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Abu Dhabi, UAESunday 23 September 2018

Eshraq in merger talks with fellow developer Reem Investments

Deal would create Abu Dhabi's second largest property developer 

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

Abu Dhabi real estate firms Eshraq Properties and Reem Investments are considering a potential merger to create the second-largest listed developer in the emirate.

The deal, if completed, would be the latest in a series of mergers and consolidations within Abu Dhabi, as government agencies and large corporations tighten their belts in the wake of lower oil prices.

Talks are at an advanced stage for the potential deal, which would involve Reem Investments subscribing to a new share issuance offered by Eshraq, which in turn will acquire Reem’s entire business and all of its assets, the two firms said in a joint statement issued on Wednesday.

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The transaction remains subject to a number of conditions, including the final agreement of specific deal terms including the pricing, as well as obtaining the required regulatory approvals, the statement said.

The companies did not comment on when the deal is expected to be completed. Dubai-based investment bank Shuaa Capital is advising Eshraq on the deal, while Reem is being advised by First Abu Dhabi Bank (FAB).

“The potential transaction is expected to be beneficial to the shareholders of both companies resulting in synergies derived from integrating their operational and financial resources and as well as combining their management experience and expertise,” the boards of the two companies said in the statement.

The real estate sector in the UAE, which recovered well from 2008 financial crisis has seen headwinds in past few quarters. Oversupply of residential units, difficulties in securing new finances and slower economic growth has pushed some of the developers to gain scale through mergers and acquisitions in order to better cope the current market conditions.

Real estate brokers Core Savills last week said that Abu Dhabi's residential property market continued to witness steep declines in the year to June, with prices falling as much as 15 per cent year-on-year.

Abu Dhabi has already seen some consolidation its financial and real estate sectors. Aldar Properties, the biggest-listed developer in the emirate, merged with rival Sorouh Real Estate in 2013. The merger of state-controlled Mubadala Development Company with International Petroleum Investment Company to create Mubadala Investment Company, and the combination of the balance sheets of National Bank of Abu Dhabi and First Gulf Bank to create FAB, are more recent examples of financial sectors consolidation.

Eshraq and Mubadala teamed up in April to explore the possibility of establishing a joint real estate development firm, with an aim to jointly develop plots of land in Abu Dhabi, owned by Mubadala on Al-Maryah Island and by Eshraq Properties on Al-Reem Island.

The pair, which had signed only the head of terms agreement at the time, said that they would only disclose the locations of the plots once the joint venture company had been fully established. It is not clear if the deal is still being finalised.

Eshraq, which is also the founding shareholder of the Etihad REIT, a Shariah-compliant real estate investment trust which plans to list on one of the UAE exchanges, has a diverse portfolio of properties. Its shares rose as much as 3.6 per cent on Abu Dhabi Securities Exchange on the potential merger news in overall low-volume subdued trade on the bourse.

Established in 2005, Reem Investments is a master developer and has assets in locations including the Najmat on the Reem Island and Rawdhat on Old Airport Road in Abu Dhabi.

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