Merger with Emaar Malls is credit positive for Emaar Properties, Moody’s says

Delisting of Emaar Malls after merger to eliminate minority cash leakage and increase dividends

  
People walk outside Dubai mall after the UAE government eased a curfew and allowed stores to open, following the outbreak of the coronavirus disease (COVID-19) in Dubai, United Arab Emirates May 3, 2020.

People walk outside Dubai mall after the UAE government eased a curfew and allowed stores to open, following the outbreak of the coronavirus disease (COVID-19) in Dubai, United Arab Emirates May 3, 2020.

REUTERS/Abdel Hadi Ramahi
The proposed merger between Emaar Properties and Emaar Malls announced last week is credit positive for Emaar Properties because it would not be debt-funded, Moody’s Investors Service said.

Emaar Properties currently owns 84.6 per cent of Emaar Malls. Under the share swap deal, Emaar Malls shareholders excluding Emaar Properties would receive 0.51 Emaar Properties share for one Emaar Malls share, equating to a 7.1 per cent premium to Emaar Malls' closing share price on March 1, the last trading day before the announcement. Emaar Malls would no longer be listed following the merger.

The global ratings agency said the “delisting of Emaar Malls would eliminate minority cash leakage and increase dividends from the Emaar Malls business. This in turn would strengthen Emaar Properties' ability to service its debt.”

In 2018 and 2019, Emaar Malls paid Dh1.3 billion of dividends and it is estimated that Emaar Properties would have received an additional Dh200 million per annum if it had owned 100 per cent of Emaar Malls.

“We understand that Emaar Malls' policy of paying a dividend equal to 50-70 per cent of funds from operations will remain unchanged. However, Emaar Malls did not pay dividends in 2020 and has not announced its dividend distribution in 2021,” said Lahlou Meksaoui, AVP-Analyst at Moody’s Investors Service.

Emaar Properties shares were down 1.9 per cent to Dh3.67 on Monday afternoon.

However, Moody’s said the merger would be credit negative for Emaar Malls because it would increase the credit linkages between Emaar Malls and Emaar Properties.

Since Emaar Malls would no longer be listed following the merger, therefore, it would lose access to the equity market to raise capital, said the ratings agency.

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