GCC Crumbles, Part 2: Emirates & Etihad Cancel World's Largest Plane Orders, Emaar & Nakheel Couldn't Issue New Bonds, An Abu Dhabi Bank Searches For A Merger Suitor, Major Companies Have Losses, Six Flags Theme Park Project In Dubai Shelved, Dubai & Abu Dhabi Sell Assets For Cash & Abu Dhabi Sues Goldman Sachs, Real Estate, Trade & Hotels Continue Declines For The 5th Year & Could Saudi Agree To Accept Yuan For Oil This Week?

It's been more than 4 months since we predicted that the entire GCC will crumble.

Oh boy, were we spot on! Let's evaluate.

5 Oct 2018: Entire GCC Crumbles Like A Pack of Cards: 19 Banks Merge, Etihad Can't Pay Back Debt, Saudi Contractor Can't Pay Salaries, UAE/Saudi Halt 3 Projects of $243 Billion, $11 Billion Bail Out For Bahrain & Jordan    

This week, both Emirates and Etihad have simultaneously cancelled their hitherto, world's largest orders for planes. 

Emirates alone has cancelled 39 A-380 plane orders (though replaced with an "order" in the future for approx 90 other Airbus planes), cancellations were valued at approx. USD 17.3 billion.

9 Feb 2019: Emirates’ Fatal Embrace of the A380 Cuts Two Ways

Etihad has cancelled a mind boggling 92% of it's A-350 plane orders and 77% of it's Boeing 777 orders, placed over the last several years.

It's also mentioned that more than 4.150 employees have been laid off at Etihad Airlines over the last 28 months approx. We can guess that Emirates, too, has fired thousands. 

16 Feb 2019: ETIHAD AIRWAYS CANCEL MULTIPLE A350 & 777X JETS

Etihad has slashed it's order by a whopping 61 planes. 

14 Feb 2019: Abu Dhabi's Etihad Slashes $21 Billion of Airbus, Boeing Orders 

The loss of these 2 orders is so HUGE that Airbus had to cancel it's entire A380 plane production forever.

14 Feb 2019: Airbus to Stop Production of the Colossal A380 as Airlines Transition to Smaller Planes

Meanwhile, thanks to the liquidation of Abraaj Private Equity Group in DIFC that has "lost" USD 15b for investors and whose CEO has absconded from UAE, Air Arabia has become one of the first to book a loss of it's savings that were invested with Abraaj.

14 Feb 2019: Abraaj exposure drags Air Arabia to a $166m 2018 loss

Damac Property Developer had a massive decline in 2018 profits.

14 Feb 2019: Damac full-year 2018 profit slides 58% as revenues decline

One of the largest gas suppliers in the region, Dana Gas, also had a loss. 

14 Feb 2019: Dana Gas swings to net loss on impariments

Saudi contractor Al-Khodari posts 198% loss amid cash flow delays

Middle East project cancellation drive Arcadis to $30m loss in 2018

Shuaa Capital’s 2018 net profits down 63 per cent

Full 2018 not yet announced due to "restructuring":

Drake & Scull reports $135m loss in Q3 over restructuring

Saudi Electricity Company profit falls 74% in 2018

Yamama Cement incurs SAR 52 mln loss in FY 2018

Above is a sample of what's happening in Saudi and UAE. However, there are a few companies that have seen rise in profits or remain profitable in banking, insurance, fertilizers etc.

With 3 bank mergers that have already happened in Abu Dhabi in the last few months and 1 bank that has received a bailout in Sharjah (with absolute silence from the UAE Central Bank or Sharjah Govt until date), Abu Dhabi Islamic Bank is feeling lonely and may need a bail out of it's own.

Hence, news is being spread that ADIB is looking to merge with someone, anyone!

15 Feb 2019: Abu Dhabi Islamic Bank mulls merger options with smaller lenders

In the entire world, trade cargo volume went up, but in Jebel Ali, Dubai, it went down, in last quarter of 2018.

We should see further declines in the months ahead because animosity with Qatar, Yemen, Syria, Iran, Turkey etc will cause further declines (and outflows instead) in trade, tourism, investments etc along with 2 new mega ports in Oman getting busier and tensions with Iran that remain extremely worrisome and high.

5 Feb 2019: DP World’s Dubai shipping container volumes drop 4.6% in Q4

Looking at the same presentation that everyone saw in Dubai since 2004 that showed that Dubai will grow into perpetuity at 10% pa, Six Flags of US and Dubai's Meraas had announced in early 2014 that they will build a massive entertainment complex. 

