x Abu Dhabi, UAEWednesday 26 July 2017

Sorouh and Aldar weigh $15 billion merger plan

Abu Dhabi’s two largest developers are weighing a US$15 billion (Dh55.09bn) merger in what would be the biggest consolidation of listed property assets ever seen in the capital.

Aldar and its main rival Sorouh are considering a merger to create a super-company.
Aldar and its main rival Sorouh are considering a merger to create a super-company.

Abu Dhabi’s two largest developers are weighing a US$15 billion (Dh55.09bn) merger in what would be the biggest consolidation of listed property assets ever seen in the capital.

Aldar and Sorouh are preparing a study to be put before both boards within the next three months, they said in a joint statement yesterday.

“A merger makes perfect sense,” said Haissam Arabi, the chief executive at the Dubai asset manager Gulfmena Investments. “There is no need for two developers with very similar offerings.”

Both developers gained 7.9 per cent to Dh1.24 yesterday before the stock exchange disclosure.

Aldar and Sorouh were together responsible for delivering some of the capital’s biggest property developments.

Aldar built the F1 Yas Marina Circuit and Central Market developments while Sorouh is the developer behind projects that include Reem Island’s Sun and Sky Towers. A merger of the two would create a company with assets of more than Dh55.09bn.

Abu Dhabi property developers were hit hard by the global financial crisis in 2008, with prices tumbling by as much as 60 per cent from their peak in some places.

Aldar has already received more than $10bn in government funds and cut 105 jobs last November. Sorouh has also shed jobs over the past year.

Property analysts said prices in the Abu Dhabi market were set to bottom out this year, having fallen in the past two years since the onset of the financial crisis and a hiatus of spending by the Government.

“We have a year of further supply coming through. We are getting close to the bottom,” said David Dudley, the regional director for the property consultancy Jones Lang LaSalle.

He said the Government’s renewed spending on infrastructure, education and property, part of the Abu Dhabi 2030 Vision, was likely to stimulate jobs growth and eventually increase property prices. “The current year will still be challenging,” said Mr Dudley. “But we will have a recovery as the new investment generates jobs for Abu Dhabi.”

Aldar wrote down a number of assets last year with some Dh3bn in impairments, provisions and fair-value losses recognised overall. It completed 1,930 residential units including Al Zeina and Al Muneera communities at Al Raha Beach.

It also added about 76,000 square metres of retail space. Aldar is in the process of selling Dh16.8bn in assets to the Government. That includes Dh5.7bn for Central Market, the city centre souq designed by Lord Norman Foster. In January 2010, the company disclosed a funding plan under which the Abu Dhabi Government would buy Dh10.9bn of its Yas Island infrastructure assets, including the Ferrari World theme park and Dh5.5bn of residential units and land.

Abubaker Seddiq Al Khouri, the managing director of Sorouh, yesterday said the deal would be good for investors.

“We look at it with the shareholder’s benefit in mind,” he said on the sidelines of the Sorouh annual general meeting (AGM) in Abu Dhabi.

Shareholders attending yesterday’s AGM gave the proposed deal a positive response.

“The idea is excellent,” said Ihsan Hashim, an investment manager based in the capital.

“They can control the prices and reduce competition.”

But the first real test of how the market perceives the planned merger will come this morning when Aldar and Sorouh stock resumes trading.

“They will be creating a massive real estate company that will be very dominant in Abu Dhabi,” said Saleem Khokhar, the head of equities at National Bank of Abu Dhabi.

“If they can combine in a sensible manner, it will be very positive.”

Aldar was unavailable for comment.