x Abu Dhabi, UAESaturday 20 January 2018

Abu Dhabi's Aldar and Sorouh join forces

Emirate's two biggest developers to merge as Aldar Sorouh Properties in what is set to be one of the largest such deals ever undertaken in the region.

The merger of Aldar and Sorouh marks one of the largest such deals ever undertaken in the region. Jaime Puebla / The National
The merger of Aldar and Sorouh marks one of the largest such deals ever undertaken in the region. Jaime Puebla / The National

Abu Dhabi's two biggest developers have agreed to become one, controlling US$13 billion (Dh47.7bn) in property assets that include some of the capital's leading landmarks.

The merger of Aldar Properties and Sorouh Real Estate creates the country's second biggest developer, behind only Emaar, and the emirate's key vehicle for delivering major infrastructure projects.

One of the first priorities of the merged company would be to reduce its debt burden, helped by expected government cash flows of Dh15.2bn over the next two years, the prospective chairman Abubaker Seddiq Al Khouri said yesterday. "This deal forms a very strong platform for both entities to grow in the future, he said. "It is designed to combine a very strong balance sheet with a lower risk."

Under the terms of the deal the assets of Sorouh will be transferred to Aldar. Sorouh will then be delisted as a company and dissolved. Aldar will issue 3.38 billion shares for the shareholders of Sorouh, which translates as receiving 1.288 Aldar shares for each Sorouh share they hold, leaving analysts to speculate that the deal benefited Sorouh shareholders more.

The proposed share split triggered a day of roller-coaster trading of both stocks. Aldar's shares tumbled 9.8 per cent yesterday to close at Dh1.47. Sorouh stock initially rocketed 14.7 per cent before paring much of its gains. At the close, it was up 4.2 per cent at Dh1.70.

Both companies' boards hope to complete the deal 90 days after they win approval from at least 75 per cent of shareholders. Under the proposed terms, the Abu Dhabi Government and related entities will own approximately 37 per cent of the combined company.

The merger was sweetened significantly for both sets of shareholders by a deal Sorouh managed to strike with the Abu Dhabi Government over the sale of Dh3.2bn of assets.

These included cash for Dh1.6bn of infrastructure assets such as roads and pipework it had installed in the Shams area of Reem Island.

It also included the sale of hundreds of flats in its 3,500 apartment The Gate scheme on Reem Island.

That project is set to complete this year.

Mr Al Khouri said the merger would create synergies of up to Dh110 million a year by 2015.

"Until now we have not determined the number of layoffs this will involve," he told reporters. "There will be a duplication of some jobs but most of the savings will come from other things such as mechanisms and processes being slimmed down as well as procurement and land banks. There are a number of things that come into this, not just layoffs."

The long-awaited multibillion dirham deal comes as the latest in a wave of consolidation and government assistance aimed at helping the UAE turn its back on the severe financial problems caused by the global financial downturn and which appears to have gained pace in recent weeks.

Dubai Islamic Bank this month said it planned to take full ownership of Islamic mortgage company Tamweel. Amlak, another Islamic mortgage provider, was said to be in discussions with its creditors over proposals to restructure some US$2bn of bank debt, according to Economy Minister Sultan Al Mansouri. EmiratesNBD, the biggest lender in the country by assets, last year launched a takeover of ailing Dubai Bank.

"A wave of consolidation usually happens when there is a correction of a market," said Fadi Al Said, the head of equities at ING Investment Management in Dubai. "It's only to be expected after the 2008 global financial crisis, and a property crash and over-leveraging in the banking and property sector."