The UAE’s non-oil private sector recorded “robust growth” last month, even as new orders grew by their lowest rate since August 2013, according to data from the monthly HSBC Purchasing Managers Index survey, compiled by Markit.

Output during May rose at its fastest rate in three months, even though the headline PMI figure dropped 0.4 to 56.8 during the month. An index score above 50 indicates a net expansion in economic activity over the previous month, while a score below 50 indicates contraction.

However, Markit noted that while new orders continued to increase, May saw the smallest rise since August 2013.

Meanwhile payroll numbers in the non-oil private sector rose “solidly” during the month in May, buoyed by an increase in new projects and new branch openings.

“The UAE’s non-oil private sector continued on its robust growth trend during May, supported by marked expansions in output and new business,” said Philip Leake, an economist at Markit.

“With employment also rising solidly, the PMI looks set to remain comfortably inside growth territory over the coming months.”

Elsewhere in the region, the PMI Index for Saudi Arabia slipped to 57.0 in May from 58.3 in April, while Egypt’s index rose modestly to 49.9 from 49.8 the previous month.

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When Opec started a price war last November, driving oil down to its current $65 a barrel, US shale drillers looked doomed. Six months later, it’s the world’s largest oil companies that are emerging as the unexpected casualties.

The reason: the multibillion-dollar projects at the heart of the oil majors’ strategy need prices closer to $100 to make them economically feasible.

“Big Oil is today squeezed by two low-cost producers: Opec and US shale,” said Michele Della Vigna, the top oil industry analyst at Goldman Sachs. “Big Oil needs to re-invent itself.”

The new period of cheap oil and ample supplies raise a prospect unthinkable as recently as a few months ago – that the world no longer needs all the big, expensive projects planned by companies such as Royal Dutch Shell, Chevron and Total.

Rising supplies from Saudi Arabia, Iraq and perhaps Iran combined with a more efficient shale industry could deliver the bulk of new production. Big Oil will continue to play a significant role, particularly as field developments sanctioned in the era of $100 a barrel come to fruition – but new projects will suffer.

Oil company CEOs including Exxon Mobil’s Rex Tillerson and BP’s Bob Dudley will meet with Opec ministers Wednesday and Thursday in Vienna for a biannual conference organised by the cartel.

Only six months ago, the industry’s thinking was very different. The view then was that shale firms could only survive with $100 oil. The expected wave of bankruptcies never came about, however, and shale output has continued growing as drillers cut costs in response to low prices.

Meanwhile, the majors’ problems, which were masked by high oil prices, have become clear: bespoke developments are too expensive and their complexity means they’re unlikely to benefit from a drop in costs as much as simpler shale wells. In addition, those megaprojects can’t be turned on and off like shale drilling can, preventing quick response to any price recovery.

Jim Chanos, founder of hedge fund Kynikos Associates, is among the loudest voices warning about an industry that has bet its future on complex projects that is effectively “replacing $20 oil with $80 oil.”

While smaller companies have held costs of finding and developing new fields steady in the past five years at $14.47 a barrel, major producers have seen them almost double 2010 levels, to $29.95 a barrel, according to Citigroup data, as they focus on oil sands, gigantic liquefied natural gas developments and deep-water projects.

Big Oil companies say their strategy is sound. For one, vast refining operations provide them with an extra cash stream and they’re dominant in the growing liquefied natural gas industry.

Tillerson last week said that Exxon’s integrated business, including its large chemicals unit, was “a competitive advantage that is not easily replicated.”

They also have some potential lifeboats to jump in: Mexico’s oil industry is opening to foreign investors for the first time in nearly 80 years, Brazil is likely to seek more international parters, and Iran offers the promise of welcoming international groups again.

“It’s not just big oil companies, the whole industry is going to have to adjust,” BP’s Mr Dudley said in an interview in Paris on Tuesday. “I don’t feel we’re getting crushed. It’s a widespread change.”

Shell chief executive Ben van Beurden agreed to buy BG Group for $70 billion, betting oil prices are going to get back to at least $90 a barrel by 2018. The company is also involved in an expensive drilling campaign in the Arctic and is planning several multibillion-dollar gas projects.

