a UK budget hotel chain, was bought by Dubai Investment Capital in 2006 for over US$ 1 billion and now a US$ 1 billion debt restructuring agreement has been confirmed giving the lenders, including Avenue Capital and Golden Tree Asset Management, control of the business and handing the Dubai owners a substantial loss.

Meanwhile, in New York, the Jumeirah Essex House Hotel, purchased in 2005 for US$ 420 million, plus a reported subsequent US$ 90 million refurbishment, has been sold to Strategic Hotels & Resorts for US$ 375 million. Assuming its value had already been written down, this will have no effect on their balance sheet and will be a welcome cash flow boost.

On the subject of losing money, the banking scandals continue unabated with US authorities now actively pursuing the much troubled Royal Bank of Scotland and Commerzbank over their possible violations of Iranian sanctions. RBS has already officially indicated that it may face “a material impact” on possible non-compliance. To add to their woes, the bank is being investigated – along with several more – over their participation in the Libor rate rigging debacle. Considering that Barclays has already been fined US$ 460 million (for their role in the Libor scandal) and Standard Chartered US$ 350 million (for their “Iranian activities”), it seems inevitable that this financial institution will be hit with hefty fines. Unfortunately, British taxpayers, who own 82% of this bank – if it can be called a bank – will be picking up the bill! (The German taxpayer will be better off as they only own 25% of Commerzbank).

The surprising fact to emerge is that four banks, Barclays, Lloyds, Credit Suisse and ING, have already taken their punishment and have settled with fines amounting to US$ 1.8 billion. (If the fines are anything to go by, these four banks must have been bigger sinners than Standard Chartered that had been reportedly involved in US$ 250 billion worth of prohibited trnsactions). Indeed, in 2010, RBS had already paid out US$ 500 million to settle similar claims against the Dutch Bank, ABN Ambo, which they had bought in the halcyon days of 2007.

A sign of the times is the opening in Dubai of Australia’s Cash Converters, the world’s largest specialist in the trading of used goods, mainly furniture and white goods. Launched in 1984, it boasts over 600 outlets in 21 countries.

Hopefully it will trade better than Living Social Middle East which has closed its local operations after apparent continuous losses since acquiring the local site, GoNabit, last year. There is no doubt that it was in a very competitive market with at least 20 other on-line sites in the UAE alone.

The Dubai Financial Market Index – opened for only two days because of the Eid holiday – continues to defy gravity posting yet another weekly gain closing 6 points up at 1587. So far this year it has seen an impressive 17.3% gain – a reflection of the growing confidence in the Dubai market.

It is less than ten years since foreign investment was first allowed in Dubai – and then it was for newly-built residential units in selected areas. Now Dubai Investment Park is developing 500,000 sq mt which is set to become the first industrial land – outside the free zones – available for purchase by overseas buyers.

One just has to study what is happening in other places to see that it is no surprise that foreign investors are eying Dubai as a relatively safe haven.

Australia’s BHP Billiton has delayed the opening of its Olympic Dam mine and has just announced a 35% drop in profits and a US$ 3.4 billion write down in its shale gas and nickel assets. Undoubtedly, there are concerns of a slowing global economy and even the Resources Minister, Martin Ferguson, has been quoted as saying that its resources boom is over. (Earlier Rio Tinto, the Anglo-Australian mining giant had announced a 59% profit fall, not helped by a a US$ 9 billion write down in its aluminium operation value).

Preliminary figures from China see a 9 month low in manufacturing activity and a worrying fall in the PMI (Purchasing Manager’s Index) to 47.8. It seems that the government will have to introduce urgent remedial measures to try and arrest this sharp economic slowdown.

In the US, the Congress’s budget office forecasts a 0.5% shrinkage in the GDP if action is not taken by the government and that the country could easily fall back into recession in 2013. With the November election pending, it would seem that deeper economic problems are just around the corner as Congress will be reluctant to do anything until early next year. On the corporate side, HP has declared a whopping Q2 loss of US$ 8.9 billion!

Japan saw an 8.1% fall in its exports and a depressing 25.1% drop in shipments to the EU. The end result was a US$ 6.5 billion July trade deficit coming after a US$ 750 million surplus a month earlier.

In the eurozone, Q3 is forecast to see at least an 0.6% contraction – following a negative 0.2% in Q2. There were declines in both manufacturing and service sectors and the PMI stood at 46.6. Meanwhile Greece is trying to buy more time again as the country endured a 6.2% slide in its Q2 GDP – a minor improvement on Q1’s 6.5% fall. The country remains a basket case and there is little hope for their prime minister, Antonis Samaras, in  trying to convince the likes of Angela Merkel for a little more breathing room.

When Brent Crude (US$ 115), Gold (US$ 1,670) and Silver (US$30) start to show significant hikes, as they have done this week, it is a good indicator that something dramatic is on the cards.

Then when you add the political problems, emanating from the SILLY countries (Syria, Iran, Libya, Lebanon and Yemen), you have all the factors that could be heading the world into the perfect storm.

Finally if you have US$ 1,000 to spend why not visit Bloomsbury’s in Dubai Mall? There you will be able to buy the world’s most expensive cupcake which is coated in edible gold sheets. Isn’t Life Strange?

Posted in Finance | Leave a comment

Ramble On

Posted on August 18, 2012 by howesdubai

Just to show the rest of the world that Dubai is back on track comes the recognition that Tameer’s Princess Tower (standing at 414 metres and covering an area of over 37,000 sq ft) is now the world’s tallest residential building.

Further signs that the real estate sector is beginning to build up a head of steam was the announcement by Nakheel, the government controlled property developer, that it had sold a Palm Jumeirah plot of land – in excess of 300,000 sq ft – to an unnamed local investor for US$ 110 million. The company also reported that plot prices in certain areas of the man-made island had risen by 30% over the last year and that it has recently sold 80 plots at an average price of US$ 2.25 million.

The only glitch on the horizon is an over-abundance of commercial property available in Dubai with there still being a 40% vacancy rate. A further 800,000 sq mt is expected to be added to the inventory in H2 bringing the total amount of Dubai office space to nearly 10 million sq mt. (This is reflected in Emaar Properties’ H1 commercial property revenue falling 40% from US$ 162 million to US$ 32 million).

