Property | UAE

Aldar and Sorouh reach merger agreement

Merger to create the biggest UAE real estate company in capitalisation

  • By Shehab Al Makahleh, Staff Reporter
  • Published: 19:28 January 8, 2013
  • Gulf News

  • Image Credit: Hadrian Hernandez/Gulf News archive
  • The Aldar headquarters in Abu Dhabi. Shares in Aldar Properties jumped 6.4 per cent on Tuesday on news of the merger with Sorouh Real Estate.

Abu Dhabi: Agreement on a merger between Abu Dhabi’s two largest developers Sorouh and Aldar has been reached yesterday. The market has received the news with a rally at the UAE bourses. Shares in Aldar Properties and Sorouh Real Estate jumped 6.4 and 7.2 percent respectively. The new entity would be managing assets worth more than $15 billion.

The merger, according to an insider who didn’t want his name published, would be smooth and ultimately boost the domestic real estate industry. In 2010 Aldar had suffered heavy losses, amounting to Dh12.7 billion, not only due to the high costs of sales but also because of high overhead costs and high finance costs, Waddah Taha, chief analyst, said. “In 2011, the government of Abu Dhabi and Mubadala stepped in to support Aldar by offering a better structure to financially absorb losses of 2010,” said Taha.

He added: “The government bought assets to complete the infrastructure of Yas Island, Ferrari World land residential and commercial units worth Dh16.5 billion in 2011. Aldar issued convertible bonds to Mubadala worth Dh2.8 billion in 2011.” He said that in December 2011 Mubadala converted Dh2.1 of the Dh2.8 billion bonds into shares worth Dh1.7 billion.

“The other support by the government to Aldar was in December 2011 which included purchasing the Central Market at Dh9.2 billion, some infrastructural works, residential, commercial and land plots at Dh5 billion and Dh2 billion for construction management,” he said.

He said Aldar has strong strategic partners: Abu Dhabi Commercial Bank, which owns 14 per cent of Aldar; the National Bank of Abu Dhabi, which owns 3.6 per cent; Abu Dhabi Retirement Fund, which owns 2.1 per cent; and Mubadala, which owns 35 per cent.

“In other words, Aldar is more than 55 per cent owned by strategic partners and the public only owns 45 per cent, and Sorouh is 62 per cent owned by strategic partners and 38 per cent by the public,” Taha said.

“Aldar short term loans due within less than a year amount to Dh5.1 billion while its long term loans amount to Dh9.3 billion. On the other hand, Sorouh’s short term loans amount to Dh1 billion while its long term loans amount to 1.5 billion.

“The total liability of both companies is Sh32.4 billion: Aldar’s liability is Dh25 billion and Sorouh’s is Dh7.4 billion.”

He said the total of shareholders’ equity — or what is known as the owner’s equity — for both companies is Dh14.7 billion — Dh7.9 billion at Aldar and Dh6.8 billion at Sorouh.

Marwan Shurrab, vice-president and chief trader at Gulf Mena Investments, told Gulf News the merger is positive.

“The merger has positive results on shareholders on the long term as both companies will form a new real estate entity with the highest capital in the UAE, which is supported by the government to develop many projects in the Emirate of Abu Dhabi and elsewhere,” said Shurrab.

He added that on the short term, there are two options for the two companies.

“There is the so-called price-to–book. Sorouh’s price-to-book is 0.64 while Aldar is 0.88, which gives privilege to Sorouh,” he said.

Taha agreed that Sorouh is expected to reduce the risk as Aldar’s debt-to-equity ratio is 1.8, while Sorouh’s is 0.38.

He added: “In terms of assets, Aldar assets are more than Dh40 billion while Sorouh has only Dh14 billion. This gives privilege to Aldar.”

Craig Plumb, director of research for Jones Lang LaSalle, told Gulf News the merger is positive for both companies, but said he could not comment further as the deal had political and economic dimensions and “we are involved in the merger process”.

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