Most Big Oil companies struggle at $75 a barrel to make a significant profit, said Alastair Syme, an oil analyst at Citigroup. “In the pursuit of growth in recent years we think many companies have not left enough headroom to deal with a lower oil price environment,” he said.

In the first quarter, Total, BP and Chevron all spent more than they earned. The combined negative cash flow of the five major oil groups was $3.4bn, compared with a positive cash flow of $17.8bn a year earlier, according to data compiled by Bloomberg.

If that’s sustained, the companies would either have to reduce their investments further or take on loans to pay their dividends.

“We have reduced capex from headline levels, but in terms of projects, we haven’t stopped any projects,” Shell chief financial officer Simon Henry said. “The opportunity for us over the next three to four years is to take the costs down and be more selective about new investments.”

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Aldar Properties is to launch sales of its mid-market Meera Shams development on Abu Dhabi’s Reem Island.

The project features two 26-storey towers with 408 one, two and three-bedroom apartments and is aimed at residents on a salary between Dh20,000 and Dh30,000 a month.

Aldar said that prices start from Dh900,000 for a one bedroom, Dh1.2 million for a two bedroom and Dh1.6m for a three-bedroom apartment.

“We have targeted these apartments at the sort of person who can typically only afford to buy a studio or a one-bedroom apartment,” said Talal Al Dhiyebi, Aldar’s chief development officer, in April. “But they need a larger apartment for their families. These are people working in the oil and gas sector, teachers and nurses.”

House prices in Abu Dhabi remained stable during the first quarter and are expected to remain that way for the remainder of the year, according to property firm JLL.

Reem Island is popular among expatriate residents seeking rents lower than those at some of the prime areas of the city.

The most recent data from Asteco showed that one-bedroom apartments in Shams were renting at an average of Dh105,000-Dh120,000, while two-bedrooms ranged from Dh135,000-Dh175,000. Rents in the area were on average up 3 per cent year on year in the first quarter.

As well as Meera Shams, the capital’s largest listed developer announced two other schemes at Cityscape Abu Dhabi in April.

The West Yas waterfront scheme of more than 1,000 villas on Yas Island will be reserved for UAE nationals only to buy. Mayan, a second project on Yas Island, will comprise more than 700 homes, including studios, one, two, three and four-bedroom apartments, as well as town houses, villas and penthouses.

The Meera sales launch will take place at the Crowne Plaza Abu Dhabi, Yas Island, on June 13 and 14.

“Due to the strong demand for mid-market residential properties in prime locations in the capital, we are expecting high interest in the development from owner-occupiers and investors that are seeking homes and strong return on investment,” said Mohammad Al Mubarak, chief executive at Aldar.

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I have been renting my apartment in the Layan Community in Dubailand since 2012, just after I got married. I would now like to change my maiden name to my husband’s name. My landlord has informed me that while I have already renewed the tenancy contract with a 15 per cent increase two months ago, if I decide to change my name I would be treated as a new tenant. That would mean I would have no Rera calculator protection and automatic application of the maximum actual market price. I cannot understand why. It might be reasonable if we wanted to change the contract to my husband’s name, but the change is only in my surname. I am and will still be the same tenant and person … my biodata does not change. Rera informed me that I should report a complaint. I do not want to until I know what the legal situation is. PK, Dubai

I am in agreement with you; what your landlord is saying makes no logical sense. The only thing I can think of that might work is that you both have a 90-day notice window prior to the expiration of your agreement to make any changes or alterations to the contract. If this notice period is missed and it may seem as though it has, given your dates, then I would just renew as per normal now, using your maiden name but look to make this change 90 days before the next renewal next year, assuming you want to stay in the property then.

Lastly, if this is not convenient then I would take this further with the rental committee as your landlord’s case is ridiculous.

What exactly does subletting mean? Does it refer to a tenant allowing his friend to stay in his apartment at the same rent as per agreement? Secondly, how can subletting be proved to the authorities and what is the procedure to defend such a complaint if it is raised by a landlord. Finally what are the fines or penalties for subletting? ZUH, Dubai

Subletting is the leasing of part or all of the property held by a tenant as opposed to a landlord during a portion of his or her unexpired balance of the term of occupancy. Subletting as such, is not illegal, as long as you get authorisation from the landlord to do so, therefore it is only illegal if it is done without the consent of the landlord. You have to abide by the agreed tenancy contract and I’m sure that there will be a clause that states subletting is not allowed. I know it can be difficult to prove one is subletting but difficulties arise when complaints are made to the landlord about the number of occupants or noise for example. If caught, you can be evicted for breach of agreement. My advice would be not to engage in such activities unless the landlord is informed.