The Dubai Finacial Market Index reflects the growing confidence with another weekly increase. Starting Sunday at 1572, it finished Thursday trading at 1581 – almost 5% up in August trading. (This is lightly better than Facebook shares now trading at US$ 19 or 50% of their opening price in May).

Drake and Scull came out with disappointing – but not unexpected – earnings results for Q2 with a 49% drop in net profit to US$ 7.1 million mainly because of finance costs from acquisition funding and increased provisions. At the end of June, DSI had an order backlog valued at US$ 2 billion. Meanwhile Arabtec Holding, that had posted a Q2 loss of US$ 3.2 million, announced that it had secured most of the US$ 3 billion bank financing required for the new Abu Dhabi airport contract it won in June, with its Greek and Turkish partners.

Down the road, Dubai airport announced a 16% jump in H1 revenues along with a 14% increase in passenger traffic. Even though there is a US$ 7.8 billion expansion plan for the existing location, it is inevitable that the new Dubai World Central will have to start taking more of the traffic – both passengers and cargo – to relieve the growing congestion at the world’s 4th largest airport (by international passengers) and 6th largest for cargo.

This week saw the refurbished Port Rashid reopen its regional ferry services with resumed services to Iran’s Bandar Lengeh. Apart from servicing the Gulf, the 40 year old port is now the largest cruise terminal in the region. As a result, the tourist sector will receive a boost from the additional visitors arriving by sea.

The holy month of Ramadan is traditionally a boom time for retail outlets and this year is proving to be no exception with many outlets already predicting that revenue will be well up on the corresponding 2011 period. It seems that the increased number of tourists, especially from the GCC countries, will make this a prosperous time for many of Dubai’s shopkeepers. However, it is to be noted that retailers have “lost” over US$ 16 million by agreeing to a Ministry of Economy’s directive to cap prices of around 1,600 products during Ramadan.

It must have been a depressing week for two expatriates. First UK national, Michael Smith, lost his appeal over forging salary transfers of bogus employees – totalling US$ 650k – from Limitless, the indebted property arm of Dubai World. He had been on the run for eight months in Thailand prior to being tracked down in July 2011.

Then American Zach Shahin was detained in Yemen after skipping the country to apparently avoid further legal action in Dubai. The former CEO of Deyaar Developments had been granted bail whilst awaiting trial over four fraud cases involving US$ 80 million. (Meanwhile his ex-company announced that its Q2 net profit had doubled to US$ 5 million with total assets of US$ 1.8 billion).

The UAE continues to assist the US in reducing its burgeoning trade gap by importing US$ 8.7 billion of goods in the first five months of 2012 – up by 50% on a comparative basis. The country continues to be the largest importer of US goods in the Middle East. The 36% rise in 2011 exports (US$ 15.9 billion) will be easily surpassed this year. Last year, UAE exports to the US totalled US$ 2.4 billion, a trade imbalance of US$ 13.5 billion.

The region’s increasing economic importance to the US can also be seen from a 33% growth, to over one thousand, in the number of US businesses setting up here. Obviously there is greater potential for new companies to prosper compared to most other places that are now mostly in recessionary mode. US investors are ranked 7th in the number of residential units bought in H1 – they purchased 415 properties totalling US$ 190 million. (This represented about 3% of the total bought by foreign investors in this period).

Back in the US, the Obama administration heads into the last three months of electioneering with the depressing outlook that the federal budget deficit will hit US$ 1 trillion for the fourth straight year. This amount is equivalent to about 8% of the US economy and is indicative of the long term problems facing the world’s largest market which will experience even bigger problems once the new president is sworn in.

Meanwhile, the Chinese are seeing a slow-down in trade with a minimal 1% export growth in July compared to the same month last year. There are also disturbing signs in sluggish factory output (at its lowest pace in three years), new loans of US$ 85 billion at a 10-month low and faltering demand from two of its largest customers – USA and EU, which showed a 16% drop.

This negative sentiment is felt across the Far East with Taiwan reporting the fifth straight month of declines in exports, Hong Kong’s economy in contraction and Japan expanding a disappointing 0.3% in Q2.

It is clear that consumer spending is fast losing traction and the eurozone crisis continues to have a negative impact on worldwide confidence and demand. The worldwide downturn persists and there is the urgent need for policymakers to take positive action to lift the global economy out of its mire.

Then the various banking scandals will not go away. Standard Chartered have been hit with a US$ 350 million fine by the US regulators for their participation in an apparent money laundering operation involving up to US$ 250 billion! it will be no surprise if we hear more on this in days to come.

The Libor probe saw Barclays fined US$ 450 million in June. Now the same bank, along with six other major players, have received court orders from the  US regulators investigating the fixing interest rates. How many “Get out of Jail” cards that are left for these crooks remains to be seen

Apart from economic and banking woes, maritime accidents and political factors also come into play. This week’s collision involving a US guided missile destroyer in the Strait of Hormuz resulted in a US$ 115 spike in the price of Brent Crude – its highest level since May  The bloody conflict that is is Syria seems to be a never ending tragedy with world leaders continuing to dither. The saber-rattling over Iran gathers momentum. Then there is Lebanon fast becoming a no-go area. Ramble on!

“Political correctness is a doctrine, fostered by a delusional, illogical minority, and rabidly promoted by an unscrupulous mainstream media, which holds forth the proposition that it is entirely possible to pick up a turd by the clean end.” It also allows for the distortion of truth and fact to promote political gain and rationalize all acts to further the cause of those pushing an agenda not shared by the majority.

Posted in Finance | Tagged , , , , , , , , , | Leave a comment

A Sign Of The Times

Posted on August 14, 2012 by howesdubai

A sign of the times that the Dubai economy is continuing to head in the right direction came from the Land Department which reported a 21% increase in H1 transactions to US$ 17.2 billion. With improved demand, especially for properties in certain areas, the market has stabilised and prices have begun to escalate. Of the 19,000 transactions recorded, mortgages accounted for US$ 8 billion or 47% of the total for the period. Overseas buyers generated US$ 7.7 billion of all the business.

