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Eurozone bonds suffer massive sell offs and the Eurozone turmoil

Eurozone bonds hit by mass sell-off and the Eurozone turmoil

The Eurozone bond market was hit by a massive sell of this month because of investor fears. Investor fears spread beyond Spain and Italy to other triple A rated countries such as France, Austria, Finland and the Netherlands. The premium that France pays over Germany rose to a Euro era record of 192 basis points and the premium that Austria pays over Germany rose to a Euro era record of 184 basis points. Markets are losing patience so they are going for the jugular, which are the core countries not the periphery. There is convergence but it is convergence on the weakest. All main Eurozone countries were affected by the rise in bond yields. The only country that wasn’t affected was Germany, and this suggests that the sovereign debt problems are entering a new phase. Italian bond yields moved above 7 percent, a position that is viewed as unsustainable. Spanish premium to Germany hit 482 bp. Traders said there were few buyers in many bond markets, with only the European Central Bank active in Italy and Spain.

German frustrations over Britain’s approach to the Eurozone crisis erupted when a close ally of Angela Merkel accused the UK of selfishness. Volker Kauder criticised Britain for opposing a European tax of financial transactions. He said that the UK was only defending its own interests and not that of the EU. Ms Merkel has urged the Eurozone to move ahead with the Tobin Tax if Britain continued to block the measure. The Eurozone should raise funds from the financial sector to help cash strapped governments. Mr Kauder told the CDU that annual conference that “The British are not members of the currency union but they are members of Europe and they have a responsibility for the success of Europe”. George Osborne, Britain’s Chancellor of the Exchequer, has called the Tobin tax plan a bullet aim at the heart of London.

President Nicolas Sarkozy announced a review of the funding of Frances social welfare system on Tuesday, the 15 th of November. In his review, he stated that the heavy labour costs it imposed hurt the economy and the country’s ability to compete internationally. The French employees appealed to the country’s politicians for structural reforms to cut labour costs, regenerate growth and overturn a big gap in economic performance between France and Germany that has damaged France ability to withstand the pressures of the Eurozone crisis. Mr Sarkozy intends to appoint an advisory council at the end of the year that will be responsible for proposing ways to reduce the weight of taxation on work. “We must rethink the system of financing our social system”, Mr. Sarkozy said. “The very high cost of labour in our country penalizes our economy and penalizes France in international competition”. Medef, the French business confederation, and Afep, the association of private enterprise, complained that France had lost ground to neighboring country, Germany in terms of export market share, balance of payments, fiscal strength and cost of labour and production.

Negotiators for Greek debt holders have offered to swap their bonds for new ones worth half their face value, but only if the new bonds contain high interest rates and have extra incentives, including annual payments if the Greek economy recovers. The confidential offer was proposed to the Greek authorities and it also insisted that the new bonds be issued under British rather than Greek law. Greek officials are expected to present their own counter proposal when talks begins over the bonds. The negotiations are intended to finalise details of the highly –touted deal struck on October 27 in which the Institute of International Finance agreed to take a 50 percent  haircut in the face value of their bonds. The deal left open questions on how the 50% hair cut would be achieved. Tweaks in interest rates and maturities for bonds used in swaps for the haircut can have a critical effect on how much bond holders are able to recoup, enabling them to achieve less of a hit on the net present value of their holdings than the headline number announced by the European leaders.

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After the Property Crash - The Dubai Real Estate Market

The real estate market in Dubai is showing signs of recovery after a 3 year slump. The real estate market in Dubai was worth around $31 billion at its peak in 2008. However, the mood today is one of cautious optimism as the market is now showing signs of recovery from the recession’s period. At this year’s Cityscape Global event in Dubai, investors had a more business to business atmosphere than in previous years. According to Jones Land LaSalle rental prices in the office and residential sectors are bottoming out and the retail and hotel sectors are already showing a growth buoyed by tourism. This follows a dip of around 18.6 percent in the real estate sector in 2009 and a recovery by around 2.5 percent in real terms in 2010 according to the National Bureau of Statistics. The real estate’s sectors contribution to the real GDP grew exponentially from Dhs 95.6 billion in 2006 to Dhs 111.1 billion in 2007 and to  Dhs 114 billion in 2008 before slumping to Dhs 92.7 billion in 2009. As a result of the real estate crash, the prices of property in Dubai plummeted 60 percent in Dubai. The result of this was that many projects and unplanned constructions where put on hold or even shelved. However, there were other factors at play. For example, the continued government spending on infrastructure, including the Dubai Metro and new roads, and visitor numbers increasing, the real estate sector rebounded to Dhs 95.1 billion in 2010.

