Tuesday, 8 January 2013

Real estate firms set for merger

DUBAI: Abu Dhabi's two biggest real estate developers have reached an initial agreement to merge via a share swap, with a final deal expected to be signed in the coming weeks, sources said yesterday.

Aldar Properties and Sorouh Real Estate have a combined market capitalisation of about 10 billion dirhams ($2.7bn), which would make the proposed merger one of the biggest conducted by listed firms in the Middle East.

The merger would create a state-backed company with combined assets worth nearly $15bn, and could help to repair Abu Dhabi's weak real estate market by ensuring better coordination of new property developments.

With the support of the Abu Dhabi government, which owns a major stake in Aldar, managements of the two companies have held discussions for nearly a year on asset valuations, financial terms and the new management structure, the sources said.

The merger will be based on a share swap and will not involve a cash payment, two sources said.

"The deal had the blessing of the state from the beginning but it was always a matter of getting an agreement on the valuation," said a senior banking source said.

"A lot of permutations and combinations were put forward and there was involvement from the highest authorities when it looked like things were getting out of hand."

Shares in both companies rose sharply in response to news of the initial merger agreement, although it is not clear whether the deal will be beneficial to investors in both; that will depend on the ratio of the share swap. Aldar shares jumped 10.7pc and Sorouh surged 13.7pc.

Mergers among companies in the Gulf are not common as shareholders, who are often powerful local families, tend to demand high valuations and are reluctant to cede control.

A planned merger between Dubai's largest developer, Emaar Properties, and the property unit of conglomerate Dubai Holding at the peak of the emirate's real estate crisis in 2009 was ultimately called off.

Abu Dhabi's intention to merge Aldar and Sorouh was first announced last March, as the emirate conducted a review of its economy in the wake of the global financial crisis. Real estate prices in the emirate have tumbled over 50pc in the last few years following the 2008 global financial crisis and because of oversupply of new properties.

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