Even Dubai Financial Market Company (PJSC) got in on the act by announcing a 140% increase in H1 Net Profit to US$ 11 million on Revenue of US$ 32.3 million. In addition, DFM trading value has rocketed from US$ 6 billion in H1 2011 to US$ 8.8 billion this period. (For the record, the Dubai Financial Market Index ended the week at 1572 up from the Sunday start of 1551).

A recent survey reported that business confidence in the non-oil sector moved marginally higher in June with the only hiccough being a contraction in export orders. This mirrors the current buoyancy in the local economy which has seen many of its indicators heading north whilst most of the world is going in the opposite direction.

Despite this plethora of positive news and the strong corporate results reported last week, Dubai Investments bucked the trend with a disappointing 54% fall in Q2 profits to just over US$ 17 million on Revenue of US$ 172 million (a fall of over 13% from almost US$ 200 million in Q2 2011). The company has assets of US$ 3.7 billion.

June saw a slight drop in the UAE money supply as the amount of local currency in circulation fell 1.3% to US$ 14.4 billion. However when this is added to monetary deposits of US$ 62.9 billion to give money supply aggregate M1 there has been a 1% increase to US$ 77.3 billion. Whilst bank deposits have decreased 1.6% to US$ 301 million, bank loans have risen1.5% to US$ 297 million and total bank assets have nudged upwards to US$ 471 million.

Indeed it seems that the value of remittances being sent home by expatriates is on the increase aided and abetted by  big recent devaluations in some of the currencies (including Pakistani rupee, Indian rupee, sterling, taka and euro). The World Bank estimates that remittances to developed countries will reach US$ 350 billion this year with India (US$ 58 billion), China (US$ 57 billion), Mexico (US$ 24 billion) and Philippines (US$ 23 billion) being the major beneficiaries. The GCC accounts for over 50% – or US$ 48 billion – of all remittances to South Asia and almost 30% – or US$ 36 billion – to the MENA region.

The GFC and the ensuing malaise here in Dubai are now distant memories as the emirate has sorted out its problems. This year, Dubai has about US$ 15 billion in debts maturing which will either be paid off or restructured. The yield on Dubai’s November 2014 Islamic bonds is currently hovering around the 3.25% mark which shows the market’s increasing belief in the emirate’s creditworthiness.

The opposite applies to the eurozone where confidence levels plummeted as the economy slid into deeper trouble and ever-worsening crisis. For example, Spain’s economy contracted for the third quarter in a row and will definitely require additional funds (a lot more than the US$ 120 billion being bandied about) from the European Central Bank.

The other basket cases are faring just as badly as Spain. Greece sees its credit rating dropping from stable to negative as its situation worsens with estimates that its economy next year will shrink a further 11%. The deepening crisis in Italy was highlighted by a Q2 0.7% contraction and a 2.5% year on year fall in its GDP. No wonder there is increasing concern in the markets that Italy will be going down the same road as Greece, Portugal and Spain, particularly since its debt burden represents 123% of GDP.

At the same time, France is expected to fall back into recession in Q2 when figures are announced and this contraction will continue for the rest of the year. More worryingly, Germany’s exports in June fell 1.5% and industrial output by 0.9% with further declines in the manufacturing and construction sectors. Germany is slowly being dragged under by its eurozone partners.

To further exacerbate the problem, the banking sector is bedevilled by a series of unwelcome drawbacks. The Libor scandal, which saw Barclays hit with a US$ 460 million fine, rumbles on with news that US bank, Berkshire, is suing 21 banks for damages over this alleged fraud. The London Interbank Offered Rate is fixed daily by the British Bankers’ Association and sets values on US$ 360 trillion of financial products. The fallout from this is bound to be massive and messy.

There is a good chance that Standard Chartered can join HSBC on the “Walk of Shame” as US regulators claim that the bank hid US$ 250 billion in transactions with Iranian banks. Although much larger than the US$ 16 billion that HSBC allegedly transacted, the modus operandi is similar – systematically disguising forex deals in contravention of US sanctions.

Another finance company in trouble is a leading market-maker on the NYSE. An IT problem last week saw US$ 440 million disappear from the books of Knight Capital. To save itself from going under, the company has had to agree to a US$ 400 million rescue deal with a group of Wall Street firms. Obviously a gold medal for gross ineptitude!

There is no doubt that the London Olympics have been a huge success but one has to question why such an event, that is supposedly promoting healthy living, lists McDonald’s and Coca Cola among its major sponsors.

On the subject of the Olympics, Jose Havelange, IOC member from 1963 – 2011 and former FIFA president , was named as a beneficiary of bribes from ISL, a company granted exclusive marketing and TV rights for the 2002 and 2006 FIFA World Cups. It was revealed that Havelange and his cohort and ex son-in-law, Ricardo Teixeira, received at least US$ 1.5 million and US$12.6 million respectively.

Unfortunately too many individuals are fiddling the system for their own personal greed, too many institutions – banks, media, government officials and politicians – are betraying the trust of their stakeholders and too many leaders are more concerned about their own welfare rather than the good of their country. Maybe it is just a sign of the times in which we live.

Posted in Finance | Tagged , , , , , , | Leave a comment

Should I Stay or Should I Go?

Posted on August 2, 2012 by howesdubai

HH Sheikh Mohammed bin Rashid Al Maktoum started the week off well with a bullish speech about the state of the Dubai economy which appears to have gotten over its problems following the GFC. He contrasted the local economy with all the troubles emanating from the eurozone crisis, flagging global growth and other economic ailments affecting many other countries.

This confidence resonated around the emirate and the mood further improved  as many of the larger companies announced impressive Q2 results with Emaar, Nakheel, Du and Union Properties all coming in above analysts’ estimates.

The turnaround in the real estate sector is highlighted by the progress made by Emaar Properties and Nakheel. The former announced H1 revenue in excess of US$ 1 billion with net profit of US$ 332 million, being 45% higher than this time last year. Meanwhile Nakheel reported H1 revenue up a staggering 112% to US$ 850 million whilst there was a 36.5% increase in half yearly net profit to US$ 210 million.

Du’s Q2 revenue rose 13% to US$ 680 million whilst there was a 57% leap in net profit to nearly US$ 90 million. The company is catching up with its only other rival, Etisalat, and its 5.7 million mobile subscribers represent 46.5% of the total market.