It was to open in 2017. They even issued a USD 457m rights issue to collect more money from investors in 2016.

Who knows what happened to that money! It's all gone.

The project was cancelled last week because there is absolutely no money and not many visitors who will spend top dollars to enter an US theme park in the 40-50 degree heat of Dubai. 

Ferrari World in Abu Dhabi lies as a testament to failed projects where barely a few hundred people visit daily and is a loss of USD 1 billion to Abu Dhabi being the sum that was originally invested.

Now another major theme park has been shelved.

7 Feb 2019: Six Flags Theme Park Project in Dubai Shelved

In Sept 2018, another theme park shut in RAK, UAE.

Workers face battle to stay in UAE after RAK water park closes

As we have said previously, Abu Dhabi has run out of cash. They have assets, shares, investments, real estate etc but their sovereign fund does not have much cash.

They are busy selling shares or assets as fast as they can to raise some much needed cash.

14 Feb 2019: Abu Dhabi Reportedly Investigating Selling Its Share of GlobalFoundries

5 Feb 2019: Mubadala sells AMD shares for $800 million and converts warrants to retain 6.9% stake

Air Berlin is seeking money from Abu Dhabi and were forced to sue Abu Dhabi for EUR 2bn because they refused to meet their obligations as an owner and a guarantor of bonds.

14 Dec 2018: Air Berlin liquidator sues Etihad Airways for $2.2bn

In the major Malaysian scandal where the ex PM Najib is now in jail, 8 bankers in Singapore are in jail, one Abu Dhabi owned bank was shut in Singapore (Falcon Private Bank) and now Malaysia wants the money back.

Abu Dhabi will probably have to pay double the amount that could be anywhere from USD 3bn to USD 6bn.

They may have to pay back the bond holders whom Abu Dhabi had guaranteed as well as pay back to the Malaysian Govt because it's a fraud in which 2 top CEO's of 2 separate Abu Dhabi sovereign funds were complicit and have been in jail for over 3.5 years now.

But the fact is that this is a massive global scandal where Abu Dhabi will need to pay and they don't have much excess money, hence, they are trying to get out of this.

Abu Dhabi have sued Goldman Sachs (which in itself is a big thing, because Goldman is a proxy for the US Govt) and suing them is a very very difficult decision to make but Abu Dhabi doesn't have a choice.

In our opinion, we suspect that Abu Dhabi may have to pay twice the amount or sue Goldman Sachs so they have chosen to sue Goldman for now.

21 Nov 2018: Abu Dhabi fund sues Goldman Sachs over 'central role' in 1MDB scam

Furthermore, the hotel, tourism and restaurant sector in UAE and Dubai is facing a massive crunch since about 2016.

2019 is almost the 5th year in a row where occupancy levels and Average Revenue per room has declined and is expected to keep declining.

Dozens of restaurants keep shutting every month, as do bank branches, super markets, offices, businesses, retail stores etc.

One can get hotel rooms from 50 to 100 dirhams today what wasn't possible even at 300-350 dirhams prior to 2015. These are rates for mass market 3-4 star hotels.

Five star hotel room rates are also at very cheap levels. Out of approx 900 hotels in Dubai, there are around 92 five stars in Dubai, so it matters immensely how the remainder 808 approx hotels are holding up.

"Experts" are still predicting further hotel industry declines in 2019.

19 Jan 2019: GCC’s hotel industry can expect a storm before the calm in 2019

Nov 2018: Dubai was almost forced to sell it's five best top 5 star hotels to Abu Dhabi to raise some cash as well. On paper, Abu Dhabi has taken a loan of AED 1.6 billion and hotels were sold for 2.2 billion dirhams (USD 600m).

Dubai-based Emaar reveals value of hotels sale deal to ADNH

Meanwhile, investors with millions of dollars are unable to sustain new restaurants despite our advice since 2015, not to open any business in the Middle East, especially if one is an expat.

This multi millionaire investor or a group of partners, invested anywhere between USD 5m to USD 10m (could be even higher) to establish 2 top end restaurants and 1 private member's only lounge.

However, things got so bad, that despite spending such a large sum of money, he could not continue and had to stop investing further and didn't pay salaries for 5 months and did the unthinkable.

He closed his 2 restaurants and lounge BEFORE opening!

27 Jan 2019: Dubai restaurant leaves staff unpaid for five months

If such investors cannot sustain a business even until opening then what do investors with less than USD 5m-USD 10m do?

In the 5th year of decline, since 2015, Dubai off plan properties are still declining at a fast clip.

