By Daliah Merzaban
Minister of economy says merger still one of many options being considered.
The UAE government is rethinking whether to merge troubled mortgage providers Amlak and Tamweel, the minister of economy said in remarks published on Thursday.
"Various options are being considered in the long-term interests of the mortgage market and investors," Sultan al-Mansouri was quoted as saying by Gulf News. "Merger continues to be one of the options, however, not a definite option."
The UAE cabinet has appointed a committee to recommend ways for Tamweel and Amlak to develop their businesses as they face new economic challenges, the committee said on Wednesday.
It made no mention of a merger announced by the government in November that would lead to Amlak and Tamweel combining with two state-run banks into the Emirates Development Bank.
Shares of both firms have not traded since that announcement. (Reuters)
The indecision and poor communications surrounding the "will they or won't they" merger is causing more jitters in a market approaching ground zero. The bad debt each entity holds is worsening with the minute, as defaults spiral. What the market needs is a clear statement on what is happening, not this waffle that shows only too clearly how deep a hole they are both in. Either kill off one or both, or make a good bank and a bad bank, but stop prevaricating and causing investors to further lose confidence.
What about the investorswho put most of their capital in Amlak and Tamweel after they were announcing amazing profit each quarter? It is really unfair to leave the investor who trusted Dubai system like this without even a clue on what will happen and till when they will suspend the money. Most of the Investor need cash now even if it is 30% of the orginal value.Todate there is no timing at all on when can they get back what they invested. This is the hight of irrespect.
Taking time to address the true issues is good and the specifically formed Steering Committee is made up with the key people who design UAE's future. It has to be clearly understood the Amlak-Tamweel case goes far beyond Amlak and Tamweel's own future as it includes all real estate market actors (Customers, paying or defaulting, the 2 specialized companies Amlak and Tamweel and their shareholders, the banks, the developers and the contractors), each of the actors owning money to a least one counter-part. So the difficulties encountered by Amlak and Tamweel (most probably portfolio quality following boom and refinancing) and the way to solve them will have a strong impact on all other actors with the obvious risk to emphasize and spread crisis further if not dealt with properly. The first step, if not already done, would be to clarify and assess the current status and quality of the two companies portfolios. Portfolios of the two companies can be split into 3 types of customer receivables : - Good ones corresponding to customers paying their rentals/installments regularly, - Medium ones corresponding to customers paying their rentals/installments mostly regularly, - Bad ones with customers unable to pay their rentals/installments whatever the reasons Underlying assets can have the following characteristics -> with potential action when in conjunction with bad receivables - Delivered and fully paid or nearly delivered -> rescheduling, get discount from developer - Not delivered and not or partially paid -> get discount from developer bearing in mind some material prices have gone down sharply - At developer's price (normally first buy) -> rescheduling - With inflated price (from second buy) -> rescheduling Once this job is done both companies would have a clear picture of the good/medium and bad portfolios. Then, one of the solutions could be to keep one of the two companies as THE LENDER (with a portfolio made up with good and medium quality receivables from both companies) and transform the other one into a real estate management company (with a portfolio built up with all the assets for which no realistic solution has been found with the customers - bad receivables). The government would become the unique shareholder of the real estate management company with the responsibility to negotiate/repay the debt associated to the asset portfolio. Any repayment by anticipation will correspond to cash injection in the economy. THE LENDER, on its side, would need a cash injection to resume activities and progress on its expansion plan which could be done through capital increase with historic and new shareholders, the government or a mix. The real estate management company would have the job to rent out assets on short to medium term periods and would have the possibility to buy or sell additional units when times get better. This one would become like a defeasance structure but producing income through rental activities. Homes could be allocated to government staff, rented out to companies for their own staff or even rented out on short term basis for tourists as at todays date there is no such facility. This could be also a way to ease pressure on rentals who have damaged the local economy by contributing to inflation. In this process, all actors will share the losses but no one will bear the full damage and most of actors' interests will be preserved. THE LENDER would be able to re-start on a clean basis. In this scenario, Amlak could become THE LENDER as it seems in a better position with some operational units outside UAE to address the promising mortgage financing needs in the Middle-East and Tamweel, the real estate management company. At the end of the day, there will be a need for a full reengineering of the 2 companies : Amlak to make sure it applies the best methodologies to analyze, measure, contain and control risks and Tamweel to get organized to run new activities properly with a clear ambition to develop sound businesses based on sustainable development. Specialized financing activities are highly capitalistic and a sound development should not allow shareholders to expect high and quick returns, the real profits based on the financing activities (not on asset reevaluation) have to be mostly reinvested to facilitate business growth.