Amlak-Tamweel deal rethink

Dubai: The UAE government is rethinking the merger of mortgage lenders Amlak and Tamweel and other options are being explored by a new committee, according to the Ministry of Finance.

The Ministry of Finance has formed a Steering Committee, headed by Sultan Bin Saeed Al Mansouri, UAE Minister of Economy, which aims to review Amlak and Tamweel and recommend possible ways the two companies can go forward.

"The Steering Committee appointed by the Cabinet is reviewing the operations of Amlak and Tamweel. It is also evaluating their performances in light of the emerging economic situation.

"Various options are being considered in the long term interests of the mortgage market and investors. Merger continues to be one of the options, however, not a definite option," Al Mansouri told Gulf News yesterday.

After reviewing both Amlak and Tamweel, the committee is expected to give its recommendation to the government at the end of this month, the minister said.

"Mortgage finance has been one of the key drivers of real estate growth in the UAE. The ripple effects of the global financial meltdown have necessitated a renewed approach to the business models of Amlak and Tamweel," Al Mansouri said.

The Steering Committee will comprise experts from all the ministries and regulatory bodies.

Up until very recently, a merger of Amlak and Tamweel under the Emirates Development Bank was a sure thing. However, it now seems a variety of other avenues are being explored.

The UAE's mortgage and home financing sector has huge potential and many people wishing to buy property in Dubai are waiting only for mortgages to become available in the market. A quick injection of liquidity could help accelerate business activities in Dubai's property sector.

"The committee will structure solutions and evaluate ways in which Amlak and Tamweel can unlock these opportunities in the short to medium term. The proposal may also look at reconstructing the business and developing a sound, long-term business model," the minister added. It is hoped the proposal will infuse greater stability into the UAE's property industry.

However, some analysts say that the only viable alternative is to let the companies go under.

"The key question is: are you better off letting these companies go bankrupt? Bailing out just makes things worse. If the companies don't merge, then other options include letting them go under. Or they could not merge and [the government]) could throw more money at both of them, which is pointless. It's like burning money to save the sukuk bond-holders of Amlak," Barmak Besharaty, managing director of Al Mas Capital, said.

"The correct thing to do is let these companies sink and create another, more nimble entity," Besharaty added.

Other analysts say yet another option is on the table.

"They [Amlak and Tamweel] have substantial losses that need capitalisation from somewhere. Merging two high-risk [companies] together which have, essentially, the same problems, doesn't necessarily solve the problem, but shifts the problem around," Raj Madha, senior research analyst (banking) at EFG-Hermes, said.

"Some sort of nationalisation seems the obvious choice," Madha added.