* Potential deal to dilute fund Mubadala's stake - sources
* Merger likely through share-swap deal - bankers
* No mandates handed out yet for the deal
* Mubadala currently holds 49 pct in Aldar
By Praveen Menon and Dinesh Nair
DUBAI, March 12 Abu Dhabi's move to merge
builders Aldar Properties and Sorouh Real Estate
is geared towards shoring up sovereign wealth fund
Mubadala and stabilising the emirate's brittle real
Bankers say that a deal is likely to be effected through a
share swap, which would dilute Mubadala's sizeable stake in
Aldar, a developer hit by stagnant sales and falling asset
prices, and improve its ability to tap capital markets.
"Mubadala will emerge as the winner in this merger ... the
terms of the deal are not clear but it's likely that the merger
will reduce Mubadala's stake and its exposure to Aldar," said an
Abu Dhabi-based property sector analyst.
Aldar has swiftly become a millstone around the neck of
Mubadala, a fund with $46 billion in assets and investments
including stakes in Carlyle and General Electric
, and a year ago, Mubadala had to come to Aldar's aid by
subscribing to the developer's $2.8 billion bond.
Sources have said that attempts have been made for the fund
to sell its Aldar stake or set up a new holding company that
could take over the equity, a move denied by Mubadala.
Talks for the merger, announced on Sunday and which would
see the formation of a property firm with $15 billion in assets,
have been styled as having "the blessing of the Abu Dhabi
government", widely seen as code for a government-enforced deal.
"Mubadala's role was that of a stop-gap entity who would
shoulder the Aldar responsibility for a while. It was never the
perfect solution," said a Dubai-based investment banker.
The state fund's stake is expected to go up to 60 percent
from 49 percent when it converts the remaining portion of its
Aldar bonds into equity.
"Any deal will be in the form of a share-swap agreement,"
said an Abu Dhabi-based source who is aware of the talks.
"I am sure there is no discussion of exchanging cash in the
current market. Mubadala's stake will be diluted if the merger
goes through but they will retain a stake in the combined
entity. What the share-swap ratio will be and what percentage
Mubadala will retain after the deal is all under discussion."
Mubadala, for its part, stuck to a one-line statement.
"As a long-term shareholder in Aldar, Mubadala is
supportive of efforts to increase value to Aldar's
stakeholders," it said, declining to give any further details.
While a real estate crisis in glitzier neighbour Dubai
brought it to its knees in 2009, the deterioration in Abu Dhabi
property has been gradual.
The oil-rich emirate has given Aldar nearly $10 billion in
bailout funds, almost equivalent to the amount it extended to
rescue Dubai just over two years ago.
Shares of Aldar and Sorouh jumped 10 percent on Monday as
investors welcomed signs of consolidation in the Abu Dhabi real
estate market, which is set to record a further 11 percent fall
in prices this year, according to a Reuters poll.
Aldar's Deputy Chief Executive Mohammed Khalifa Al Mubarak
said efforts to appoint a working group had begun but banks were
not part of the committee.
"At this point, we expect the working group to only comprise
representatives from both companies," he said, adding that he
hoped the group would be set up this month.
"There is no talk at the moment on staff cuts or anything
like that," he said.
No mandates have yet been handed out to investment banks to
assist in the transaction, according to people close to the
Aldar's $1.25 billion 10.75 percent bond maturing 2014
rallied slightly in Monday's trade. It was bid at
109.400 on Monday afternoon by BNP Paribas to yield 6.2 percent,
down about 9 basis points from Friday.
"Aldar's 2014 bond is one of the various issues that need to
be discussed in the coming three months," said Mohammed Ali
Yasin, an independent capital markets analyst.
"A change in Aldar ownership could trigger a call back of
the total bond by bondholders. However, the bond pays a very
handsome return of 10.75 so the temptation of holding it
considering the terms will overweigh the risks of calling it
back, considering that the new entity has a clear Abu Dhabi
(Additional reporting by Rachna Uppal and Mirna Sleiman in
Dubai and Stanley Carvalho in Abu Dhabi, Editing by Sitaraman