29 June 2009
Emaar Properties will be discussing the transaction structures and valuation in detail with the Securities and Commodities Authority (SCA) to ensure that all rights of existing shareholders are protected, according to company chairman.
"Emaar, together with its advisors, will ensure that the rights of the minority shareholders are not only protected but the transaction results in a significant value accretion to its existing shareholders," Mohamed Alabbar said yesterday in a statement to the Dubai Financial Market.
The developer has appointed Royal Bank of Scotland to advice on the consolidation process. The company has also assured that appropriate disclosures will be made in respect of transaction details.
On Saturday, Emaar Properties said it expects to complete the proposed merger with three Dubai Holding entities -- Dubai Properties, Sama Dubai and Tatweer -- within four months.
"With the assistance of its advisors, Emaar will also be carrying out proper legal and financial due diligence of the aforementioned companies to ensure that the benefits are appropriately reviewed and disclosed in respect of the transaction."
Bobby Sarkar, Vice-President Equity Research, Al Mal Capital, said the merger could be potentially dilutive for Emaar shareholders as the company suspended share recommendation for the developer.
"We have limited visibility into the income potential of Dubai Holding's projects. And we are sceptical of the potential synergies accruing from this deal, as it is our understanding that Dubai Holding has already undergone significant restructuring.
"While we await details about the deal's valuation in August, our view is that not only it is extremely difficult to value the assets/land bank in the current environment, but these real estate entities are already carrying assets at significant premiums to existing market conditions.
"Moreover, we currently have no idea as to what Dubai Holding's cash position is and what is owed to its contractors and suppliers. In the light of these uncertainties, we are suspending our rating on Emaar shares."
Al Mal will, however, reassess the rating when the financial impact of this transaction becomes clear. "We do note that if the combined entity receives substantial financial stimulus from the Dubai Government, in a form that is not dilutive to existing shareholders, we could see upside in Emaar's stock price," Sarkar said in a note.
Chet Riley, Equity Research, Middle East, Nomura International, said: "We believe this may help Dubai and if the current adage is to be believed - 'what is good for Dubai real estate is good for Dubai developers and therefore good for Dubai-listed developers', but it is unlikely that the 'reverse takeover' of Dubai Holding via a forced merger was ever in the strategic plan of Emaar."
He said: "If capital needs to be raised for a merged entity, which we would think is inevitable, it comes down to pricing - but at the very least we will get a prospectus and perhaps more transparency. The sector is back trading at around 0.7x book and Emaar at 0.6x book, and with the associated development risk and appetite for Dubai real estate, it might be a long hot summer for the executives of the merger prospects and bankers will struggle to get the book."
In the company statement, Alabbar further mentioned that the proposed consolidation will create a robust and strategic asset base while joining strengths of the management teams and employees of these companies, which is expected to bring significant benefits to the companies, shareholders, employees and customers, including creation of one of the largest real estate developers worldwide, with combined entity becoming a global leader in real estate development and management; increased financial strength and scale to pursue and bring to fruition value-enhancing growth plans domestically and internationally; best-in-class project execution capabilities with a diversified portfolio of high-quality projects under construction or management, coupled with a strategic land bank.
It is currently estimated that the process of consolidation will take approximately four months to be completed, which will include due diligence of the entities, detailed valuation exercise, completion of legal documentation, agreement with regulatory authorities in respect of the structure and the process, and shareholders' approval.
A tentative timeline for legal and financial due diligence of the entities is by September; valuation exercise by August; completion of legal documentation by September and agreement with regulatory authorities in respect to the structure and the process by October followed by shareholders approval also by October, said an Emaar statement.
There are detailed work streams for each and the overall timelines are subject to change based on progress of the various milestones.
Emaar Properties will be discussing the transaction structures and valuation in detail with the Securities and Commodities Authority (SCA) to ensure that all rights of existing shareholders are protected, according to company chairman.
"Emaar, together with its advisors, will ensure that the rights of the minority shareholders are not only protected but the transaction results in a significant value accretion to its existing shareholders," Mohamed Alabbar said yesterday in a statement to the Dubai Financial Market.
The developer has appointed Royal Bank of Scotland to advice on the consolidation process. The company has also assured that appropriate disclosures will be made in respect of transaction details.
On Saturday, Emaar Properties said it expects to complete the proposed merger with three Dubai Holding entities -- Dubai Properties, Sama Dubai and Tatweer -- within four months.
"With the assistance of its advisors, Emaar will also be carrying out proper legal and financial due diligence of the aforementioned companies to ensure that the benefits are appropriately reviewed and disclosed in respect of the transaction."
Bobby Sarkar, Vice-President Equity Research, Al Mal Capital, said the merger could be potentially dilutive for Emaar shareholders as the company suspended share recommendation for the developer.
"We have limited visibility into the income potential of Dubai Holding's projects. And we are sceptical of the potential synergies accruing from this deal, as it is our understanding that Dubai Holding has already undergone significant restructuring.
"While we await details about the deal's valuation in August, our view is that not only it is extremely difficult to value the assets/land bank in the current environment, but these real estate entities are already carrying assets at significant premiums to existing market conditions.
"Moreover, we currently have no idea as to what Dubai Holding's cash position is and what is owed to its contractors and suppliers. In the light of these uncertainties, we are suspending our rating on Emaar shares."
Al Mal will, however, reassess the rating when the financial impact of this transaction becomes clear. "We do note that if the combined entity receives substantial financial stimulus from the Dubai Government, in a form that is not dilutive to existing shareholders, we could see upside in Emaar's stock price," Sarkar said in a note.
Chet Riley, Equity Research, Middle East, Nomura International, said: "We believe this may help Dubai and if the current adage is to be believed - 'what is good for Dubai real estate is good for Dubai developers and therefore good for Dubai-listed developers', but it is unlikely that the 'reverse takeover' of Dubai Holding via a forced merger was ever in the strategic plan of Emaar."
He said: "If capital needs to be raised for a merged entity, which we would think is inevitable, it comes down to pricing - but at the very least we will get a prospectus and perhaps more transparency. The sector is back trading at around 0.7x book and Emaar at 0.6x book, and with the associated development risk and appetite for Dubai real estate, it might be a long hot summer for the executives of the merger prospects and bankers will struggle to get the book."
In the company statement, Alabbar further mentioned that the proposed consolidation will create a robust and strategic asset base while joining strengths of the management teams and employees of these companies, which is expected to bring significant benefits to the companies, shareholders, employees and customers, including creation of one of the largest real estate developers worldwide, with combined entity becoming a global leader in real estate development and management; increased financial strength and scale to pursue and bring to fruition value-enhancing growth plans domestically and internationally; best-in-class project execution capabilities with a diversified portfolio of high-quality projects under construction or management, coupled with a strategic land bank.
It is currently estimated that the process of consolidation will take approximately four months to be completed, which will include due diligence of the entities, detailed valuation exercise, completion of legal documentation, agreement with regulatory authorities in respect of the structure and the process, and shareholders' approval.
A tentative timeline for legal and financial due diligence of the entities is by September; valuation exercise by August; completion of legal documentation by September and agreement with regulatory authorities in respect to the structure and the process by October followed by shareholders approval also by October, said an Emaar statement.
There are detailed work streams for each and the overall timelines are subject to change based on progress of the various milestones.
By Parag Deulgaonkar
© Emirates Business 24/7 2009
