Dubai Holding-Emaar merger deal raises questions

Value of land owned by units of DH involved in deal questioned by analysts.
Dubai Holding-Emaar merger deal raises questions
By Alex Delmar Morgan
Mon 29 Jun 2009 09:41 PM

Analysts on Monday raised doubts over the value of the land owned by the three units of Dubai Holding that developer Emaar is to merge with.On Sunday Emaar said the entity resulting from a proposed merger with three units of Dubai Holding, which include developers Sama Dubai, Dubai Properties and Tatweer, will have combined assets worth AED194bn ($52.85bn).

There is speculation as to what these assets will consist of. Analysts said they could include a significant land bank, although questions have been raised about how valuable this would be in the wake of the real estate collapse in Dubai.

Robert McKinnon, managing director of equity research at Dubai-based investment bank Al Mal Capital said: ''There are a lot of questions marks in terms of the valuation.''

''The market couldn’t care less about the value recognised on their balance sheet because what is the land really worth in market terms? If they [developers merging with Emaar] wanted to monetise their land bank, what price would they get? That is what the market cares about,'' he added.

According to official figures from the Dubai Land Department a 17170 sq ft plot of land was sold in Nad Al Hamar for AED3.09m on Monday. A 15718 sq ft plot in the Ranches was acquired for AED2.67m on the same day.

Another analyst questioned the viability of Emaar adding more land in Dubai to its portfolio.

''Land bank valuation can exhibit high volatility in stress markets and therefore true value of land as an asset is tough to gauge. What needs to be assessed is the actual economic value to Emaar from holding additional land in Dubai,'' said Saud Masud, an analyst at Swiss investment bank UBS.

''Will property be built upon it in the near term, what is the potential sale value per square foot and to whom may the land be sold to? How marketable is the land?'' he added.

In a letter posted on Emaar’s website on Sunday the company’s chairman Mohamed Alabbar said: ''Based on preliminary review, Dubai Properties, Sama and Tatweer have a robust and strategic asset base (attractive land bank) which will contribute positively to consolidation.''

Standard & Poor's meanwhile on Monday revised the CreditWatch implications for its 'BBB+' long-term credit ratings on Emaar to developing from negative.

The agency said the rating action reflected the prospective benefits on Emaar Properties’ credit profile from the merger.

But the developing implications also reflect the downward pressure on the ratings from the weak Dubai real estate markets if the merger is not completed, it added.

"The current ratings on Emaar reflect the group's important role and strong position in the Dubai property development market as one of three government-related master developers, and its strong relationship with, and minority ownership by, the government of Dubai," said S&P credit analyst Alf Stenqvist.

Emaar shares fell two percent in trading on Monday, closing at AED2.83.

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