Union Properties has seen a US$ 165 million turnaround in its fortunes from a US$ 142 million loss in Q2 2011 to a current quarterly profit of US$ 23 million. The market is obviously happy with the company’s recent progress as its shares are up over 45% this year.

Dubai Islamic Bank saw a 27% increase in its quarterly net profit to US$ 85 million with an H1 profit of over US$ 150 million. At 30 June, its total assets stood at US$ 25.5 billion with customers’ deposits at US$ 18.5 billion.

Even the Dubai International Financial Centre is getting in on the act announcing that, in 2011, its value of business reached over US$ 3.1 billion and the number of businesses operating increased to over 800. The outlook this year is for improved results and, having been responsible for 3% of Dubai’s growth and 1.4% of the UAE’s non-oil GDP in 2011, it hopes to add even more to the economy this year.

Finally and despite the global downturn, DP World bucked the trend by reporting a 7.5% increase (or 28.2 million TEUs – twenty foot equivalent units) in the volume of containers it handled in H1. The company, with sixty terminals globally, saw the largest growth (12%) in the Far East and the lowest (3.2%) in Europe. Its flagship base, Jebel Ali, handled 6.6 million TEUs – a 7.3% rise over the same period last year. No wonder that Dubai’s recovery was reflected in the latest figures showing a 13.3% rise in H1 exports and re-exports to US$ 37 billion.

Even the local bourse is getting in on the act with the DFM posting a weekly gain of 41 points ending at 1551 and almost 15% up since 01 January.

The feel good factor, resulting from these corporate financial results, was further enhanced by Dubai hotels recording June increases in profit. There was a 50% increase in gross operating profit per available room to US$ 86 and a 10% increase in revenue per available room to US$ 148. These impressive returns are expected to continue for the rest of the year. Interestingly a report on GCC completed construction projects expects that the hotel and hospitality sector will see their project values triple this year to US$ 7.3 billion!

The sector will receive an unexpected boost with Dubai hosting the XVII Annual World Investment Conference in September, being held for the first time in the MENEASA region. Over 500 attendees, representing 250 investment promotion agencies and from over 150 countries, will surely bring smiles to both the hospitality and retails sectors.

One country whose hospitality industry may be hurting (mainly from its ridiculously high exchange rate) is Australia but it may benefit in other areas from two UAE sources. The first was the signing of a nuclear cooperation agreement with a 15 year contract to supply uranium for the UAE’s new atomic power plant. The other news was that the loss-making Qantas Airways confirmed that it was in negotiations with Emirates Airline about a future alliance. No doubt a code sharing arrangement with the world’s largest long-haul carrier will add business and save costs for the world’s second oldest airline.

Emirates hub, Dubai International Airport, witnessed a massive 13.7% H1 increase in traffic to 28 million passengers and a 2.2% rise in cargo to 1.09 million tons. The 4.7 million passengers using the airport in June was 16% up on last year. The airport’s capacity will increase to over 75 million when the new Concourse 3 opens in Q1 2013. The ground facilities will be able to cope with increased demand but what about the air space?

As the international sanctions imposed on Iran begin to bite, its currency has fallen over 30% this year and its trade is grinding to a halt. Consequently, Iranian investment in Dubai reality has fallen 25% in H1 to US$ 410 million from last year’s figure of US$ 520 million. It is reported that the devaluation in the rial has left Dubai traders being owed nearly US$ 300 million by Iranian buyers.

As the eurozone crisis is now in its fourth year, the chances of an effective solution recede by the day as the so-called decision makers dither from one meeting to another. Recent data indicates that the 88.2% ratio of government debt to GDP in the seventeen beleaguered countries is now at historical highs.

The financial markets have seen the writing on the wall for some time and are now turning on Spain, the world’s number 12 economy.  As the country wallows in its third quarter of recession, with no end in sight, unemployment at 25%, youth unemployment at 50%, regional governments declaring bankruptcy and a 10 year bond rate hovering around the 7% level, it will have to join Greece , Ireland and Portugal in seeking a financial bailout.

More disturbing is the fact that depositors are losing confidence and have already withdrawn US$ 200 billion (equating to 16% of the country’s GDP) from Spanish banks in the first five months of the year.

Can it be long before countries like Spain start asking Should I Stay or Should I Go from the eurozone?

Posted in Finance | Leave a comment

Go Your Own Way

Posted on July 29, 2012 by howesdubai

It seems that Dubai is progressing well in its quest to reduce the number of private vehicles on the roads by making its mass transit more accessible to users. Latest figures show that more than 10% of the population now use public transport (up from only 6% two years ago) with over 208 million passengers recorded in H1. Of that number, 94 million used taxis, 54 million public buses, 53 million the metro and 7 million water transport.

Another feather in Dubai’s cap came with the news that it will host the prestigious World Energy Forum 2012 in October. This will be the first time that the convention has not taken place at the UN in New York and will prove to be an eventful period for the emirate’s hotels as attendees will include ministers, ambassadors and other high flying dignitaries.

A recent report has indicated that Dubai has over hotel 11,000 rooms in construction phase which will add to its current inventory of over 75,000 rooms in its 580 listed hotels. These will be sorely needed if the annual growth (23% last year) continues in the same upward trend.

The real estate sector continues to be a harbinger of positive news for the local economy. The value of residential property transactions in H1 was over US$ 1.9 billion of which US$ 1.1 billion related to Q2 activity. An additional 6,100 new units, ready in H2, will bring Dubai’s villa inventory to nearly 65,000 whilst the number of apartments will increase by an additional 12,000 to 414,000 over the same period.

The end of July marks Q2 reporting season for local companies and so far so good. The country’s largest bank, Emirates NBD, came in with H2 profit up a massive 274% to US$ 490 million. The bank’s total assets (US$ 81 billion), customer loans (US$ 57 billion) and customer deposits (US$ 56 billion) were all heading north. In addition, Etisalat announced a 17% Q2 profit increase to US$ 520 million after several quarters of declining returns, with Revenue rising 4% to US$ 2.25 billion.

