--Aldar and Sorouh say studying possible merger
--Potential tie-up comes amid a struggling Abu Dhabi real estate
market
--Merged company would have combined market cap of $2.23
billion, according to Zawya.com
(Adds comments from analysts in paragraphs 5, 7 and 8)
By Tahani Karrar-Lewsley
Of ZAWYA DOW JONES
DUBAI(Zawya Dow Jones)--Faced with a local real estate sector
blighted by excess supply, Abu Dhabi-based developers Aldar
Properties (ALDAR.AD) and Sorouh (SOROUH.AD) said they are studying
a possible merger, a combination both say has the backing of the
government.
Aldar and Sorouh, in a joint statement posted on the Abu Dhabi
Securities Exchange website Sunday, said a team will be formed to
study the legal and commercial aspects of a merger and will provide
recommendations to senior management within the coming three
months.
Based on Sunday's closing share prices, a combined Aldar and
Sorouh would have a total market capitalization of about $2.23
billion, according to Zawya Dow Jones calculations. Dubai-based
Emaar Properties (EMAAR.DFM) in comparison has a current market
capitalization of around $5 billion.
Despite forecasts of about 5% economic growth this year, Abu
Dhabi, which holds 7% of the world's oil reserves, has scaled back
many of its ambitious real-estate projects to conserve cash as the
global economy has slowed.
"The merger will be good for both companies as it will raise
their landbanks and see less competition for future projects, it
will also play into the government initiative to streamline and
consolidate the market and help out developers in terms of cashflow
and projects," said one Abu Dhabi-based analyst. "There's a finite
amount of demand and if that is managed under one portfolio that
will be better," he added.
According to property consultants C.B. Richard Ellis, at the end
of 2011, Abu Dhabi's total office supply reached 2.74 million
square meters and this figure is seen growing rapidly during 2012,
while residential supply will likely outstrip demand over the next
12 months, resulting in further house price declines.
Another U.A.E-based real estate analyst, who declined to be
named, said a key reason for a possible merger is cost cutting.
"It's about consolidation, reducing staff numbers, the market is
difficult and there are more challenges ahead with more supply
coming through so consolidation will reduce outflow and it will
mean more streamlining and job cuts," he added.
Last month, Aldar said it swung to a full-year 2011 net profit
of 642.5 million U.A.E. dirhams ($174.9 million) from a loss of
AED12.66 billion the previous year, boosted by land sales and
recurring revenue from investment properties, hotels and schools.
Last year, government-related investment firm Mubadala Development
raised its 20% share in the company to 49% after converting AED2.11
billion worth of Aldar bonds into shares.
In February, Sorouh said it planned to hand over more units in
2012 and boost its recurring income portfolio as it posted a fourth
quarter net profit of AED93 million versus a net loss of AED212.5
million a year ago.
Aldar shares rose 8% to AED1.24, while Sorouh also climbed 8% to
AED1.24 Sunday.
-By Tahani Karrar-Lewsley, Dow Jones Newswires; +9714 446-1692;
Tahani.Karrar@dowjones.com
Copyright (c) 2012 Dow Jones & Co.