Damac Properties ‘holds its nerve’ amid Dubai real estate slump — CFO

The Dubai developer has not pulled or delayed any existing projects, and 2018 is likely to be a bumper year in terms of property deliveries, Damac CFO Adil Taqi said. (AFP)
Updated 14 August 2018
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Damac Properties ‘holds its nerve’ amid Dubai real estate slump — CFO

  • Damac’s second quarter profit from continuing operations fell by around 46 percent year-on-year to 378.2 million dirhams
  • Damac has no significant capital expenditure commitment for the rest of the year

DUBAI: Dubai’s Damac Properties, owner and operator of the only Trump-branded golf club in the Middle East, is confident of its financial position despite registering its worst quarter in terms of booked sales since the company went public five years ago, its chief financial officer said.
Damac is feeling the impact of a real estate market in Dubai that is under pressure because of lower property prices and subdued sales as new developments hit the market.
“In a cyclical market it’s important to have some sense of certainty over direction, and from that perspective, we’re satisfied,” Adil Taqi said in a phone interview on Tuesday after the publication of Damac’s results for the first half of 2018.
“We’re also satisfied in a way that every day in a weak cycle that we put behind us puts us closer to the turnout.”
Taqi said the firm was “holding its nerve” in terms of cash balances and payment plans.
Damac’s second quarter profit from continuing operations fell by around 46 percent year-on-year to 378.2 million dirhams ($103 million). Total revenues for the first six months stood at 3.7 billion dirhams, year-on-year growth of 5 percent.
Dubai’s real estate prices, hit by new supply, could decline by 10 to 15 percent over the next two years, after falling between 5 to 10 percent in 2017, according to S&P estimates earlier this year.
Damac has not pulled or delayed any existing projects, and 2018 is likely to be a bumper year in terms of property deliveries, the CFO said.
In the first half of the year, Damac delivered 1,490 units compared to 1,071 units in the same period last year. The company plans to deliver over 4,000 units in 2018.
Damac’s unsold inventory, which extends beyond Dubai, is about $400 million-$500 million, said Taqi. “In the short term, unless the market improves, this will build up slightly more.”
But the firm does not plan to sell assets to counterbalance the market slowdown. “We will not throw value away because we’re under pressure. We recognize we’re in a tough market and we need to be able to manage that.”
Damac has no significant capital expenditure commitment for the rest of the year, and currently has $2 billion in cash, of which $350 million-$400 million is unrestricted, or not earmarked for a specific purpose.
“We’re well capitalized, I don’t see any question over our cash ability,” said Taqi.
Damac has $270 million in Islamic bonds due early next year and plans to pay them down, rather than approaching the market to refinance them. It has around $180 million in bank debt that it mostly plans to refinance in the near-term, also to maintain relationships with local banks, he added.


Oil markets jittery over lower demand forecasts

Updated 18 November 2018
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Oil markets jittery over lower demand forecasts

RIYADH: Oil prices continued to nosedive last week over demand concerns amid an outlook of a slowing global economy. The strong US dollar weighed on both oil prices and the global demand outlook. Currencies weakened against the dollar, eroding their purchasing power.
Brent was down to $66.76 per barrel and WTI dropped to $56.46 per barrel by Friday. The former came close to its one-year low as both the International Energy Agency (IEA) and OPEC released monthly reports that articulated a darkening demand outlook in the short term. This increased fears of an oil demand slowdown. Market fundamentals also suggest that price volatility is likely to remain high in the near-term, although the oil market reached a balance in early October.
OPEC’s Monthly Oil Market Report (MOMR) arrived with bearish sentiments, revising downward its oil-demand forecast for this year and next, for the fourth month in a row. It forecast that global oil demand will rise by 1.29 million barrels per day (bpd) in 2019, 70,000 less than what OPEC expected last month. The MOMR also forecast increasing non-OPEC supply growth for 2019, with higher volumes outpacing the annual growth in world oil demand, leading to an excess in supply. The report was welcomed with open arms by the IEA, which had been at least in part responsible for driving sentiment toward a bear market. Surprisingly, OPEC warned that oil demand is falling faster than expected. Necessary action is a must.
Saudi Arabia is not sitting idly by while oil markets look as if they are heading toward instability. Markets were expecting severe US sanctions on Iran, which could have resulted in supply shortages once Iran’s crude exports went to zero. The unexpected introduction of waivers to allow eight countries to continue importing Iranian oil, was however an eye-opener. Now, as the world’s only swing producer, Saudi Arabia will have to take other measures to balance oil markets and drain excess oil from global stockpiles.
Despite what some analysts are claiming, there is currently no strategy to send less oil to the US to help reduce US stockpiles. Yes, some have claimed that Saudi crude shipments to the US are at about 600,000 barrels per day this month, which is a little more than half of what was being shipped in the summer months. But the reasons for this are related to seasonally low demand, the surge in US inventories and refineries heading into their winter maintenance season. Remember that November crude oil shipments were allocated to the US refiners last month before the US waivers on the Iranian sanctions were revealed. Also, keep in mind that Saudi Arabia owns the largest refinery in the US, which has a refining capacity that exceeds 600,000 bpd.

Lurking on the horizon is the massive US budget deficit and increasing rumblings that the US economic boom is over. 

It must be noted that there is a degree of financial manipulation underway in the oil futures markets. At the moment, there are few places where quick profits can be made, so some investors moved from stocks to commodities. Now, there are downward pressures on oil prices as some commodities market traders went long on oil futures, thinking that crude prices would rise. Then these same traders shorted natural gas, assuming that with a warmer winter, prices of that fuel would fall. Unfortunately for the traders, Trump’s sanction waivers on Iranian crude oil exports and cold weather on the US East Coast, caused exactly the reverse to take place. Oil prices fell and natural gas prices rose. Traders were therefore forced to sell their assets to cover margins, pushing oil prices lower. It is expected that some hedge funds and investment funds will also be moving away from going long on oil futures and this will cause further selling.
Lurking on the horizon is the massive US budget deficit and increasing rumbling that the US economic boom is over. The US federal budget deficit rose 17 percent in the 2018 fiscal year. It is now larger than in any year since 2012. Federal spending is up and amidst US President Donald Trump’s tax cuts, and federal revenue is not keeping pace. To make matters worse, the strong US economy and interest rate hikes by the US Federal Reserve have boosted the dollar.
A strong dollar makes commodities such as crude oil more expensive in international markets and reduces demand. Trump wants oil to be priced as low as possible to help bolster the US economy, which is clearly under strain, and to facilitate sales of crude abroad. But with a looming global oil shortage just a few years away due to a lack of upstream investment, it is incumbent on global oil producers to consider the long term in their output decisions.

* Faisal Mrza is an energy and oil market adviser. He was formerly with OPEC and Saudi Aramco. Reach him on Twitter: @faisalmrza