The DFM Index started the week at a bullish 1536 but as fresh eurozone problems emerge, it weakened almost  2% to close at 1510 – albeit on thin trading of around a daily US$ 35 million. Whilst the beginning of July had seen a mini revival in the local bourse, this will not help some brokerage firms from going out of business. The number of entities has halved since last year and it will be no surprise to see this current figure of 50 halving again before the end of the year.

As global economic gloom continues unabated, there has been a significant easing of investor concerns about the state of Dubai’s creditworthiness. This is reflected in the fact that the cost of insuring Dubai’s sovereign debt is at its lowest point since November 2009 with 10 year bond yields heading well south of 5%.

This rate compares favourably with eurozone countries such as Greece (27.48%), Spain (7.37%) and Italy (6.44%).

Just to confirm that the eurozone is going down the toilet, its lynchpin, Germany, was left reeling with the news that Moody’s had lowered its credit outlook from “stable” to “negative”. Maybe the markets – and apparently most of the world – know more than the vacillating decision-makers who are responsible for this economic mess. It is probably too late for the leaders to be more proactive, rather than reactive, in their approach to solving this massive debt crisis.

To add to the global economic problems, the unusual weather patterns are affecting food supply. Unprecedented drought conditions in the US are being held responsible for soaring food prices, including record highs for both corn and soybeans, and furthermore wheat prices have risen over 50% since the beginning of June. European heat waves have resulted in similar problems. The end result is that there will be inevitable food price hikes everywhere and a situation far worse than the 2008 global food crisis which was the catalyst for social unrest and political changes in so many countries.

As some wise economist pointed out – if the whole world is stuffed then we are all stuffed.

Over the coming weeks, Greek, Spanish and Italian leaders may well be told by the other eurozone countries to “Go Your Own Way”. Whether they do  or not remains to be seen but time is rapidly running out for all stakeholders involved in this debacle, which has got the potential to bring the world to unprecedented political turmoil and social unrest. 

Posted in Finance | Tagged , , , , , | Leave a comment

Stand and Deliver!

Posted on July 22, 2012 by howesdubai

With the summer heat taking its toll, it comes as no surprise that UAE energy consumption rose 5.2% last year to a frightening level of 1.56 million equivalent barrels a day. Evidently its recent growth rate is amongst the highest in the world – in 2008 there had been a 23% annual jump.

As the mercury seems to be settling in the 40 degrees plus range, the sun is definitely shining on the local retail sector. Although final figures have yet to be announced, it seems that the 2012 Dubai Summer Surprise festival could turn out to be the best ever as some malls report up to 20% increase in business. That being the case, it could add more than US$ 5 billion to the Dubai economy.

There is no doubt that hotels have also felt the benefit from the DSSF with a high number of visitors especially from the GCC countries. H2 will see a further 4,500 units added to the current stock of 54,000 rooms followed by an additional 11,000 rooms between 2013 and 2014.

There were two significant events this week. The first was the formal approval by the Emirates Nuclear Energy Corporation to start work on Units 1 and 2 of the Barakah Nuclear Facility. Each of these Korean-designed reactors will be able to produce 1,400 megawatts of electricity.

The second was the inauguration of the 400 km long pipeline from Abu Dhabi to Fujairah. On its first operational day, 500k barrels of oil were pumped through the new link which has a capacity of 1.8 million barrels or about or 70% of the country’s daily production. One of its major benefits is that it will bypass the Strait of Hormuz and any future problems that could arise.

Despite the fact that it currently produces 2.6 million barrels a day, the UAE has the highest petrol price in the Gulf. At US$ 0.41 a litre it is more than three times dearer than Saudi Arabia’s price of US$ 0.12. Only two countries in the Arab world charge more – Syria (US$ 0.56) and Tunisia (US$ 0.70).

These relatively high petrol prices have not deterred the impressive growth in motor vehicle sales. Al Futtaim – the biggest dealership in the country – reported a 27% half yearly rise in its Toyota sales which equate to annual sales of 100,000 units. Over the same period local Ford sales are up 38% whilst GM have posted an 11% gain.

The Dubai feel good factor even spilt over onto the local bourse which saw a weekly 3% rise from 1491 to 1536. The DFM Index is showing a 13.47% YTD gain – not a bad result during these turbulent  times!

Despite the local bullish outlook, this week has seen yet again increasing concern about a slowdown in global growth which, as noted in previous blogs, is now impacting on emerging markets. Consequently the IMF has again cut its 2012 growth forecasts for China to 8.0%, India 6.1%, Russia 4.0% and Brazil 2.5%. Eurozone remains a basket case with an overall projected contraction of 0.3%. More disconcerting is that in April, Italy and Spain were forecast to have negative growth of 0.3% and 0.6% respectively – three months later, the IMF cut these even further to minus 1.9% and minus 1.5%! Despite its US$ 16.5 trillion debt problem, the US has seen its latest growth forecast shaved by only 0.1% to 2.0%. (The worst is yet to come for that country).

In contrast, the Middle East’s growth forecast remains at 3.7%.

Scarcely a day goes back without another story on the woeful state of the banking industry. The latest episode in the on-going saga involving HSBC and its relationship with Mexico and money laundering where in 2008 over US$ 7 billion was shipped from its Mexican operation to the US. It seems that US HSBC affiliates were able to forward funds to prohibited countries such as Iran, Sudan, Burma, Cuba and N Korea. The good news for all concerned is that the bank has now expressed remorse about their unacceptable behaviour which had been going for more than a decade! The bad news is that they will probably get away with a fine of up to US$ 1 billion.

This week, the largest bank in the USA reported that it had lost US$ 4.4 billion as result of the antics of its rogue trader, the “London Whale”. As intimated in a May blog, we thought the then reported loss of US$ 2 billion to be on the low side! Little wonder that since April, the market has wiped off nearly US$ 40 billion from the bank’s value. To add to their problems, JP Morgan are now embroiled in an investigation that they have been manipulating the Californian energy market for their own profit and to the detriment of the public.

Not to be outdone US credit card companies – including Visa and MasterCard – have agreed to pay more than US$ 6 billion to retailers for basically ripping them off with fixed high fees. And we worry here when small unexplained charges appear on our statements and nothing gets resolved by the bank.

