We see that investors have been keen to continue investing in the local markets for some time now. However, what they probably lacked was a catalyst that would guide and motivate their decisions.

In an attempt to support economic and investment decisions in the UAE and Abu Dhabi in particular, regulators and listed companies from different sectors have been working closely to outline highly beneficial synergies and to chart new strategic courses for their business’ bottom-line — and those that would serve to enhance and strengthen stability of the economies at both the macro- and micro-levels.

With the above in mind, for the second time this year, Abu Dhabi has proven to be a leader when it comes to supporting listed companies in restructuring and the proper capitalisation of their resources. We witnessed earlier this year the merger between NBAD and FGB and Abu Dhabi Financial Group’s acquisition of Shuaa.

Now, we see, as announced on August 30, another merger among two of the biggest real estate companies in Abu Dhabi — Eshraq Properties and Reem Investments.

They will create the second-largest real estate entity in Abu Dhabi with a Dh6.7 billion capital. Through recent years, real estate companies have struggled with their earnings and reported subdued numbers in some cases.

One way to contain such a performance is combining the forces of healthy and promising companies in an attempt to utilise the positive aspects of both entities and create a more profitable entity. The upcoming merger will expose Eshraq’s shareholders to the profits and benefits of a private company, while Reem’s shareholders will benefit from the liquidity of a publicly-owned company.

Investors’ main concern when it comes to mergers and acquisitions is always related to the shareholding and long-term benefits from such deals. As such, we need to point out that a dilution of ownership is of importance and we will be witnessing some of that after the merger — but always in the best interest of the investors.

Eshraq, a Dh2.32 billion share capital company (with an EPS or earnings per share of -0.23) has an estimated Dh 1.015 billion in losses (including losses on investment properties), which will be wiped off through a capital reduction of approximately 57 per cent of the share capital.

Reem Investments, on the other hand, has Dh5.52 billion in equities, which will be swapped against shares of Eshraq resulting in a consolidated Dh6.7 billion capital firm. Clearly, Eshraq shareholders are benefiting the most out of this deal whereby the company will have a positive EPS post completion of the merger.

For years, the UAE has been enhancing the real estate sector in general. This is reflected through the acquisition of Aldar and Sorouh in 2013 and the Eshraq and Reem merger. Expo 2020 is around the corner and real estate companies have been working on projects to meet requirements and boost economies as well.

Abu Dhabi will be as affected as Dubai, hence establishing large entities to accommodate markets’ needs is mandatory. And one way of achieving it is through mergers similar to these.

The one between Eshraq and Reem, I believe, will be significantly beneficial for the entire market over the long term.

 

 

 

— The writer is Director of Capital markets at FFA Dubai.