Tamweel prepares for merger

Uta Harnischfeger

• Last Updated: November 22. 2009 11:53PM UAE / November 22. 2009 7:53PM GMT

Sheikh Khaled bin Zayed, the chairman of Tamweel, says shareholders would be invited to an extraordinary meeting to approve the final restructuring proposals for the soon-to-be merged entity. Philip Cheung / The National

Tamweel, the country’s second-largest home finance company, has returned to profit as the Government moves towards finalising a proposed merger with its rival Amlak to be put to shareholders as early as January.

The Islamic lender reported a third-quarter profit of Dh10 million (US$2.7m) after three quarters of losses. It was a drop of 95 per cent compared with the Dh185.7m profit for the third quarter last year.

Sheikh Khaled bin Zayed, the chairman of Tamweel, said shareholders would be invited to an extraordinary meeting, possibly in January, to approve the final restructuring proposals from a government steering committee.

“All details of the merger will be discussed at the meeting, including the stake of the Government and the value of shares offered to existing shareholders,” Sheikh Khaled said on the sidelines of the World Economic Forum's summit on the global agenda in Dubai.

“The new merged entity will get a banking licence and will be able to take customer deposits as soon as the merger completes and the new structure is approved.”

Tamweel and Amlak have long lobbied for full banking licences, as they have been unable to offer savings accounts to take deposits from customers.

That would put them on a more sound financial footing and allow them to be less reliant on debt markets to sell more mortgages. So far, both lenders have depended on deposits from companies and short-term bank loans.

Tamweel, which has not signed any new loans in a year, has been in limbo since the Government announced a merger with Amlak last November and suspended its shares.

Some analysts see the revival of the country’s top two lenders as a crucial first step for a recovery in the housing market, where property prices have fallen by as much as 50 per cent from their peak last year.

Sheikh Khaled said the Government would increase the capital of the merged lender by about Dh2 billion.

Tamweel said yesterday it had set aside Dh53m as provisions against bad debts. It has made almost Dh200m in provisions in the past nine months.

Amlak posted a Dh65.6m loss in the second quarter but has not released third-quarter earnings.

Analysts said a slowdown in impairment charges at Tamweel was significant.

“While Tamweel continues to face challenges, this is no disaster,” said Robert Thursfield, the director of financial institutions at Fitch Ratings. “The mortgage book continues to perform relatively well, the impairment charges are not rising as quickly (as before) and they have clamped down on costs.”

Sheikh Khaled said last week that the lender’s default rate was coming down after peaking at about 3 per cent of outstanding lending.

Tamweel generated Dh180m from its mortgage book in the third quarter despite a severe slowdown in the Dubai property market, where the company generates most of its revenues.

The financial crisis highlighted the gaps between the lenders’ short-term borrowings and their long-term home loans with maturities of up to 30 years. Both had also taken out syndicated loans and Islamic bonds, known as sukuk.

At the peak of Dubai’s economic boom Tamweel and Amlak accounted for about two thirds of Dubai mortgages. That share has fallen to about 45 per cent, according to analysts.

UBS last week predicted that it may take a decade for the market to return to its previous peak. It expects Dubai’s population to decline at a time when the supply of new homes puts pressure on prices.

* with Zawya Dow Jones

uharnischfeger@thenational.ae

The Tamweel plan, b4