DUBAI - Emaar Properties PJSC, the Middle East's biggest property developer, is in advanced merger talks with three property companies of the government-run Dubai Holdings LLC.
Emaar said in a statement on Friday it may consolidate its real estate business with Dubai Properties LLC, Sama Dubai LLC and Tatweer LLC, firms owned by Dubai Holdings.
'The proposed consolidation comes within the resolute dedication to transform Dubai into a global city since construction and development are a primary engine of growth.
The consolidation of these leading real estate entities will not only build on the remarkable achievements in Dubai during the last three decades, but more importantly, marks the start of a new chapter in the annals of real estate globally,' Emaar said in its statement.
Emaar and Dubai Holdings have appointed as their financial advisers, the Royal Bank of Scotland PLC and Merrill Lynch International. Their tasks include ' a thorough assessment of the merits of this proposed consolidation , including the Valuation
of the various entities as well as the assessment of the potential transaction structures.'
Emaar said it is also discussing with regulators its proposed merger with the Dubai Holdings' units.
'By joining forces, we will give the larger combined entity, an unparalleled platform to optimise opportunities in its domestic and international markets,' said Mohammmed Al Gergawi, chairman of Dubai Holdings.
None of the officials of the firms involved in the deal were available for comments.
Tatweer had said earlier this month the bankruptcy of its partner Six Flags, one of the largest theme park operators, would not delay a multi-billion dirham park project in Dubai.
Analysts said Emaar's move reflects the property downturn in Dubai, which until late last year, had experienced an unprecedented growth in the previous five years, fuelled by higher oil prices and the surge of expatriates in the emirate.
House prices however, have plunged nearly 50 per cent from their Peak
levels last year as the global crisis worsened. Some analysts are saying the bottom has not been reached, and are expecting, possibly, another 20 per cent drop before the end of the year, as thousands of expatriates have gone home after losing their jobs, while the completion of new residential projects, will also help bring down prices.
'Emaar's plan is the first real example of consolidation in the Dubai real estate industry. It is definitely a positive development for the company,' said Ali Khan, managing director of Arqaam Capital
'Investors though will look for more details about these mergers, such as valuations and how ongoing and new projects are going to be funded.'
The property company's announcement did not come as a surprise, said Matthew Wakeman, managing director of cash-and-equity-linked trading at EFG-Hermes. 'Consolidation is potentially positive. It is something that needed to happen for a Long
time, especially with the property slump. Investors will want to know the terms that come with the merger.'
Charles Neil, chief executive officer of Landmark Advisory, a property consultancy company, said Emaar's plan to merge with Dubai Holdings units should spur other smaller property companies to also consolidate their operations.
'There are too many smaller developers, if you have one big company merging, then the smaller players are likely to follow suit if they want to remain competitive. Emaar on the other hand, may come out stronger, it can focus on prioritising its projects.'
As a result of the property downturn, Emaar which is developing Burj Dubai, the world's tallest skyscraper, saw its first-quarter net Profit
tumble by 74 per cent to Dh237 million, in a sign of the hard times that the country's real estate sector has endured as a result of the global financial crisis.
Emaar's first-quarter Revenue
declined by 39 per cent to Dh1.55 billion from Dh2.52 billion during the same three months of last year. Emaar's shares which are listed at the Dubai Financial Market, slipped by 4.5 per cent to Dh3.21 on Thursday.
The stock has gained to date, 42 per cent.
In mid-February, Dubai Holdings said it would restructure and merge operations at key property firms and other holding firms to reduce costs.