The repercussions from the Libor crisis rumble on. Although Barclays were the first to be caught by the authorities and fined a derisory US$ 450 million for fraud, there are many other banks waiting in the wings to receive their punishment with possible much higher fines. And rest assured these fines will seem miniscule once the lawyers start suing for all the damage suffered by their unsuspecting clients.

Don’t forget that earlier in the year, Barclays were fined US$ 12 billion for giving bad financial advice to its UK clients. It had understated the risks involved from investing in two Aviva funds which subsequently suffered heavy losses in the 2008 GFC.

Gone have the days when bank robberies were carried out by persons stealing from banks. These days, it seems that the boot is on the other foot and banks are getting their own back by continually dreaming up ways of defrauding their customers. Stand and Deliver now has a whole new meaning!

Posted in Finance | Tagged , , , , , , , , , , | Leave a comment

We’ve Only Just Begun

Posted on July 14, 2012 by howesdubai

The impact of the eurozone debacle, slow worldwide growth and the fact that global banks are cutting back on lending are all reasons why this area is now facing a meltdown in bank lending. Staggering figures out this week have revealed that Middle East syndicated lending for H1 2012 touched US$ 190 million – a frightening 98% fall from US$ 10.2 billion a year earlier. Five years ago, ME corporate lending had hit a massive US$ 144 billion.

There is some little respite in the fact that debt capital markets are picking up some of the shortfall with a 50% year on year increase to US$ 17 billion.

Following nearly two years of talks about the restructuring of Dubai Group’s US$ 10 billion debt, it seems that some of the banks have lost patience and are considering withdrawing from further discussions. The impasse has arisen despite other government related entities having already refinanced their debt this year. These include JAFZA (US$ 2 billion), DIFC (US$ 1.5 billion) and Dubai Holding (US$ 500 million).

Jordan Dubai Capital, a subsidiary of Dubai Capital, was established in 2005. A Hong Kong private investment fund, HPF, paid US$ 135 million for the acquisition of a company that was based in Amman.

Whilst one local group is cashing in another is splashing out. Jumeirah Group is reported to have expensed US$ 80 million for a 25-year management contract to run a new 180-room hotel in Baku, Azerbaijan. The Jumeirah Bilgah Beach Hotel is the latest addition to the Group’s portfolio which reached 20 properties with this week’s opening of the Dubai Duty Free-owned Jumeirah Creekside Hotel.

Another company may have to reach for its cheque book if it is successful in Afghanistan’s second ever oil auction, covering certain blocks in the north. Dragon Oil, 51% owned by Dubai government via ENOC, is one of eight companies that have been approved by The Afghan Ministry of Mines.

One more organisation  after your money is the Dubai developer, Range Developments. The firm is planning to build a US$ 200 million hotel on St Kitts and Nevis and are looking for investors who are willing to buy a share in the project.

Last week’s blog noted the boom in tourists which had resulted in a 10.4% year on year increase in passenger numbers at Dubai airport, bringing the YTD total to 23.2 million. Consequently it was no surprise to see that Dubai Duty Free announced an 11% increase in sales of over US$ 770 million for H1 2012.

The fact that summer is here can be seen from the latest hospitality figures with May hotel occupancy dropping to 79% (from a March high of 89%). Although there has been a 13% increase in RevPar (revenue per available room) over the first five months of the year, May did witness a monthly drop in the average room rate from US$ 290 to US$ 204.

One Dubai sector not bothered about the heat is real estate. The Al Barari development has just announced the release of 33 villas with a price range of between US$ 5.5 million and US$ 9.5 million. Obviously there are still some investors who have yet to hear of the coming of the second GFC!

This comes at a time when the local property market is at the beginning of quite a revival. Reports indicate that some locations have seen annual price increases of 20% – such rates have not been seen since the halcyon days of 2008.

The emirate’s biggest developer, Emaar Properties, is reported to be looking at issuing a US$ 2 billion sukuk to help future expansion plans. Last month the company launched its newest residential project, The Views – with 224 apartments – which sold out in a day.

Emaar’s shares are currently trading at US$ 0.84 – almost the same level as this time last year. The DFM Index closed the week down 19 at 1491 in fairly lacklustre trade as the holy month of Ramadan approaches.

Conflicting fortunes for two locally-based engineering-related companies. The Australian firm, Hastie Group – with 7,000 employees of which 20% worked here – went bust in May. It had reported a US$ 150 million loss in H2 2011 and an “accounting irregularity” of almost US$ 20 million, apparently perpetrated in Brisbane. Now it seems that their former CEO, Bill Wild, is apportioning much of the blame for their demise on a series of bad acquisitions in the Middle East. So much for due diligence!

Meanwhile UK-based Driver Group has seen their revenue rise 35% in the six months to March 2012 mainly because of a 50% surge in ME operations. (This comes on top of news that Balfour Beatty last month reported that major improvements in Dubai had helped the company maintain its order book at around the US$ 23 billion level).

On a global level, the big four emerging markets – BRIC – are seeing a worrying downturn, the speed of which  has surprised many analysts. Q2 saw nervous investors withdraw hundreds of millions of dollars from related stock funds. It seems that not only the eurozone crisis is having an impact on continued growth in these markets but also the deteriorating US economy.

The old Berlin Wall was a symbol of the political separation between east and west Europe. The new Berlin Wall is an economic symbol beginning to divide north and south Europe. One just has to compare the government credit ratings and bond yields of the different eurozone countries to see that it will be only a matter of time before there are at least two currencies in the eurozone. The 10 year bond rates highlight the widening gap – Greece at 25.51%, Portugal 10.58%, Spain 6.83% against Germany’s 1.32%, Netherlands 1.70% and France 2.25%.

The alarm bells have been ringing for some time but have fallen on deaf ears. In relation to the real trouble, it’s true to say that we’ve only just begun.

Posted in Finance | Tagged , , , , , , , , , | Leave a comment

Diamonds are Forever

Posted on July 5, 2012 by howesdubai

The UAE has ticked all the right boxes to claim regional bragging rights, by bettering all of its neighbours, in the recent World Economic Forum’s Global Enabling Trade Report 2012. On a worldwide comparison, it was ranked in terms of quality of:

  • air transport infrastructure – 4th
  • seaport infrastructure – 6th
  • transhipment connectivity – 7th
  • transport infrastructure – 11th
  • border administration – 11th
  • business environment – 12th

Such reports just go to highlight the immense progress that has made Dubai such a vibrant regional tourist, trade and retail hub.

