27 December 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

We have been warning our clients and investors about the complete collapse of GCC since 2015.

Thousands of businessmen across GCC have gone into turmoil ever since, property prices have collapsed and thousands are in jail or have run away or are involved in multiple litigation while Govt's are not making payments leading to freezing of thousands of business.

Trump is openly humiliating and challenging Saudi, Etihad is at the verge of a slow death like collapse and bailouts of large corporations and entire countries are in full swing.

Last week, we elaborated how bad things were in the UAE.

In all, at least 19 major banks have merged across GCC within the last 12 months approx.:

8 banks have announced mergers in the UAE alone (2 completed in 2017 and 6 shall merge in 2018).

Yesterday, 4 Oct 2018 was a terrible day across GCC.

2 more banks were merged in Oman.

Aside from banking mergers, sovereign fund closures/mergers, aluminium company mergers, the largest petrochemical companies in Saudi are also in trouble and are now being merged. 

These companies are and were the heart of Saudi and UAE economy and they are almost all insolvent.

Early this week, a major USD 200b solar power project with Japan was also shut down despite being launched just in early 2018.

All these are signs of rapidly evaporating trust of foreign investors and fleeing of local assets and lack of any cash with the Saudi Govt to even save their own reputation, never mind their corporations.

To prove that what we say is true, Govt of Saudi (until few years ago that was the richest country in the world) is taking loans. This is like blasphemy.

Never before a rich country has gone downhill so fast in just 3 years since 2015.

USD 11b is needed by Saudi every month as their deficit. This is just 1 month worth of borrowing. The public sector salaries and Govt spending on empty shell towers and mini cities and security are enormous and completely unsustainable. 

Ejecting expats is not the solution because expats were paid the lowest while locals are paid the highest. How can Saudi Govt eject the locals?

However, Saudi Govt did the unthinkable when they arrested the top 2,000 princes, royals and elites and took way their financial and real assets worth trillion dollars or more. 

This is a complicated subject because it is linked to Trump, petro dollar, US hegemony status, price of oil (which went above $60 after this event and broke our unbroken perfect record that oil will stay between $20-60 since Dec 2014) and is also linked to the US military over which Trump is now very upset, accepting yuan for oil and China, Russia etc.

In June 2018, Jordan was bailed out with USD 2.5 billion.

Yesterday, 4 Oct 2018, again Jordan was bailed out.

And by the afternoon of 4 Oct 2018, Bahrain also had to be bailed out (again!).

On 4 Oct 2018 itself, Dubai announced that 2 multi billion dollar projects were halted and one major Abu Dhabi fund (despite a merger with IPIC recently) also went into a default (whose fancy word these days is "restructuring" since 2008).

With EXPO 2020 approaching, the collapse of Schon Properties who was building several towers in that area and now the shut down of expansion of Al Maktoum airport seems things are worsening every month for the over marketed EXPO 2020 project.

And we have not even talked about the high chance of increase of VAT from 5% to 10% by next year in the UAE and Saudi yet.

Sobha Group launched this new project last year and promised in April 2018 that they will do ground breaking by Oct and when October arrived, they shelved the massive project as well as put their future 2021 IPO on hold due to "financial consolidation".

Things are so bad on 4 Oct 2018 in Saudi that although the King of Saudi cancelled the plan for Aramco IPO last month (which also we had predicted that it will never happen) and now Aramco has no money to pay salaries.

What better proof than an actual video of police shooting on hundreds of Aramco employees on 3 Oct 2018 who were protesting over unpaid salaries.

It has just come to our attention that unpaid salaries are not by Saudi Aramco but some Saudi contracting company.

We apologise for the error due to the news release above by the Tasnim News article.

Another author wrote about Saudi as a failed state where ISIS and Al Qaeda are taking hold, also on 4 Oct 2018. This is mostly due to the economic collapse that will allow the unemployed and the disenfranchised to join the militants instead of getting to work.

Well, we have predicted this since 2015 and it is now building up, so no surprise to us.

For multiple reasons, GCC have been forcing expats to leave in millions that has created a massive problem for all sorts of businesses from banks to retailers to hotels and Govt services.

Yesterday, 4 Oct 2018, FT opined on this matter which we have said since many years that if expats leave, it will not bring back the good ones. While locals can fill the gap but barely 10-20%. Which leaves a massive gap of 80% plus due to which service levels, business levels and investment levels will plunge to such pathetic levels that it will be beyond alarming. 

All we can do is wish good luck to all the businesses and customers operating or residing in the Gulf because they will never find good employees (due to tensions/missiles/wars in the region and lowest wages being paid over the last 5-6 years) and will also never find good employers (since employers don't get paid by their customers or the Govt hence they cannot pay exorbitant rents and hefty business costs and decent salaries causing them to run away, go to jail or simply collapse). 

Ask anyone in the Gulf and they will all say the same thing - there is absolutely no business (except a little bit in online e-commerce or a bit of tourism). But shhhh, there are laws in the Gulf to arrest and give multi million fines for anyone who speaks of the harsh reality.

"Businesses complain of a mismatch between their needs and young workers’ abilities"

Meanwhile, Etihad is in terrible shape.

They shut down their business and first class lounge in the world's most important city for travellers being London this week. 

They will close many more lounges every week in the weeks ahead.
They have turned into a budget airline where one needs to pay for food, are closing exclusive lounges, have shut several destinations, sold 20 plus planes, shut limo services in almost all countries except UAE, reduced several meal types as well as many amenities on board.

The investors in Etihad are fearing a collapse and just today, 5 Oct 2018, they have written a letter to Etihad and Dept of Finance (and most likely copied to the Ruling Family of Abu Dhabi) to help them get their billions back.

It will wise for Abu Dhabi to bail out Etihad investors but the million dollar question is, how can they do so if they simply don't have enough cash?

And if they pay 1 bond, then the second bond holders will come forward who were defaulted last year. They are doomed if they pay and doomed if they don't!

Etihad bankrupted Air Berlin and Alitalia last year and could not pay off that bond, therefore, chances are very low that they can help Etihad bond investors who are demanding USD 1.2b in 2 bonds while the next interest payment date of 29 Dec 2018 is coming closer every day. The bond is now trading at USD 57 level today which is at severe distress levels.

There are almost no solutions to the problems of the GCC because they are so acute and almost all are self created. They cannot print money nor borrow more and don't have much cash to pay for all their margin calls either.

The house of cards is crumbling down faster and faster in 2018 across GCC and proving us correct in our prediction for every year about the GCC since 2015.

We can only warn everyone that the worst is yet to come.

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