Are non renewable rental contracts enforceable? I have a landlord who is using it to up my rent by 25 per cent after four years. SD, Dubai

Non-renewable clauses in tenancy agreements are not legal and not enforceable. Furthermore, your landlord cannot increase the rent by 25 per cent as the most allowed by law in any one given year is 20 per cent. Even then, this increase has to be communicated to you in writing giving you at least 90 days’ notice from the expiry of your agreement and only if it was permissible by the Rera rental calculator.

Mario Volpi is the managing director of Ocean View Real Estate and has worked in the industry in the emirate and in London for the past 30 years. Send any questions to mario@oceanviewdubai.com

The advice provided in our columns does not constitute legal advice and is provided for information.

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International and regional banks have given a cautious welcome to new proposals to settle a six year dispute over more than US$6 billion of debts owed by the Al Gosaibi business family of Saudi Arabia.

A “claimants meeting” in Dubai yesterday heard the details of a fresh offer from Ahmad Hamed Al Gosaibi & Brothers (AHAB), the partnership that owns the family businesses.

The new deal on offer guarantees a minimum of about 28 cents repayment for each dollar owed by the heavily indebted family, backed by equity and property assets. This was an improvement of about 25 per cent on proposals last year. Depending on recoveries from continuing litigation in the affair, the eventual return to creditors could reach 50 cents.

The Al Gosaibi businesses crashed in 2009 in a financial crisis the family blamed on a relative by marriage, Maan Al Sanea, whom they accused of fraud, theft and forgery. Mr Al Sanea has denied all the accusations made against him in courts around the world.

The steering committee of five banks representing around 60 per cent of the overall debt by value has already given its approval to the new terms. None of the 11 Saudi Arabia creditors who hold most of the balance accepted an invitation to attend the full day meeting.

“This gives the best opportunity so far for creditors to maximise recovery of their claims, and I’m confident it will be supported,” said Joseph Julian, managing director of the US financial firm Houlihan Lokey, which advises the steering banks.

A member of the steering committee said the proposals had been well received and that remaining concerns were about bringing Saudi creditors into the process and getting Saudi authorities’ ratification, rather than the proposals themselves.

The mood after the meeting was more positive than any of the previous attempts to settle the debt issue. There have been at least four previous presentations to creditors in Dubai.

One executive from a Kuwaiti bank, who did not wish to be named, said: “What we heard today was good. We need to see more detail and the formal paperwork, but so far it was good.”

A creditor from a western bank, who also declined to be identified, said: “Realistically, you won’t do much better, so we may as well agree to the new terms and move on.”

Another anonymous banker said: “The tone was much more positive and there is a momentum to the process. The questions are now about how the settlement will work.”

Simon Charlton, the chief executive of AHAB, who made the presentation to the banks, voiced his own optimism.

“I’m happy with how it went and I’m quietly confident, but nervous,” he said. “There’s a long way to go but maybe this is the beginning of the end. The banks aren’t getting all they wanted, and the family is handing over more than they wanted. But it’s the sign of a good settlement that nobody is entirely happy.”

Several members of the younger generation of the Al Gosaibi family, who are not covered by a travel ban restricting the movements of AHAB partners, attended the Dubai meeting. They will inherit a much diminished set of operating businesses if the deal goes through.

The 19 partners of AHAB have also pledged to creditors to disclose all their personal assets. An AHAB executive explained this was to ensure a “spirit of transparency in the process”.

Some creditors have suggested that family members might be tempted to hide certain assets, which has been denied by AHAB. “This was important as a sign of goodwill,” said a banker.

Under the new terms, AHAB will hand over all of its equity portfolio, valued at 2.65bn Saudi riyals (Dh2.59bm), to creditors as the first part of a settlement process that could take years.

It will also pledge its 3.5bn riyal property portfolio – mainly undeveloped land – as guarantee for future recoveries.

It is also handing over a stake in an unnamed operating company – valued at 300 million riyals by AHAB – as guarantee of recoveries.