3 Feb 2019: Off-plan residential property sales in Dubai fell by 30% in 2018

WSJ, 12 Feb 2019: Property Prices Tumble in Dubai

KPMG is still saying after several years of declines that Saudi will see further "healthy" declines in 2019 in their property market.

Saudi’s real estate market to see a ‘healthy correction’ in 2019 – KPMG

Things are so bad that borrowing interest rates have shot up dramatically in the GCC and UAE.

Top developers like Emaar and Nakheel from UAE had to withdraw their bonds from the market after at least 3-4 months of work, since investors expected a much higher rate of interest which they cannot afford to pay. Expectation was around 10%-15% or perhaps even more while they can barely pay 5%-6% in USD terms.

Therefore, the rollover of bonds is coming to a halt.

Govts have tried to sell assets, taxed and fined everyone, sold their investment assets, stopped paying suppliers and bond holders (Etihad or Air Berlin or Alitalia), or not paying back investors in dozens of multi billion projects (Palm Jebel Ali, World, Universe, Dubai Pearl, Al Bawadi etc), how long can this kicking the can down the road continue? 

Now they have accumulated so much debt in all their entities that are pretty much all state owned.

Multiple major banks in UAE have USD 500m to USD 1bn each bonds coming due during 2019 totaling around USD 3 to USD 5bn at the minimum.

Let us see how they can raise the money because money movement or incoming investments have come to a halt and a lot of money is frozen (Qatar, Kuwait, India, Pakistan etc) and lot of money is leaving (smart money) as indicated by the 5th year of stock market drop in both UAE and Saudi and new bond issuances are literally halted not allowing older bonds or loans to be repaid or rolled over.

21 Jan 2019: Dubai property developers put bond plans on hold -sources

GCC countries need a lot of money but money is shrinking and leaving as we have been projecting.

In 2015 and 2016, they managed with restructuring and dipping into their cash savings and with new fines etc.

In 2017 and 2018, they issued bonds as a result of which their ratings started dropping. 

3 GCC countries are now junk rated being Oman, Kuwait and Bahrain. 

Plus they started VAT of 5% in Saudi and UAE that have caused many thousands of smaller business people to close and leave or run away.

We had projected then, that post 2018, GCC countries will need to sell their assets because their cash and the bond issuances will come to a halt after approx 2 years of each in order to kick the can down the road.

Now their bond issuances will not be possible due to multiple ratings downgrades, expectation of much higher interest and previous bond defaults, disputes and foreign bank closures, bank loan defaults, falling real estate values, weak oil prices, lack of global banking liquidity due to end of Quantitative Easing etc.

Which is exactly what is happening now.

9 Feb 2019: GCC sovereign, corporate issuances fell by 12% in 2018

Lastly, as we have been predicting with a target of 2018 onwards that Saudi will have no choice but to accept yuan eventually if they wish to sell their oil.

In that regard, Crown Price MBS of Saudi Arabia is visiting China next week of Feb 18, 2019 onwards.

Saudi crown prince to visit China

However, two very interesting things have happened in the past 48 hours.

The largest offshore oil field in the world in Saudi was partly shut down and it's production was reduced.

15 Feb 2019: Saudi Arabia partly shuts Safaniyah oilfield after power cable cut -source

And an article has appeared today in SCMP, which is owned by Jack Ma of Alibaba.

This article talks about moving towards Yuan instead of US dollar and the headwinds surrounding this very critical subject.

One of the first Central Bank Governors in the world, from UK, also now agrees with our long held assessment about yuan and oil from 2018 onwards. Even he dare not mention the word "yuan".

One does not need to be super intelligent to know which is the only country in the world that has already replaced America as a global super power by becoming No 1 in gold consumption, car sales, retail sales, manufacturing, ports, airports, tourism power, technology, space, military, AI, Electronic Vehicles, steel, cement, more No 1 countries as trading partners than USA etc.

It's No 2 in pretty much in just 1 thing: oil consumption, due to it's reliance on electronic vehicles, car sharing, amazing public transit etc.

“Ultimately, we will have reserve currencies other than the US dollar,” the Bank of England Governor Mark Carney predicted last month."

17 Feb 2019: The world is slowly drifting away from the US dollar as a reserve currency

It will be very interesting what deals may be signed in China next week between the Chinese President and the Saudi Crown Prince.

Last week, US Treasury Secretary Steve Mnuchin was also in China for "trade talks".

We will be watching with bated breath on the various announcements coming out of China next week that are connected to Saudi, oil and the yuan.

Meanwhile, the financial crisis across GCC countries will continue and the worse is yet to come....