One of the hardest hit developers during the real estate crash was Nakheel, which is currently undergoing a Dhs 16 billion debt restructuring programme and has been handed $8.71 billion bt the government and written off Dhs 78.6 billion of its real estate assets due to the emirates property crisis. Nakheel followed the ambitious Palm Jumeirah project with other projects such as other man made palm shaped islands in Deira and Jebel Ali, including the World. These projects left Nakheel exposed during the global financial crisis. But the company is expected to post profits by the end of 2011. The Arab spring has confirmed Dubai as a safe haven for tourists and investors alike. This is because Dubai has benefited from the Arab spring and has seen the rise in tourism and visitors. The Hotel and retail markets have benefited extremely from the Arab spring. But as a result of the sovereign debt crisis in Europe, the outlook here in the UAE has been one of caution. It is no longer about new product launches it is about existing projects. There are very few end users at Cityscape; it is now more an event for B2B contractors and suppliers. There has been a transition and it is more realistic with the overall market becoming a lot quieter because sales activities and the projects have slowed with people reassessing process making it all much more competitive.

The retail sector is growing because tourism is such a major part of the retail sector. The villa sector is starting to improve and the residential sector is starting to improve too. Apartment rentals are still declining, but there will be growth in the residential sector rents in 2012. However, the big cloud hanging over the market is the Eurozone and the US Recovery as Dubai is very closely linked. Recovery is expected to continue especially with the deal made by the Eurozone on the Greek debt crisis. This is seen as having a positive impact and a good effect on the UAE economic future. The Office market is feeling the brunt of the economic crisis and is the worst performer of all the markets. The Jones Lang LaSalle report points out key drivers for the Dubai real estate market stemming from the increase in passenger traffic to Dubai international Airport, increasing by 15 percent in 2010 and continuing to increase in 2011, and hotel occupancy rates at 78 percent as of July 2011, up on the 60 percent as of July 2009

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World Economic Forum: Global business and government experts met in Abu Dhabi to address rapid globalisation and rising sovereign debt

The UAE participated in the 2011 G20 summit in Cannes and it also hosted IRENA, the global clean energy body. This shows and indicates that the UAE is increasingly becoming a global citizen in economic affairs around the world. According to leading political figures at the third World Economic Forum Summit in Abu Dhabi last month, this is a good indication of where the UAE is headed. Over 800 leading experts in academia, business and government convened in the UAE capital to discuss new models for the world’s most pressing challenges, including public debt, climate change and food security.

The continuing uncertain global economic outlook could drive a wedge between international interests if left unchecked. Unstable financial markets combined with rapid globalization and technology uptake are all new factors stoking the need for urgent global conversations. The rise in global wealth has lead to a richer world for many, but many millions are poorer than ever. There is a global inequality. We need to rethink our global competitiveness strategy because we need to address the quality of economic growth. Velocity and country interconnectivity have become so complex at the tipping point that the whole system may collapse. We need new models to survive. The great recession has blinded us to the great revolution.

In addition to increased connectivity across countries and continents, globalization has been paralleled by a shift in power towards the East, as China continues on its incredible growth trajectory and the US buckles under debt pressure and stagnant jobs data. In the last century, global production and consumption was heavily weighted to the west, but recent years have seen a dramatic shift as the BRICS consume and produce more global resources that ever before. Only 40 percent of the worlds production output is in the West and only 43 percent of investment goes to the West. The world is changing very fast. Producers and consumers must work together at this historical juncture.

The prolonged indecision on Europe’s debt woes has also set the stage for mistrust and a need for increased global co-operation. Europe is at the epicenter of today’s crisis. It has fiscal, banking and growth problems and the Euro will not survive. The European Central Bank will have to work to find a solution. What happens in one continent affects another. In a recent WEF poll of 1500 CEOs and academics, less than 10 percent of respondents expressed confidence in the state of global governance over the next 12 months. The world urgently needs to rebuild trust in leaders, government systems and among countries if the international community is to shape new models to solve global challenges

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How to Fund a StartUp

A typical start up goes through several rounds of funding. Each round requires that you raise enough money to get into the next round of funding. Few startups get the funding process right. Some startups are overfunded, while others are underfunded. It is obviously in the best interest of founders to understand the mechanism of funding and the thought processes that investors go through before they decide to fund a start up business.
Sources of startup funding:

a) Family and Friends
Family and Friends are the sources of funding for most startup businesses. Most founders graduate from university, borrow money from their parents and friends, lets assume $10,000 and they start a business which with the help of the borrowed funds makes it past the 12 month mark. There are advantages and disadvantages to borrowing money from friends and family. An advantage worth mentioning is that friends and family are easy to find because you already know them, therefore making it easier to borrow money for funding. However, there are disadvantages too. Firstly, your friends and family may not be as connected as angel investors might be. Secondly, you will be mixing your business life with your personal life, and thirdly, friends and family may not be accredited investors either.
The SEC defines an accredited investor as someone with over $1,000,000 in liquid assets or an income of over $200,000 a year.

b) Consulting
Another way to fund a startup is to get a job. The best sort of job is a consulting project in which you can build whatever software you wanted to sell as a startup. Then you can gradually transform yourself from a consulting company into a product company, and have your clients pay your development expenses.