The retail sector will add yet another facility to its portfolio with the proposed US$ 7.5 million Jumeirah Park Community Centre, covering nearly 11,000 sq mt. Although not in the same league as the likes of Dubai Mall (the world’s largest at 350,000 sq mt), Mirdiff City Centre (290,000 sq mt) and Mall of the Emirates (225,000 sq mt), it will serve over 4,000 residences in the Jumeirah Village triangle.

Then there is the US$ 160 million expansion plan of the Dragon Mart. Already the world’s biggest trading centre for Chinese goods outside of China, it is looking at an additional 177,000 sq mt extension. Interestingly, it is reported that over 80% of the extension has already been pre-let!

Also going well (maybe too well) is local real estate. It is estimated that Dubai has over 400,000 apartments and 58,000 villas with a further 6,000 houses (or over 10%) becoming available in H2 of 2012. If reports are to be believed, there are some areas that have seen a whopping 10% QUARTERLY increase in prices – that being the case, it can only be hoped that this not a precursor of another property bubble, which all but destroyed the market in 2008.

Commercial realty is a different story with there still being a 40% vacancy rate. A further 800,000 sq mt is expected to be added to the inventory in H2 bringing the total amount of Dubai office space available to nearly 10 million sq mt.

As the temperatures hover in the mid-40s and the utility bills rise in unison, DEWA continue with their expansion plans. This time it will spend US$ 55 million laying over 800 km of cable to add to the electricity grid.

It seems that Meydan is also turning up the heat with their reported claim for US$ 950 million against Arabtec and the Malaysian contractor WCT in relation to the construction of the mega racecourse which hosts the Dubai World Cup. This follows an apparent acrimonious dispute that saw the cancellation of the original contract in 2008.

That year also saw the QE2 berth in Dubai and four years later plans are finally afoot to recoup some of the US$ 100 million investment. Now – with its original fittings and décor intact – it is to become a luxury floating hotel with 300 hotels and another must see landmark for the increasing number of Dubai-bound visitors.

The boom in tourists is mirrored in the May 10.4% year on year increase in passenger numbers at Dubai airport. The monthly figure of 4.4 million brings the YTD total to 23.2 million and in line with the annual forecast of 56.5 million passengers in 2012.

Another Dubai success story is Byrne Equipment Rental which accounts for over 20% of all equipment hired in the UAE. The company, valued at US$ 320 million, is set to build a new US$ 4 million HQ in Dubai Industrial City.

It is no secret that car dealerships have had a bumper year to date and this reflects growing consumer confidence that the good old days are on the way back. Al Nabooda Automobiles seem to think so as the distributor of Porsche, Audi and VW has just announced plans to spend nearly US$ 300 million on new facilities over the next two years.

One industry that is beginning to feel the pinch from the economic turmoil is private equity. Although estimated at US$ 23 billion (having grown from a base of US$ 8 billion five years ago), the Middle East segment expanded by only 3% – or US$ 700 million – in 2011. Life is not going to get any easier as fund raising becomes more difficult to source and the local bourses continue to perform badly.

However, Majid Al Futtaim Holdings LLC is a company with no apparent problems raising finance. This week it managed to sell US$ 500 million bonds at 5.25% and actually received bids in excess of US$ 3 billion. Likewise Dubai Duty Free managed to raise US$ 1.75 billion by a 6 year senior unsecured syndicated credit facility which was heavily oversubscribed. Both these deals indicate that Dubai debt has recovered from the dark days of November 2009 and has regained market confidence.

The DFM had a better than expected week of trading with the Index closing on Thursday at 1505 – heading north from Sunday’s opening of 1452. The Index is showing an 11.1% YTD improvement from its opening then of 1353.

Meanwhile, the Central Bank reported a 1.5% reduction in May money supply aggregate M1 (total of current and call accounts deposited with the banks) to US$ 77 billion. With quasi-monetary deposits of US$ 150 billion added to M1, money supply aggregate M2 fell just over 3% to US$ 227 billion. When government deposits at local banks of US$ 60 billion are added to M2, the money supply aggregate M3 sees a 1.3% decrease to US$ 287 billion.

Although bank deposits slipped 1.2% to US$ 306 billion, there was a marginal increase in May total bank loans and advances to US$ 292 billion. This indicates a tightening in liquidity which, if continued, could prove to have a negative impact on future growth; at the moment, the non-oil sector is slowing down and the banks’ Q2 reporting season profits will inevitably be disappointing overall.  But on a global comparison, Dubai is still tracking reasonably well.

On the world stage, the eurozone debt crisis still dominates the news with little or no hope for a permanent solution to all of its problems whilst the politicians are involved in micro rather than macro-managing the situation. The crisis deepens by the day and can only be rectified by a combination of fiscal and political integration with fundamental changes to the whole system, including the establishment of a federal central bank.

Eurozone now has a 1 in 9 unemployment rate (17.6 million) – the highest since the euro was launched back in 1999 – and youth unemployment has reached 22.6% (3.4 million). The Greek youth unemployment rate is over 50% whilst Italy stands at 36.2%. When you add the figures from the other ten EU countries not in the 17-member eurozone, there are 24.9 million (10.3% of the work force) unemployed including 5.5 million youths (22.7%).

And which country is the current president of this mess – Cyprus!

Two examples from the corporate world company highlight that it is not only the eurozone crisis that is causing economic mayhem. Microsoft bought aQuantive in 2007 for US$ 6.3 billion and now it has just written off this balance indicating the worthlessness of the acquisition. The British pharmaceutical company, GlaxoSmithKline, has settled a US$ 3 billion case for being involved in healthcare fraud in the USA. And then there is Barclays.

As intimated in a recent blog, Bob (I Love Barclays) Diamond, the erstwhile CEO of Barclays, finally did fall on his own sword. His Tuesday resignation, following revelations of a Libor rigging scandal by the bank, surprised some analysts and came as the bank faced possible criminal action. It is hard to imagine that other major players are not involved as Barclays was the first to raise their head above the parapet, admit their wrong-doing and settle with the authorities. Who said Diamonds are Forever – not so for the one who gets paid so much for appearing to know so little!

