Emaar PropertiesEmaar Properties

Dubai HoldingsDubai Holdings

Chief among the market's concerns is that some EmaarEmaar shareholders ?fear the four-way merger could dilute their investments. EmaarEmaar's share price has already shed 25 per cent of its value since the company announced on June 26 that it planned to consolidate its real estate operations with those of Dubai PropertiesDubai Properties, Sama DubaiSama Dubai and TatweerTatweer -- all owned by Dubai HoldingsDubai Holdings.

EmaarEmaar stock, one of the the most heavily traded on the Dubai Financial Market, fell by 7.3 per cent on Wednesday to close at Dh2.40, in line with an overall decline in the market.

"How will EmaarEmaar take care of their small shareholders? It may be that their shares will be diluted," said Vyas Jayabhanu, head of investments at Al Dhafra Financial Brokerage. "The company has to be more forthcoming about that."

Until investors know the final structure of the proposed merger, and the method by which the four companies' properties were valued, they are likely to continue shying away from EmaarEmaar, said Bobby Sarkar, an analyst at Al Mal Capital. "The only way people could get more comfortable about the merger is if more information and details are disclosed ...," he said.

"Most of these assets were acquired at significant premiums prior to the property downturn. If valuation is at inflated levels, it will be dilutive to EmaarEmaar shareholders," Sarkar said.

EFG-HermesEFG-Hermes research analysts Sana Kapadia and Jad Abbas said the implications of the deal "are more distressing than supportive." The lack of detail about asset valuations indicates "potentially substantial dilution" for EmaarEmaar shareholders. "We do not expect the presumably cash-strapped Dubai HoldingsDubai Holdings' entities to bring liquidity to the table," they said.

EFG-HermesEFG-Hermes re-initiated coverage of EmaarEmaar on Tuesday and assigned a short-term "reduce" rating and a long-term "neutral" rating with a target price of Dh6.60.

"While the merger might result in the creation of a stronger operational and financial entity with better access to funding and ultimately greater control over supply, there is no visibility regarding the strategy of the combined entity," Kapadia and Abbas wrote in a note to clients.

Haissam Arabi, chief executive officer and fund manager of Gulfmena Alternative Investments, took a more positive view.

"EmaarEmaar has assured that its every move would be in the best interest of its shareholders, (and) there is little cause for worry as the merger will even be scrutinised by regulatory authorities," he said.

Arabi argued that the merger would create a stronger balance sheet for EmaarEmaar, with a post-merger debt level amounting to less than 7 per cent of consolidated assets.

"EmaarEmaar shares have gone down because it is the right time for profit-taking...," Arabi said. "It will be a good time for those with medium-term to long-term appetite to start buying EmaarEmaar again."

By Rocel Felix

© Khaleej Times 2009

 

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