Aldar Properties to save even more than expected with Sorouh merger

Aldar said that it had revised its predictions for the amount of cost saving synergies it would be able to make from Dh90 million - Dh100 million to Dh145m - Dh150m a year.

AAldar HQ building in Abu Dhabi. Delores Johnson / The National

Nearly nine months after combining with rival Sorouh, Aldar Properties has increased its estimate for the amount of money it will be able to save each year from the merger by almost a half.

Abu Dhabi’s only remaining major listed property developer said that it had revised its predictions for the amount of cost saving synergies it would be able to make from between Dh90 million and Dh100m to between Dh145m and Dh150m a year.

The company said that the savings would come from both stronger than expected “operational efficiencies” and “interest savings on acquired debt”.

The developer said that a “significant proportion” of the savings would start to be realised in 2014.

Aldar said that 40 per cent of the cost reductions each year – amounting to about Dh15m – came from headcount savings.

The company declined to say how much its headcount had actually fallen since the merger but said that most of the reduction came from natural attrition or from staff being transferred from Aldar to other off-balance sheet companies which performed the same functions.

“The number of people that actually got pink slips was very small,” said Paul Warren, Aldar’s chief strategy officer. “So small I could I could count the number on the fingers of two hands.”

Another 35 per cent of the cost savings – amounting to as much as Dh52.5m of savings each year – is to come from operational efficiencies, Aldar said. These include closing offices, consolidating back room operations and project and facilities management cost reductions across the company’s portfolio.

And a final 25 per cent of the costs savings were the result of savings on interest rate payments Aldar added. It said that it had only taken into consideration savings on the interest payments of the Dh2.1 billion Sorouh debt assumed by Aldar.

Aldar said that the interest rate cost savings did not include the further cost savings it had made from cutting its borrowing rate on corporate bonds since the merger. The company reported that it had repaid Dh6bn of debt since June and raised new debt of Dh2.7bn as well as Dh4bn of undrawn committed liquidity facilities.

Aldar said that the merger was completed with its corporate strategies, business plans and budgets as well as management structures and IT now fully integrated.

Aldar shares rose by 3 fils in trading yesterday to Dh3.17.

“This is definitely positive news from Aldar,” said Tariq Qaqish, the head of asset management at Al Mal Capital. “Aldar needs to demonstrate a good cash flow and the fact that it has managed to increase synergy savings is a good signal for shareholders. The fact that there is just one major player in the Abu Dhabi market means that there have been lots of costs they can cut. Aldar now effectively has a monopoly in the Abu Dhabi market so it can control housing supply in future.”

The Abu Dhabi fund Mubadala, which is developing Abu Dhabi's Al Maryah Island owns 30.5 per cent of Aldar.

"Mubadala's portfolio is much smaller than that of Aldar, with our core investment Al Maryah Island located in the heart of Abu Dhabi," Waleed Al Mokarrab Al Muhairi, Mubadala's deputy group chief executive said at the Global Financial Markets Forum in Abu Dhabi yesterday.

“We see ourselves as very complementary. We’re likely to be financial investors going forward. We’re not going to develop very much. We have a land bank and will be working very closely with Aldar.”

Follow us on Twitter @Ind_Insights