Posted in Finance | Tagged , , , , , , , , , , | Leave a comment

You Can’t Always Get What You Want

Posted on July 1, 2012 by howesdubai

Just as the rest of the world appears to be wallowing in an economic malaise, Dubai Customs report that Q1 trade reached an impressive US$ 81 billion almost 7% up on the corresponding period last year. Exports and Re-exports rose 9% to over US$ 33 billion whilst Imports reached US$ 48 billion – 1% higher than in Q1 2011.

India is still the top trading country with total trade at almost US$ 11 billion – almost half of which were exports. This made India Dubai’s second biggest exporter but well behind China which exported US$ 7 billion worth of goods. Unsurprisingly gold was not only the biggest imported item with the yellow metal accounting for over 14% of total imports (or US$ 7 billion) but also the emirate’s biggest export at US$ 5 billion.

Undoubtedly such figures spark investor interest in Dubai and are a factor in the 22% year on year increase in the number of business registration and licensing transactions (54,286) carried out by the Department of Economic Development. May also witnessed a 14% increase in the number of trade licences issued. Such figures only go to prove the increasing resilience of the local economy.

One reason expounded for Dubai’s success is its development of modern customs systems which has resulted in the emirate becoming more competitive on the global stage. Indeed the World Economic Forum placed the UAE third in the world in its Global Competitiveness Report 2011 – 2012.

The tourism sector received a boost with the planned 2013 opening of a Marvel Comics indoor theme park. Built by the IMG Group (Ilyas and Mustafa Galadari), it will be located at their City of Arabia development and will cover 1.2 million sq ft.

Even without the attraction of such a theme park, tourists are flocking into the emirate not only for a pre-Ramadan break but also to enjoy the shopping and ancillary activities of Dubai Summer Surprise. Last year, DSS attracted 4 million visitors who spent an estimated US$ 2.4 billion and it is hoped that this number will be surpassed in 2012.

It is not only tourism but also real estate sector that is beginning to regain some of its former glory with even more land being made available to overseas investors. Sheikh Mohammed bin Rashid Al Maktoum released two plots of land in Dubai Investments Park on an 85 year leasehold. This will surely bring in overseas buyers looking for a secure and profitable investment and should be a win win situation for both sides.

Arabtec finally signed a US$ 3 billion contract to construct the Midfield Terminal Building at Abu Dhabi International Airport. The 700,000 sq mt terminal building will be able to accommodate 65 aircraft and 8,500 passengers an hour.

Further good news came from two other major companies – Anham and Nestle. The former, a Dubai-based company, has just been awarded an US$ 8 billion contract for supplying American troops in Afghanistan. This comes on top of the same company being awarded a US$ 2.2 billion 2010 contract for logistical support to US troops in Iraq, Kuwait and Jordan.

Nestle announced that it was building a new US$ 135 million factory that will create an additional 800 jobs. The new facility will be on a 175,000 sq mt block at Dubai World Central and will make coffee and culinary products.

Not a bad week also for the Iraqi entrepreneur, Ihsan Jawad, who sold his intelligence and information group, Zawya, to Thomson Reuters for a reported US$ 40 million. The company was launched in Dubai ten years ago.

Also in the selling mode was Shehab Gargash, the owner of Daman, the Dubai investment management group. The company offloaded 22.7% of its shares in a private deal estimated at US$ 27 million. If the market continues to improve, the company will look at an IPO with a possible listing on one of the UAE markets. (One bourse that could do with the business is Nasdaq Dubai, which since the May delisting of Damas, has only two stocks trading).

One of those two listed companies, Depa Limited, has just lost a US$250 million fit out contract for the Doha International Airport. This blow to the interior design company comes on the back of losing US$ 50 million as their related performance bond and advance payment guarantee were encashed.

Meanwhile, the DFM had another flat week of trading with the Index closing on Thursday at 1452 – heading down from Sunday’s opening of 1470. As already indicated in earlier blogs, the market will remain stagnant until there is some action from European leaders on solving their sovereign debt crisis.

Dubai and the region are in the middle of a boom in debt market trading with bond sales this year already in excess of US$ 18 billion. The easier availability of credit and the growing confidence in Dubai’s creditworthiness have made the emirate a safer haven than most other locations in the world.

With the announcement that Emirates will help finance the imminent arrival of four Airbus 380s as part of its current order of fifty-eight, the airline will arrange a US$ 1 billion financing facility. Nearly US$ 600 million will be part of a leasing agreement across two tranches – with 75% having a 10 year maturity and the remainder with a 6 year maturity. Last week, the airline had repaid a US$ 550 million sukuk on maturity.

The UAE Central Bank indicated a 30% rise in banks’ non-performing loans (NPLs) for the twelve months ending 30 April 2012. There was a paltry 1.7% increase in loans to nearly US$ 300 billion whilst NPLs soared 30% to over US$ 16 billion. (What is left in the woodwork remains to be seen).  Total bank assets saw an almost 3% jump to over US$ 460 billion.

Overseas, certain banks have been taking a pounding this week. Barclays was fined US$ 450 million for trying to manipulate the Libor rate (some may call it cheating). Just wait for the lawyers to get their teeth into lawsuits and then Barclays problems will escalate exponentially. What is even more disquieting is that it is expected that other banks may be in the same trouble.

JP Morgan, having thought they had  lost US$ 2 billion in May from their credit derivatives debacle, may have to revise this estimate to a much higher figure. So much for betting in credit markets!

The two banks’ respective CEOS, Bob Diamond and Jamie Dimon, must be in danger of losing their jobs.

Whilst the outlook in Dubai is bullish, the same could not be said for many other places – none moreso than the euro zone which appears to be spiralling into deeper economic turmoil. If the political leaders cannot agree on basic fundamentals to try and lessen the crisis then the odds must be in favour of certain countries leaving the euro this year.

Unlike Portugal, Ireland and Greece, which have been hit hard by austerity packages as part of their bailout agreements, Spain seems to have been able to negotiate a much more equitable deal. This just shows that you can’t always get what you want but if you try sometimes you get what you need – but for some high profile banks that should read “you get what you deserve”.

Posted in Finance | Leave a comment