DUBAI: 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 estate market.
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 $2.8bn 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 $15bn 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 per cent from 49pc 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.
The deterioration in Abu Dhabi property has been gradual.
The emirate has given Aldar nearly $10bn in bailout funds, almost equivalent to the amount it extended to rescue Dubai just over two years ago.
Shares of Aldar and Sorouh jumped 10pc yesterday as investors welcomed signs of consolidation in the Abu Dhabi real estate market, which is set to record a further 11pc 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.
Source: http://www.gulf-daily-news.com/NewsDetails.aspx?storyid=325672
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