Home About us Business
News Clients & Partners Contact
February 2010

News Letter - 4th February 2010

Now that we are well into the first quarter, market volumes have picked up somewhat from their holiday season sluggishness, yet the Dubai Financial Market has continued its general downward trend with the psychological 1,500 barrier in sight. Any slight lift in levels has generally been negated by profit taking as investors seek to minimise their losses (or realise their gains!) and investor sentiment is still predominantly cautious in the wake of the restructuring of Dubai World debt, which has only been exacerbated by a perceived lack of transparency. As a result of Dubai’s continuing financial woes, the local debt market is thriving, although whether this will have any material impact on Dubai World’s immediate debt problems remains to be seen. Once a decision has been reached regarding tackling this debt servicing issue, hopefully in May 2010, the debt market could then start playing its part, but needs to be wary of default so as not to exacerbate the situation. Furthermore there is some talk that the financial rot is beginning to spread beyond the UAE alone, with other economies such as Saudi Arabia, which has historically been relatively stable and healthy, beginning to show signs of strain. The Saudi mobile phone carrier Zain recently reported a net loss for 2009 of $826m and is currently in talks with its creditors after failing to meet its commitment on a $2.5bn Islamic loan. Even the normally buoyant Dubai Shopping Festival opened this year to very little fanfare on 28th January, providing a sombre reflection of current sentiment toward the economic climate.

The annual meeting of the IMF Board of Governors got underway in Davos, Switzerland, during which the Board indicated that state debt will continue to be the world’s greatest economic problem and some countries could take as long as seven years to resolve their debt issues. The stimulus packages seen during 2009 need to be maintained if world economies are to avoid a “double dip” recession.

Furthermore very little has been done to ease the instability within the real estate sector, and while this is positive news for those in rented accommodation as the growing uncertainty provides a certain amount of leverage when negotiating annual rental rates, it does precious little to assuage the fears of those property owners trying to meet mortgage repayments. Whilst rents are reducing some what it is proving somewhat difficult to agree a realistic rent, and with the anticipation that rents will continue to fall further during 2010, an annual rent negotiated during January 2010 is likely to be excessive at the end of the tenure in December 2010.

Dubai hotels recorded the worst revenue drop, at over 31%, of all Middle Eastern countries in 2009 with occupancy rates falling by 11% in the region. This at least gives the residents the opportunity to take the occasional short hotel break which has been near impossible for the last few years due to the “silly” rates charged by many hotels in recent history.

The price of crude remains relatively stable and continues to hover around the $75 per barrel mark. Iraq is now claiming that it could become the world’s largest oil producer and could challenge Saudi Arabia’s hold on that title within six to seven years. Iraq has signed a number of oilfield deals with several global oil firms over the past few weeks, and at present they are not subject to OPEC’s quota agreements, although whether this remains the case if they come close to challenging Saudi Arabia’s position as No 1 producer remains to be seen. However if Iraq cannot or does not address its chronic security issues, all the above could be merely supposition. Meanwhile, despite the UAE award of a $20bn contract to a Korean consortium for a nuclear plant, Saudi Arabia recently announced that they have no intention of investing in such a project, preferring to focus their attention on the development of solar energy.

The new Abu Dhabi port of Khalifa Ports and Industrial Zone is set to be Abu Dhabi’s largest port when it opens for business in late 2012, and is expected to have an initial capacity of 2 million TEUs and 8 million tonnes of general cargo. The port of Abu Dhabi (Mina Zayed) operations which handled 530,000 TEUs and 4.9 million tonnes of general cargo in 2009 will be transferred to this new Khalifa port. In the meantime Dubai Ports World (DP World) shipping volume was reported to have declined by 8% during 2009 across its 28 terminals. Overall the industry has declined by 12% worldwide, although an upturn in the economic climate will obviously serve to boost the industry.

With the Haitian earthquake dead numbering in excess of 200,000, a number of local charities are contributing to the relief operation with donations from the UAE government as well as a rescue team. Although the contributions may only constitute a “drop in the ocean” when looking at the devastation as a whole, it is nonetheless a significant gesture considering the size of the UAE population and Dubai’s current issues.