Under a complicated formula, AHAB will be able to get some of the land portfolio back if recoveries from Mr Sanea and other parties reach certain levels over the next five years.

If the amount recovered hits 5bn riyals, AHAB will get half the land back. If recoveries bring back only 2.5bn riyals, the stake in the operating company will revert to the family.

“The family is putting nearly 90 per cent of its assets at risk, which is a sign that they want this matter settled. To prolong it is only benefiting the lawyers,” an AHAB executive said.

AHAB is in early talks with some of the Saudi banks in a bid to swing some of them in line with the international creditors. One option is to ask the Saudi legal authorities to force local banks to accept the new terms, assuming they are finally approved by other creditors.

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Abu Dhabi to host UN’s inaugural global manufacturing summit

Abu Dhabi will jointly host the UN’s first global manufacturing summit next year with the aim of “carving out a road map for the future of manufacturing globally”, said Sultan Al Mansouri, the Minister of Economy, yesterday.

The summit will be held under the auspices of the United Nations Industrial Development Organisation (Unido).

It will be part of the UN’s efforts to advance its 17 sustainable development goals that are expected to be formally adopted by its assembly this year, according to Li Yong, Unido’s director general.

These goals include promoting infrastructure development, as well as “inclusive and sustainable” industrialisation and innovation.

The World Economic Forum (WEF) will be involved in organising the summit in Abu Dhabi and is promoting its global manufacturing and infrastructure initiatives.

At its biennial Middle East gathering last month, the WEF urged wealthy GCC states to invest more in the economic development of the region’s poorer countries.

Mr Al Mansouri said the summit would also help to focus international attention on the UAE’s efforts to diversify its economy away from oil.

This includes an ambitious target to nearly double manufacturing’s share of the economy from 11 per cent to 20 per cent by 2025.

“This will give us the opportunity to showcase the UAE,” said Mr Al Mansouri. “We strongly believe in industrialisation and globalisation. It is an important part of building diversity in the UAE’s economy.”

In April the UAE issued a new Companies Law that allows companies to list on stock exchanges by issuing 30 per cent of their equity, down from the previous requirement of 55 per cent.

That and changes to other rules are primarily aimed at making it easier for small and medium-sized companies (SMEs) to raise funds for expansion.

The Companies Law kept the provision that foreign ownership in UAE companies be limited to 49 per cent, but Mr Al Mansouri said the Government was working out a system to allow majority foreign ownership “on a case by case, sector by sector basis”.

Regarding the foreign direct investment law under discussion, he said: “It will be selective and identify the sectors from manufacturing – as well as many others – that will serve the future agenda of the UAE’s economy, and make sure that through the cabinet all these sectors will be approved for moving up beyond the 49 per cent.”

Mr Li said he expected the summit would not only be a talking shop but would include representatives from the highest levels of government and the private sector. He said they would be able to agree on a concrete set of policies and goals to promote sustainable development and job growth.

Abu Dhabi was chosen to host the first two Global Manufacturing and Industrialisation Summits – next year and 2018 – partly because of its geographic location.

“The Government has a very clear vision for industrialisation and transformation of the economy that is exactly in line with Unido’s mandate that global manufacturing should be in the new format,” he said.

That means manufacturing that is not only sustainable and inclusive, but it recognises that manufacturing is different in nature and scale than in previous stages of industrialisation.

This was echoed by Mr Al Mansouri, who said the UAE was focusing on developing SMEs. “We should not think of manufacturing in terms of big chimneys emitting smoke, but they can be built around a family enterprise, working together with new ideas and making perhaps parts for some other high-tech business,” said the minister. Nevertheless, the UAE would prioritise industries that are higher up in the value chain than the industries presently dominating the economy, said Mr Al Mansouri.

It would focus particularly on plastics and aluminium, two industries that are downstream from the petrochemicals sector.

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The ghost of Banquo put in an appearance at the Dubai International Financial Centre on Tuesday.

The dinner guests – Al Gosaibi executives and family members, 90-odd international creditors, a small army of advisers and minders – were assembled and ready to get stuck into the substantial fare on the table.

It was an offer to settle, at much improved terms, the bitter six-year dispute that has laid low one of Saudi Arabia’s most prestigious business dynasties.

