The planned merger between troubled Dubai Islamic mortgage companies Tamweel and Amlak is still possible in the first quarter as progress is being made, Tamweel’s chairman said on Wednesday.
Tamweel and Amlak have both been hit hard by the collapse of Dubai’s once booming property sector and shares in the two companies were suspended in 2007 and have not traded since.
John Tofarides, Moody’s analyst, said: “Very limited public information has been made available so far on Tamweel’s merger.”
He added: “Although the merger will likely go forward, failure to do so would place material pressure on Tamweel’s ratings.”
The UAE’s government said in November 2008 it intended to merge the two firms and has been working on a plan to restructure them.
In an interview with Reuters, Sheikh Khaled bin Zayed al Nayhan said: “From our side we see some progress.”
He added: “At the same time we have concerns as it is taking too long. It (the merger) is vital for the economy … Q1 is still possible.”
He said the new entity’s existing capital was around $953 million.
Sheikh Khaled added: “The governent could come up with between $272.2 million or $544.5 million. It depends on the government’s appetite.”
On Dec 30, the Dubai government said it formed a judicial committee to protect creditors and companies related to Amlak and Tamweel, in what was seen as a bid to boost transparency.
The Gulf emirate’s reputation took a big hit over its request last Nov 25 for a delay in repaying $26 billion in debt linked to flagship firm Dubai World.
A state panel led by the economy minister has been reviewing the merger plans. In October, the minister said the panel was recommending merging the two lenders into a single, Islamic bank early this year.
Sheikh Khaled said Tamweel’s default rate was above 3 percent.
He added: “It came down at the end of the year, but now it has come back slightly higher.”
Moody’s cut Tamweel’s rating to Baa3/P-3 from Baa1/P-2 with a negative outlook on Dec 15.
He said: “Despite current turbulences, Tamweel’s business model has a future given the structural need for housing and commercial properties in the UAE, but will likely undergo major changes in shareholding, organisation and status,” the ratings agency said in a report in January.
Sheikh Khaled is a member of the ruling family of Abu Dhabi, the largest emirate in the seven member UAE federation.
Ahmed Badr, analyst, Credit Suisse, said: “A three percent default is not that bad.”
Badr added that both companies have not been involved in the mortgage market for some time and expects new players to emerge either at the end of this year or mid 2011.
He added: “Maybe we’ll see new players from Abu Dhabi then.” (Reuters)
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