* Smaller Sorouh to be delisted upon merger completion
* Sorouh investors to get 1.288 Aldar share for each Sorouh
* Abu Dhabi govt, related entities to own 37 pct of new firm
* Merger subject to 75 pct shareholder approval
(Adds details from conference call)
By Stanley Carvalho and Dinesh Nair
ABU DHABI, Jan 21 Abu Dhabi's two biggest
property firms have agreed a state-backed, all-share merger to
create a business with $13 billion of assets which the
government hopes can stabilise a market hit by oversupply and
The tie-up between Aldar Properties, which has
been bailed out by the Abu Dhabi government over the past two
years with around $10 billion in funding, and Sorouh Real Estate
creates the second-largest listed property firm in the
United Arab Emirates and one of the biggest in the Middle East.
The deal, announced on Monday, comes as Abu Dhabi's property
market struggles with a huge supply of high-end homes that
entered the market last year and as the emirate conducts a
review of its state-owned entities. The government owns nearly
50 percent of Aldar through state-linked businesses.
Property prices in Abu Dhabi have tumbled about 50 percent
since the global financial crisis hit a few years ago, analysts
estimate. Combining Aldar and Sorouh, the No. 1 and 2 developers
respectively and which rely heavily on government contracts,
will ensure better coordination of new property developments.
It will also generate cost savings, the two firms said.
"It is very important for the combined entity to be aligned
with the overall strategy of Abu Dhabi," Abubaker Seddiq
al-Khouri, Sorouh's managing director and proposed chairman of
the new business, said on a conference call. "We will be
building a company that helps in the overall development of real
estate in the emirate but also doing that in a cost efficient
Keen to avoid a property collapse like in Dubai which
triggered that emirate's debt crisis in 2008, Abu Dhabi began
pressing its public sector employees who live outside the
emirate to relocate within its borders. It also delayed some
ambitious public property projects.
With the support of the government, management of Aldar and
Sorouh had held talks for nearly a year on asset valuations,
financial terms and the new management structure.
Aldar, which built Abu Dhabi's Yas Marina Formula One motor
racing circuit, has relied heavily on the government in recent
years for funding. Abu Dhabi has spent more than $10 billion on
the company, equivalent to the amount it deployed to rescue
Dubai from a near bond default in 2009.
The new entity will need no further assistance from the
government, al-Khouri said, adding projected cash flows of 15
billion dirhams ($4.1 billion) from government contracts will be
used to cut down on 13.4 billion dirhams debt of the combined
entity in the coming three years.
"The focus of the new firm will be on deleveraging,"
al-Khouri said on the call.
As part of the transaction, Sorouh shareholders will get
1.288 Aldar shares for every share they own. Sorouh will be
dissolved and delisted once the merger, which is subject to
shareholder approval, is completed.
Sorouh shareholders will get a premium of 16.9 percent,
al-Khouri said, without providing details on the basis of
calculation. Both the shares closed at 1.63 dirhams on Thursday.
On that basis, the premium is 15.8 percent.
The Abu Dhabi government will own a 37-percent stake in the
new firm and will also pay Sorouh 3.2 billion dirhams in
exchange for some infrastructure assets and units in its The
Sorouh shares were up 3.7 percent in Abu Dhabi after the
announcement, off earlier gains of 14.7 percent. Shares in Aldar
fell 9.2 percent. Shares in Aldar and Sorouh have more than
doubled in the last year in anticipation of the merger.
"A lot of investors would like to see Sorouh management stay
in place - which might drive the share price going forward,"
said Amer Khan, fund manager at Shuaa Asset Management. "The
government backing and ownership makes the merged entity an even
more attractive play for long-term real estate.
"What matters now is the management structure, the synergies
and the balance sheet. There's a difference between government
support and executing well on a profitability plan, and that
remains to be seen."
The new firm, to be named Aldar Sorouh Properties, will be
57 percent-owned by Aldar shareholders and 43-percent held by
Sorouh stakeholders with management coming from both firms.
The merger will provide up to 110 million dirhams ($30
million) in annual cost savings while the companies expect
one-off integration costs of about 60 million dirhams.
"There will be some staff reductions as part of the cost
synergies but we have not determined that for now," al-Khouri
said, adding the new firm will have 6 billion dirhams in cash.
He expects the deal to be completed in three months, with
shareholders set to vote "in a few weeks".
Goldman Sachs and National Bank of Abu Dhabi
were advisors to a joint steering committee overseeing
the proposed tie-up. Credit Suisse advised Aldar while
Morgan Stanley worked with Sorouh.
($1 = 3.6730 UAE dirhams)
(Additional reporting by Nadia Saleem; Writing by Amran Abocar;
Editing by Mark Potter)