Aldar Properties PJSC (ALDAR) and Sorouh Real Estate Co. (SOROUH) surged, pushing Abu Dhabi’s benchmark stock index higher, on bets their potential merger into a company with $15 billion in assets would bolster their businesses.
Aldar, the biggest developer in the United Arab Emirates capital, and Sorouh, the second-biggest, both advanced 9.8 percent to 1.34 dirhams, the most since October 2008 and December 2009, respectively. The stocks lifted the ADX General Index (ADSMI) up 1.1 percent, the most since Feb. 26, to 2,614.83. The ADX Real Estate Index jumped 9.7 percent.
The two builders, which have played an integral part in Abu Dhabi’s drive to turn itself into a tourism and business hub, said in a joint statement yesterday they set up a team to study a possible merger with the “blessing” of the emirate’s government. The team will present a plan in the next three months. Government-owned Mubadala Development Co. holds 49 percent of Aldar while the Abu Dhabi Investment Authority, a sovereign wealth fund, has a 7 percent stake in Sorouh.
“For the major shareholder here, which I believe is the Abu Dhabi government, and ultimately for Sorouh as well, it makes sense since the combined entity will be healthier than Aldar, and potentially need less support in practice,” said Dubai-based Ibrahim Masood, who helps manage about $400 million at Mashreqbank PSC. (MASQ)
Aldar got 36 billion dirhams ($9.8 billion) in government support last year and sold assets including a Ferrari theme park to the state. Property prices in the emirate dropped by almost half since the market’s peak in 2008 as that year’s global credit crisis forced banks to curb lending and speculators fled.
Shares of Aldar and Sorouh have rallied this year after Abu Dhabi, holder of most of the U.A.E.’s oil reserves, said it plans to resume stalled projects including branches of the Louvre and Guggenheim museums. Aldar is up 46 percent in 2012 and Sorouh has surged 58 percent, both closing at the highest since June. The ADX Real Estate Index (ADRE) has rallied 52 percent in 2012 after slumping 54 percent last year.
“Normally in a merger there is a winner and a loser,” Mashreqbank’s Masood said. “Under most scenarios, Aldar stands to gain at Sorouh’s expense here. Ultimately, once the excitement wears off, stock performance should reflect that.”
Seven analysts recommend investors buy Aldar shares, three say hold and four have a sell rating, according to data compiled by Bloomberg. Eight analysts recommend buying Sorouh’s shares, five holding them and two selling them.
Aldar posted a full-year profit that beat analyst estimates after a year-earlier loss. Sorouh’s 2011 profit surged to 334.7 million dirhams from 7.44 million dirhams a year earlier as rental and housing income rose. Aldar had assets of 40 billion dirhams at the end of last and Sorouh had 14 billion dirhams.
In neighboring Dubai, Arabtec Holding (ARTC) PJSC, the United Arab Emirates’ biggest construction company, is up 85 percent so far this year.
The shares had rallied on speculation the stock was being accumulated amid bets it will benefit from regional infrastructure spending. Aabar Investments PJSC (AABAR), the Abu Dhabi government company which owns stakes in Daimler AG (DAI) and UniCredit SpA (UCG), raised its ownership in Arabtec to 5.28 percent, data on Dubai’s stock exchange showed this month.
The shares gained 0.3 percent today to 2.94 dirhams. They had soared as much as 7.5 percent earlier.
“Aldar and Sorouh remained bid at limit up throughout the day,” said Julian Bruce, the Dubai-based director of institutional sales trading at EFG-Hermes Holding SAE. “Overspill buying was very much in evidence at the open, as buyers speculated on merger and acquisition activity in other names, but failed to be maintained as profit-taking ensued in the latter stages of the session.”
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