June 28 (Bloomberg) -- Emaar Properties PJSC pushed Dubai’s index to its biggest decline in more than seven months on concern shares of the Middle East’s biggest property developer may be suspended or diluted pending a potential merger.

Dubai-based Emaar dropped 10 percent, the maximum daily limit allowed, after the company said it’s in talks to merge with state-controlled Dubai Properties LLC, Sama Dubai LLC and Tatweer LLC, all units of Dubai Holding LLC. The new entity will have 13.4 billion dirhams ($3.65 billion) in debt obligations, representing 7 percent of total assets, Emaar said today.

“Investors are worried a merger may mean a long share halt as is the case with Amlak and Tamweel,” said Mohamed Dwaikat, a broker at Al Fajer Securities in Abu Dhabi. “There is also concern about a possible dilution of the shares.” Amlak Finance PJSC and Tamweel PJSC, the United Arab Emirates biggest mortgage firms, haven’t traded since November pending a planned merger.

The Dubai Financial Market General Index lost 6.1 percent, the biggest fall since November, to 1,745.07, trimming the gain for this quarter to 11 percent. Abu Dhabi’s ADX General Index retreated 2 percent, paring this year’s advance to 7.7 percent.

Emaar, which is building the world’s tallest tower and makes up about 20 percent of Dubai’s index,fell to 2.89 dirhams. Al Mal Capital PSC suspended its recommendation on the company, saying the planned merger could be “potentially dilutive” for Emaar shareholders.

“We are skeptical of the potential synergies accruing from this deal, as it is our understanding that Dubai Holdings has already undergone significant restructuring,” Al Mal analyst Bobby Sarkar wrote in a note to clients. Dubai Holding is a 100 percent state-controlled entity, while the government of Dubai owns about a 31 percent stake in Emaar, Bloomberg data show.

Emirates NBD, Aldar

Emirates NBD PJSC, the U.A.E.’s biggest bank by assets, lost 4.8 percent to 3.37 dirhams. Aldar Properties PJSC, Abu Dhabi’s largest real-estate developer, slid 4.9 percent to 3.49 dirhams, its lowest close since May 4.

Saudi Arabia’s Tadawul All Share Index fell 2 percent to 5,490.02, its lowest close since April. The Kuwait Stock Exchange Index declined 0.6 percent and the Bahrain All Share Index decreased 1.5 percent. Oman’s Muscat Securities Market 30 Index sank 1.1 percent, bringing the four-day decline to 3.1 percent. Qatar’s Doha Securities Market Index fell for the first time in three days, losing 1.2 percent.

To contact the reporter on this story: Zainab Fattah in Dubai on zfattah@bloomberg.net

Last Updated: June 28, 2009 09:24 EDT