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Abu Dhabi, UAESunday 16 December 2018

Eshraq Reem deal the latest step in Abu Dhabi's economic consolidation

Mooted deal follows consolidation by banks, sovereign wealth funds and universities

Eshraq Properties' Marina Rise development on display at 2017 Cityscape Abu Dhabi. Christopher Pike / The National
Eshraq Properties' Marina Rise development on display at 2017 Cityscape Abu Dhabi. Christopher Pike / The National

The banks got the ball rolling last year, followed by the sovereign wealth funds, and then the universities.

Now it is the turn of the real estate sector.

Yesterday’s announcement of the potential merger deal between Eshraq Properties and Reem Investments is the latest step in the ongoing consolidation of Abu Dhabi’s economy in the wake of lower oil prices.

The announcement of the merger last year of FGB and NBAD to create First Abu Dhabi Bank was the first step, followed soon after by the coming together of Mubadala Development Company and International Petroleum Investment Company to create Mubadala Investment Company.

Beyond the corporate world, three of the capital’s universities – Khalifa University, the Petroleum Institute and the Masdar Institute – have also come together.

The tie-up between Reem Investments and Eshraq, therefore, should come as little surprise, given what has gone before. Indeed, the impact of lower oil prices has been felt particularly keenly in Abu Dhabi’s real estate sector, with lower wages and a reduction of staff taking its toll on rents and prices.

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Read more:

Eshraq in merger talks with fellow developer Reem Investments

Eshraq Properties reports smaller loss for quarter

New Reem Island projects approved by Abu Dhabi city planners

Mubadala Investment Company set for next step on integration path

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Mubadala Investment Company set for next step on integration pathBrokers Core Savills last week said that prices were down as much as 15 per cent year-on-year to the end of June, with high-end developments particularly affected. Indeed, consolidation in the sector began even ahead of the downturn, with the merger of Aldar Properties with Surouh in 2013.

The marriage between Reem Investments, a master developer with a large bank of land, and Eshraq, a traditional developer, makes sense in theory. But while such a merger would create Abu Dhabi’s second-largest developer behind Aldar, the comparative lack of development experience between the two entities may count against the new company, as Ben Crompton of Crompton Partners has noted.

Such concerns haven not been felt yet by the market; Eshraq’s shares finished yesterday up 3.7 per cent at a two-and-a-half-week high of 87 fils.

Much about the deal has yet to be worked out, if indeed it still goes ahead. But the discussions between the two entities proves that the impulse among Abu Dhabi’s big businesses to consolidate remains as keen as ever. With a return to the high oil prices of 2014 increasingly unlikely, more mergers among the emirate’s big names are surely only a matter of time.