x Abu Dhabi, UAEWednesday 17 January 2018

Merger rumour fuels rally in Aldar and Sorouh shares

Shares in the capital's biggest developers, Aldar and Sorouh, rocketed close to their maximum price limit yesterday, amid investor speculation of an imminent merger.

A merger between Aldar and Sorouh would create a property developer with US$15 billion in assets. Duncan Chard / Bloomberg News and Jaime Puebla / The National
A merger between Aldar and Sorouh would create a property developer with US$15 billion in assets. Duncan Chard / Bloomberg News and Jaime Puebla / The National

Shares in the capital's biggest developers, Aldar Properties and Sorouh Real Estate, rocketed close to their maximum price limit yesterday, amid investor speculation of an imminent merger.

"Investors are optimistic that the new entity is going to be largest real-estate development in the UAE and will enjoy support from the government through financing and project allocation," said Nabil Farhat, a partner at Al Fajer Securities in Abu Dhabi.

Aldar and Sorouh announced they were considering a tie-up last March.

A merger would create a property developer with US$15 billion (Dh55.09bn) in assets. Abu Dhabi developers were hit hard by the global financial crisis in 2008, with some prices tumbling by as much as 60 per cent from their peak.

The long-anticipated merger is widely expected to jump-start decision-making on projects and be a catalyst for further development amid a gradual recovery in Abu Dhabi's property market.

Aldar, the developer behind Yas Island and Ferrari World, jumped 13.5 per cent to Dh13.57. Sorouh, responsible for Reem Island's Sun & Sky Towers, advanced 14.4 per cent to Dh1.58.

Regulations permit shares to advance a maximum of 15 per cent and decline a maximum of 10 per cent on any given day.

The market is assuming that a merger will be based on a one-to-one basis, because the share price is equal, regardless of the market capitalisation or assets of either parties, said traders.

But investors may be moving ahead of themselves given there has been no announcement, confirmation, or details released of the merger as yet.

"What is clear is that no one knows anything. It's just speculation from retail," said Marwan Shurrab, the vice president at Gulfmena Investments, an asset manager in Dubai.

"The scenario could change if the regulators or the people in charge choose to determine the movement based on equity or market capitalisation."

The merger could be based on other variables, such as equity or market capitalisation, said Mr Shurrab.

Aldar is trading at a premium to Sorouh because of investor perception that it is government-backed. Aldar, with equity of about Dh7.35bn and market capitalisation of Dh6.5bn, is trading 0.88 times book value. Sorouh, with equity of about Dh6.5bn and market cap of Dh4.1bn is trading at 0.64 times book value.

halsayegh@thenational.ae