But the seat marked “Saudi creditors” remained spookily empty. Banks from the kingdom – who are owed about a third of the US$6 billion that Al Gosaibi creditors claim from the family – stayed away from the proceedings, despite a formal invitation.

The Saudi absence hung heavily over the proceedings. The international creditors – including major international banks such as BNP Paribas and Standard Chartered, as well as regional lenders such as Abu Dhabi Commercial Bank and Mashreq Bank – heard details of the new offer from the family.

The family would repay about 28 cents on the dollar on their debt, guaranteed by shares and real estate assets that the Al Gosaibi family has retained over six years of litigation. The non-Saudi banks seemed to recognise that this was the best the family could do, without voting for corporate euthanasia and leaving themselves without a livelihood.

The 11 Saudi-held banks who were not at the meeting have, until now, taken a different tack. Rather than negotiate, they have sought to regain their money via legal actions in the kingdom.

They have mostly won legal claims against Al Gosaibi; and some have sought to have those rulings enforced by a judge in Al Khobar, the family’s hometown. Hitherto, the judge has declined to let them carve up Al Gosaibi assets.

Why the Saudis have adopted this aggressive approach goes to the heart of the whole scandal, and also shows why it is an important test case for the whole Saudi financial system.

As the kingdom prepares to open up to foreign involvement in its financial markets this month, the banks’ attitude shows why foreign investors will continue to be wary of doing business there.

The Saudi banks believe they have some kind of preferential right to get their money back in full from the Al Gosaibis, when the rest of the global financial community is prepared to give the family some leeway.

Whether or not they believe the Al Gosaibis have been the victims of some gigantic fraud, the international banks are prepared to draw a line under the affair and get back what they can from the whole sorry mess. Maan Al Sanea, the Al Gosaibis’ erstwhile partner, has denied all the charges of fraud laid against him.

The Saudis have so far shown no such signs of rationality unlike the international banks. Their status as local institutions, they say, gives them the right to pursue the matter to the bitter end, no matter how much it will cost in legal and other fees, and in terms of Saudi Arabia’s business reputation. This is a zero-sum game. If the Saudis regain their money in full, everybody else loses, the international creditors as well as the Al Gosaibi family.

Al Gosaibi lawyers in Saudi Arabia further argue that they are backed by Sharia law, which stresses equity and fair treatment of all parties in a commercial dispute.

There is some sign that at least some of the Saudi creditors, recognising the new dynamic in the kingdom, are willing to be a bit more flexible.

Informal and without prejudice talks have taken place between Al Gosaibi representatives and executives of the Saudi banks.

How long can the 11 Saudi banks maintain their stonewalling of the peace process? That depends on the attitude of the Al Khobar judge, who might be persuaded by the argument that equity, and Sharia, demand that they take part in the settlement.

Saudi Arabia’s financial system has been haunted by the Al Gosaibi affair for six years. It would be unfortunate if the pain was prolonged by the kingdom’s own financial institutions.

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The Abu Dhabi-based developer Manazel is considering a a Dh3 billion tourism project situated between Abu Dhabi and Dubai, according to a top executive.

The chairman, Mohammed Al Qubaisi, said in a company disclosure to the Abu Dhabi Securities Exchange yesterday that the developer was conducting a study into the project, described as “a new concept in hospitality”, which will be concluded by the end of the year.

Manazel, whose projects include Al Reef Villas in the capital and Dune Village in Dubai, said last month it was “reviewing various opportunities in the hospitality sector in Abu Dhabi”, without giving further details.

The unnamed Dh3bn hospitality project is part of Manazel’s strategy to diversify its sources of revenue and income in the coming five years, said Mr Al Qubaisi, with tourism and health care identified as key growth sectors for the company.

Manazel also said in May that it would break ground on its Capital Health Care City hospital and property project in the third quarter of 2016.

Mr Al Qubaisi said the project, which will extend over an area of 70,000 square metres, is likely to cost about Dh2.5bn.

Manazel’s chief executive, Hassan Fahmi, said the project would consist of four facilities offering specialist health care services, responding to perceived gaps in the market, together with accommodation for health-care professionals.

He declined to disclose the specific services the facilities would provide, noting that the projects still required approval from The Health Authority, Abu Dhabi. Manazel’s shares yesterday ended up 1.6 per cent at 61 fils.

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