The boards of the UAE’s Aldar and Sorouh, Abu Dhabi’s two largest real estate developers, have confirmed plans to merge the companies in a share swap, a statement on Monday said.
Stockholders in Sorouh, the smaller of the two firms, will receive 1.288 shares in Aldar for each one of their shares. On the effective date of the merger, Sorouh will be dissolved and its share delisted from the Abu Dhabi Securities Exchange, with the new entity named Aldar Sorouh Properties.
Both companies’ boards of directors have unanimously recommended the merger to shareholders.
As part of the deal, Abu Dhabi’s government will also pay Sorouh AED3.2bn (US$871m). Half of this sum is reimbursement for certain infrastructure assets, while the other half is for purchases of units in Sorouh’s The Gate development.
The merger will create a company with more than AED47bn assets as of September 30 last year and a market capitalisation of AED10.9bn, based on closing share prices on 17 January. The combined entity will have a diversified portfolio of assets with total equity of AED 14.7bn, the statement added.
Government-backed talks between the two developers have been ongoing for almost a year.
The merger is part of a broader move by the government to restructure Abu Dhabi's housing market, which has suffered from oversupply of higher quality units and steep declines in prices.
"Hopefully the merger will help balance the supply/demand issue that Abu Dhabi has experienced and allow the market to pick up again," said William Neill, head of real estate firm Cluttons in Abu Dhabi.
"The current position of Abu Dhabi's property cycle will hopefully make the merger a success, however it doesn't necessarily mean more mergers are needed throughout the UAE. We have to be careful that monopolies are not created with too much power that can dictate the markets and potentially deter foreign investment," he added.
Authorities in Abu Dhabi last week said they would invest more than US$90bn on housing and infrastructure in the emirate over the next five years.