On the news front this week, what had started as a slow burn on Sunday has now become a firecracker for corporates, both in the UAE and elsewhere, writes Business Editor Mustafa Alrawi.
Shell/BG merger
The $70 billion Shell/BG merger arrived on the heels of the smaller but no less significant FedEx takeover of logistics rival TNT. The pace of M&A activity so far this year is on course to make 2015 the second biggest for deals ever. Shell's deal, whose chief executive Ben van Beurden (pictured) was cool on Middle East projects, has also raised the likelihood that the energy sector could see further consolidation amid lower oil prices. Shell has taken the view that acquiring BG's assets is a faster and more profitable route than hunting out new ones on its own but it has also promised to slash capital expenditure at the combined group in line with the rest of the industry after crude tumbled 50 per cent. The mix of sluggish global growth, falling commodity prices and a strong US dollar has created the conditions for a seeming paradox where a company is willing to pay a huge premium for a target — FedEx's $4.8 billion offer for TNT is about 24 times profit and one of the priciest multiples ever paid in the European transport-services industry — to secure rare areas of growth while at the same keeping slashing costs for fear that the overall economic picture does not recover quickly. The right and the left hand?
UAE joins the AIIB
The inevitable happened on Sunday when the UAE announced it had joined the China-led Asian Infrastructure Investment Bank as a founder member. After Saudi Arabia and other nations had already said they would join it was clear that news of the UAE's membership was just a matter of time. Seen as a potential rival to the World Bank and the IMF, the AIIB will focus on infrastructure development projects in Asia. This remit is in line with the UAE's own investments in the high growth regions of South-east Asia in a number of sectors. The country's lenders, especially National Bank of Abu Dhabi and First Gulf Bank, are also hungry for opportunities eastward and the UAE's role at the forefront of what the AIIB could achieve complements that strategy very nicely.
Standard Chartered loses latest executive
The run of departures at the emerging markets-focused Standard Chartered continues. The resignation of its UAE chief executive Mohsin Ali Nathani, pictured, on Tuesday follows its global CEO and its chairman as well as another four senior bankers this year. In the wake of the financial crisis it was StanChart's Asia bias that protected it from the troubles its Western peers suffered but now this has been turned on its head as falling commodity prices and weaker economic growth in China and elsewhere hits profits. The one area that it did not manage to steer clear of though — much like some other notable global lenders — was regulatory scrutiny. The hundreds of millions of dollars in fines have underscored the fact that ultimately no international financial institution has been truly immune from the fall out triggered by the Lehman Brothers bankruptcy in 2008. Eventually the tidal wave swallows even the fastest moving boats, to paraphrase Warren Buffett. Probably.
Emirates lifts capacity to Beirut
This was the most intriguing story of the week, speaking to both the economic outlook for the region as well as aviation trends. On Monday, Emirates Airline said it would put larger aircraft on its Beirut route, seemingly anticipating at a very early stage a return of demand after three years in the doldrums. Lebanon has always been a lucrative market given the number of expats in the region and around the world but regional conflict has heavily impacted the tourism sector and Gulf nationals had been staying away. The Emirates move will put it in pole position to capture a rise in visitors to the country over the next year as most other carriers have shown little interest in ramping up their own services. The decision to operate larger aircraft on the route mirrors Emirates' operations elsewhere. To meet rising demand amid limited airport infrastructure capacity — which cannot be added to fast enough — using larger aircraft, which Emirates is the leading operator of, is a quick way to fill the gap. The newer and bigger aircraft also offer the advantage of being more efficient and environmentally friendly compared to the option of simply adding more slots operated by older, smaller planes. Pictured is West Beirut seen from the Holiday Inn hotel in the Lebanese capital.
US dollar outlook
The ‘Will they? Won’t they?’ narrative that has been written about the US Federal Reserve’s growing caution over interest rate hikes this year threatens to turn into a tale of dithering academics afraid to choose the course to be steered. Almost on cue arrives former Fed chairman Ben Bernanke with his new book entitled ‘The Courage to Act’ with the implication that he was able to do what current chair Janet Yellen cannot. It is worth remembering that hindsight is 20-20 and currently there are too many variables floating around to be sure that if interest rates are lifted in the summer from their current levels around zero that it won’t upset the US, and by extension the world’s chances of building a real head of steam. The outlook for the currently strong dollar now promises a short period of volatility as the Fed keeps thinking and not acting. Will this in its own way impact economic activity? The investors in the Gulf who have been using their currencies’ pegs to the greenback to snap up cheaper assets in Europe and elsewhere may push the pause button now. Equally some dollar weakness may help reinvigorate visitor numbers from Europe, Russia and Australia which have been dampened as potential tourists to the UAE realise their diminished purchasing power.
malrawi@thenational.ae
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