* Team formed to study tie-up
* Decision on merger within three months
* Plan backed by Aldar majority owner, Abu Dhabi government
* Sorouh MD says shareholders give positive reaction
(Recasts, adds Aldar comments)
By Praveen Menon
DUBAI, March 11 Abu Dhabi's struggling
developer Aldar Properties may merge with local rival Sorouh
Real Estate in a state-backed tie-up that could create
a company worth some $15 billion in assets.
A decision on the merger of the top two developers in the
emirate will be made within three months after a joint committee
assesses the matter, the companies said in a joint statement on
the Abu Dhabi bourse, adding the talks had "the blessing of the
Abu Dhabi government".
The plan comes as prices slide in the emirate's real estate
sector, which has not recovered from the downturn seen after the
2008 global financial crisis. Property firms have been forced to
cancel projects and restructure their huge pile of debt.
Aldar, in which Abu Dhabi state fund Mubadala has
a 49 percent stake, has relied heavily on the government over
the past 18 months.
The builder of the Yas Marina Formula One motor racing
circuit has assets worth more than 40 billion dirhams ($10.9
billion) and finally swung to profit in 2011, lifted by two
government bailouts totalling nearly $10 billion.
Smaller Sorouh, which has assets of 14.1 billion dirhams,
has fared better than its bigger rival, supported by a focus on
existing project completion and delivery.
"We'll do it if it's good for both companies," Sorouh
Managing Director Abu Bakr Seddiqi Al Khoury said at the
developer's annual general meeting in Abu Dhabi. "It won't
change or shift our strategy from what we are doing today."
Aldar's Deputy Chief Executive Mohammed Khalifa Al Mubarak
also said there is no concrete decision yet and the way forward
would only be clear after assessment by the committee.
Shares in both companies ended up 8 percent on the Abu Dhabi
exchange on Sunday. The statement came after markets
"I think this is not only for Aldar but also for the real
estate (market) in Abu Dhabi," said Ali El Adou, portfolio
manager at The National Investor.
"The current business set-up for Sorouh and Aldar is not
viable in the long run. So the government is trying to create an
entity which will have a stronger (footing)."
Sources told Reuters in January that Abu Dhabi had held
talks to offload all or part of the Aldar stake in an attempt to
stop its falling asset value from dragging down Mubadala.
"I think it is too early to identify the effect on Mubadala,
but this might be an opportunity to exit Aldar or dilute their
ownership in it," said Adou.
Abu Dhabi's property market fared better than neighbouring
emirate Dubai, which saw a collapse and the restructuring of its
flagship property firm Nakheel, which was a part of
However, Abu Dhabi is now facing challenges as a huge supply
of high-end homes are expected to enter the market. Property
prices in the emirate are expected to fall another 11 percent
from here, a Reuters poll showed.
Abu Dhabi, which rescued Dubai with a $10 billion bailout,
has spent an equal amount on Aldar, which landed in debt from a
The oil-rich state, which accounts for more than half of the
United Arab Emirates' economy, government-backed real estate,
commercial and tourism projects, many conceived during the boom
years of 2003-2008, are under review and in some cases being
delayed or put on hold.
"The initial reaction has been positive from the
shareholders," Sorouh's Al Khoury said.
However, both companies have weak balance sheets and this
may not be resolved by the merger, analysts said.
"Merging the two companies won't turn around the dynamics of
the Abu Dhabi property market," said Robert McKinnon, ASAS
Capital chief investment officer.
"Both companies have fairly weak balance sheets and so
merging them isn't going to solve that problem."
($1 = 3.6730 UAE dirhams)
(Additional reporting by Stanley Carvalho in Abu Dhabi; Matt
Smith and Nadia Saleem in Dubai; Editing by Amran Abocar and