As a first step to one of the biggest mergers of listed companies in the region, the two state-backed major property developers in Abu Dhabi, are uniting in a wider consolidation, which will result in projects and state entities being merged, so as to bring stability into the real estate market.
After about a year of talks between the top business moguls and government officials in the emirate, Aldar Properties and Sorouh Real Estate have agreed on a merger, which will create a company with $13bn in assets. This would be one of the biggest-ever mergers of listed companies in the Middle East.
Aldar is 50 percent owned by the Abu Dhabi government via channels including the emirate’s sovereign wealth fund, who built the Yas Marina Formula One Circuit in the capital.
Sorouh is a smaller, less government ownership, but, the ruling family in Abu Dhabi own major stakes in the firm through investment companies.
The two firms struggled with the bursting of a bubble in Abu Dhabi property market, and Aldar received $10bn as state aid over the past two years.
Although negotiating the merger was a difficult task, the government’s endeavours finally bore fruit. The government took the bold step to consolidate supply of new property projects, said David Dudley, Head of Abu Dhabi office for JLL.
The success of the new company, namely ‘Aldar Sorouh Properties’, will partly depend on whether it can outride the excess supply of high-end property developments.
Real estate prices in the capital have tumbled by 50 percent ever-since the global financial crisis hit a few years ago. Jones Lang LaSalle, in its January Report, said that Abu Dhabi was 18 to 24 months behind Dubai, in property cycle, and so, its market is not expected to turn up in 2013.
There is mismatch between the underlying demand and those delivered already. The merger still does not solve the immediate issues faced by the property market, particularly on the high-end supplies. But, it may help stabilize things, which will eventually take positive turn in the long-term, said Loic Pelichet, Assistant Vice President, NBK Capital.
According to analysts, the new company should stop being highly dependent on the government spending, particularly for housing projects for UAe nationals, and instead emulate profitable developers, said Emaar Properties.