Abu Dhabi's two largest property developers lifted the emirate's bourse on Monday as investors cheered the pair's merger talks, while Egypt's Palm Hills dragged down the market after reporting lower revenue. Aldar Properties and Sorouh Real Estate surged 9.8 percent each. The two firms said late on Sunday they were looking at a state-backed merger and a decision was expected within three months.
"Aldar holds a very high amount of debt on its balance sheet as opposed to Sorouh, which has lower leverage and a better cash flow visibility," said Ali Adou, portfolio manager at The National Investor. "So the solution might be to merge both entities and dilute the debt."
Aldar and Sorouh were up 45.7 and 55.8 percent respectively in 2012, both rebounding from all-time lows in mid-January. Investors however, are cautious of the long-term benefit amid a struggling real estate sector. "In the long run, I think it will have little impact - this doesn't make me a long-term buyer in either Sorouh or Aldar," said Robert McKinnon, ASAS Capital chief investment officer.
Abu Dhabi's benchmark advanced 1.1 percent in its third straight gain, resuming a near two-month rally. In Egypt, the second-biggest listed property developer, Palm Hills, dragged down the main index 1.5 percent after reporting a 68 percent drop in 2011 sales revenue. Palm Hills tumbled 9.8 percent.
Other real estate companies also traded down, with Amer Group dropping 8.5 percent and Talaat Moustafa Group down 3.9 percent. "Palm Hills results were bad and it had a bad effect on the bourse along with other real estate stocks like TMG," said Hisham Metwalli, trader at Arab Finance brokerage.
Palm Hills suffered from last year's uprising that toppled President Hosni Mubarak and is one of several real estate firms that faced legal challenges to land deals with the state. Dubai's index fell 1.1 percent, halting a two-day rebound after last week's drop. The market had a strong bull run for the last two-months, up 23.2 percent in 2012.
National Central Cooling tumbled 9.5 percent, Dubai Investments shed 5.2 percent and bellwether Emaar Properties slipped 0.3 percent. In Saudi Arabia, the index edged higher 0.08 percent, hitting a fresh 41-month closing high. The market traded 16 billion riyals ($4.27 billion), the largest turnover since February 28's 16.1 billion riyals, which was a four-year high. Small-caps, real estate and insurance stocks dominated volumes. Dar Al Arkan gained 4 percent and Emaar Economic City jumped 7.7 percent, together accounting for about a quarter of all shares traded.
The insurance index slipped 0.3 percent. In Qatar, the index eased 0.03 percent in slow trade as investors shifted focus to better performing Gulf markets. "Liquidity is always looking for a better return on investment - this is why we are seeing a shift to the UAE," said Firass Yaish, business development manager at ICM Capital.