Aldar Properties PJSC and Sorouh Real Estate Co., Abu Dhabi’s biggest developers, are considering a merger that may create a company with $15 billion in assets.
The companies set up a team to study a possible merger with the “blessing” of Abu Dhabi’s government, which owns stakes in both, according to a joint statement today. The team “will present its recommendations for the top management of both companies within the next three months in coordination with the concerned official authorities,” according to the statement.
“This will make perfect sense,” Haissam Arabi, chief executive officer of Gulfmena Investments, said by phone. “I don’t see a reason for two mega, master developers with similar business propositions or offerings to remain separate.”
Aldar and Sorouh shares have rallied this year after Abu Dhabi, the oil-rich emirate transforming itself into a business and cultural hub, said it plans to resume stalled projects including branches of the Louvre and Guggenheim museums. Property prices in the emirate dropped by half from the market’s peak in 2008 as the global credit crisis forced banks to curb mortgage lending and speculators fled.
Aldar, which is building thousands of homes and offices in Abu Dhabi, received 36 billion dirhams ($9.8 billion) in government support last year and the company sold assets including a Ferrari theme park to the state. Rents in Abu Dhabi will drop further in 2012 as property supply outstrips demand, according to real-estate consultant CB Richard Ellis Group Inc.
“The consolidation is something positive for the market in all sectors, not just the real estate, but also financial,” said Yazan Abdeen, who helps oversee about $250 million as a fund manager at ING in Dubai. “This is part of a confession the market is going through in realizing the real quality of the assets.”
The United Arab Emirates property market is still fragile after residential real-estate prices in Dubai slumped more than 60 percent from a mid-2008 peak. Developer Nakheel PJSC escaped default with the help of an $8.6 billion bailout from the Dubai government.
Tamweel PJSC, which along with Islamic lender Amlak PJSC, provides almost 90 percent of all mortgages in the U.A.E., resumed lending after Dubai Islamic Bank PJSC raised its stake to 58 percent in September 2010 to help support the mortgage market. The company had halted lending in October 2008 after the global credit crisis blocked access to funds. Emirates NBD PJSC, the U.A.E.’s biggest lender by assets, last year took over unprofitable Dubai Bank PJSC, which was rescued by Dubai’s government in May after loan losses increased.
Aldar shares surged 8 percent to 1.22 dirhams today, bringing its gain for the year to 33 percent. The stock tumbled 60 percent in 2011. Sorouh also rose 8 percent to 1.22 dirhams today. It has risen 44 percent in 2012 after losing 48 percent last year. That compares with a 7.7 percent rise in Abu Dhabi’s ADX General Index so far this year.
Aldar had total assets of 40 billion dirhams at the end of last year compared with 14 billion dirhams at Sorouh. The company returned to a full-year profit, beating analyst estimates, after the company sold more land and properties to the state. Sorouh’s 2011 profit surged to 334.7 million dirhams from 7.44 million dirhams as income from rentals and housing projects rose.
Aldar this month had its outlook raised to “positive” from “negative” at Moody’s Investor Service. The company has a market value of 4.98 billion dirhams while Sorouh’s is 3.2 billion dirhams.