The Dubai developer behind the world's tallest building plans to merge with three rivals owned by the sheikdom's ruler, in a consolidation aimed at better coping with a global meltdown fuelled weakness in the one-time Arab boomtown's real estate sector.
In a statement posted Sunday on the Dubai Financial Market's Web site, Emaar Properties PJSC said its proposed merger with Dubai Holding subsidiaries Dubai Properties LLC, Samar Dubai LLC and Tatweer LLC would create a company with an asset base of 194 billion dirhams ($52.8 billion) and a debt of 13.4 billion dirhams, or roughly 7 percent of the total assets.
"The proposed consolidation would create a robust and strategic asset base while joining the strengths" of the various companies, Emaar said.
The deal, first outlined Saturday in a release by Emaar, marks a push to shore up a Dubai property market that has seen values plunge by as much as 40 percent in the first quarter of 2009 as the global economic meltdown hit the sheikdom hard.
Layoffs in Dubai's largely expatriate work force compounded the oversupply of units in the semiautonomous city-state, squeezing prices. The tougher financing climate also led to project delays and cancellations, and the fallout from the overall economic weakness further tarnished the image of an emirate whose famed man-made islands, soaring skyscrapers and rampant consumerism helped cast it as a rising global business powerhouse. As the credit crunch worsened over the second half of 2008, rumours surfaced about Emaar eying a merger with government-run rival Nakheel - talk that the companies and the government denied.
But discussions of consolidations continued, built on expectations that companies would need to adopt some sort of measures - beyond the bailouts afforded by the Dubai government - to cope with the difficult business climate.
"These comprehensive discussions are driven by a shared vision regarding the consolidation of our respective visible success stories to date and the creation of a world-class group which would be ideally positioned to dynamically help shape and support the ongoing development of Dubai as a world-leading hub," Emaar chairman Mohamed Alabbar said in a statement.
The companies released few details - including about valuation - saying only that the merger process would take roughly 4 months. The Royal Bank of Scotland and Merrill Lynch were retained as the financial advisers for Emaar and Dubai Holding, respectively.
The lack of details introduced a measure of volatility into the market, with Emaar's shares down about 9.6 percent, to 2.90 dirhams, by midday Sunday. "The main concern is at what price would this deal come," said Sheriff Abdel-Khalek, account manager with Beltone Financial Services in Dubai. "Would there be more shares, would the (Dubai) government take a bigger stake?"
But analysts also saw the move as a strategic for both Emaar and the Dubai property sector. Emaar is perhaps best known for Burj Dubai, the world's tallest building which is still unfinished. The company is also developing the King Abdullah Economic City in Saudi Arabia and is overseeing development of the Kingdom Tower, a kilometer-tall (3,281 foot) building being spearheaded by Kingdom Holding Co, the company headed by Saudi billionaire Prince Alwaleed bin Talal.
The three companies with which it would merge are units of Dubai Holding, owned by Dubai's ruler Sheik Mohammed bin Rashid Al Maktoum. Emaar said a preliminary review of the three companies with whom the merger is proposed show that by the end of the 2008, they had a combined asset book value of 129 billion dirhams and total external debt of roughly 3.4 billion dirhams, or about 2.7 percent of their asset value.
Emaar's own position, however, was less robust. It said that as of the end of March, it had a total book value of 68 billion dirhams and debt of 10 billion, or roughly 15 percent of the total assets.
Comments
Comments are closed.