This is a good plan for someone with kids, because it takes most of the risk out of starting a startup. There never has to be a time when you have no revenues. Risk and reward are usually proportionate, however: you should expect a plan that cuts the risk of starting a startup also to cut the average return. In this case, you trade decreased financial risk for increased risk that your company won’t succeed as a startup.

c) Angel Investors
Angels are individuals who are rich. The word applies to individual investors generally. When dealing with angel investors, sometimes its worth noting that contacts can be more important than the money itself. You can do whatever you want with money from consulting or friends and family. With angels we’re now talking about venture funding proper, so it’s time to introduce the concept of exit strategy. Investors will only consider companies that have an exit strategy and the reason for this that they expect the founders to sell the company or go public so that they can get their money back along with some returns.
This is not as selfish as it sounds. There are few large, private technology companies. Those that don’t fail all seem to get bought or go public. The reason is that employees are investors too—of their time—and they want just as much to be able to cash out. If your competitors offer employees stock options that might make them rich, while you make it clear you plan to stay private, your competitors will get the best people. So the principle of an “exit” is not just something forced on startups by investors, but part of what it means to be a startup.
Another important concept that should be noted is valuation! When a person pays money for the shares of a company, it gives the company a certain monetary value. For example, if someone pays $30,000 for a 20% share of a company, it means that that company is in theory worth $600,000.

d) Seed Funding Firms
Seed firms are like angels in that they invest relatively small amounts at early stages, but like VCs in that they’re companies that do it as a business, rather than individuals making occasional investments on the side. According to the National Association of Business Incubators, there are about 800 incubators in the US. What is an incubator? Because seed firms are companies rather than individual people, reaching them is easier than reaching angels. Just go to their web site and send them an email. The importance of personal introductions varies, but is less than with angels or VCs. The fact that seed firms are companies also means the investment process is more standardized. (This is generally true with angel groups too.) Seed firms will probably have set deal terms they use for every startup they fund. The fact that the deal terms are standard doesn’t mean they’re favorable to you, but if other startups have signed the same agreements and things went well for them, it’s a sign the terms are reasonable. Seed firms differ from angels and VCs in that they invest exclusively in the earliest phases—often when the company is still just an idea. Angels and even VC firms occasionally do this, but they also invest at later stages.

The problems are different in the early stages. For example, in the first couple months a startup may completely redefine their idea. So seed investors usually care less about the idea than the people. This is true of all venture funding, but especially so in the seed stage.

Like VCs, one of the advantages of seed firms is the advice they offer. But because seed firms operate in an earlier phase, they need to offer different kinds of advice. For example, a seed firm should be able to give advice about how to approach VCs, which VCs obviously don’t need to do; whereas VCs should be able to give advice about how to hire an “executive team,” which is not an issue in the seed stage

e) Venture Capital Funds
Venture capitalists invest other peoples money and they invest large sums of it. The word “venture capitalist” is sometimes used loosely for any venture investor, but there is a sharp difference between VCs and other investors: VC firms are organized as funds, much like hedge funds or mutual funds. The fund managers, who are called “general partners,” get about 2% of the fund annually as a management fee, plus about 20% of the fund’s gains. There is a very sharp dropoff in performance among VC firms, because in the VC business both success and failure are self-perpetuating. When an investment scores spectacularly, as Google did for Kleiner and Sequoia, it generates a lot of good publicity for the VCs. And many founders prefer to take money from successful VC firms, because of the legitimacy it confers. Hence a vicious (for the losers) cycle: VC firms that have been doing badly will only get the deals the bigger fish have rejected, causing them to continue to do badly. In a sense, the lower-tier VC firms are a bargain for founders. They may not be quite as smart or as well connected as the big-name firms, but they are much hungrier for deals. This means you should be able to get better terms from them.

Better how? The most obvious is valuation: they’ll take less of your company. But as well as money, there’s power. I think founders will increasingly be able to stay on as CEO, and on terms that will make it fairly hard to fire them later
Because VCs invest large amounts, the money comes with more restrictions. Most only come into effect if the company gets into trouble. For example, VCs generally write it into the deal that in any sale, they get their investment back first. So if the company gets sold at a low price, the founders could get nothing. Some VCs now require that in any sale they get 4x their investment back before the common stock holders (that is, you) get anything, but this is an abuse that should be resisted

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Welcome to New DBA Team Members

DBA welcome its new members Sarah Thorsen and Oazal Khan as new team members and wish them success andexcellence in their professional pursuit. Sarah and Oazal has join as consultant and Data Processing Executive.

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Welcome to New IXL Team Members

IXL wishes its new members Sherif El Kheir and Vikrant Pangam all success in their new role as Consultant and Senior Consultant respectively. Sherif and Vikrant are young energetic professionals both from Consulting and Financial Advisory background. With the 2 members joining the team, IXL center is confident to scale the heights and leave a mark on the space of Innovation in the Middle East.

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Henry Roosevelt: Congratulations

The month of February was especially special for our very own Henry Roosevelt. He received a well deserved promotion to the ranks of Senior Business Consultant. Anybody who knows Henry would agree that he is one of the most dependable business consultants and he undoubtedly qualifies to be our candidate for the ABCD award (Above & Beyond the Call of Duty). His energy is infectious and his clients will testify to this. DBA Business advisors wish Henry’s ambition wings.

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