Amlak Finance and Tamweel in merger talks

The two companies would create the largest property finance firm in the Middle East should talks succeed.

Abu Dhabi // The likely merger of Amlak Finance and Tamweel, the country's two largest home finance providers, was seen by analysts as the first signs of fallout from a global wave of consolidation that began on Wall Street. If the deal goes through, it would create the largest property finance company in the Middle East with a combined balance sheet of more than Dh27 billion (US$7.36bn). With a lack of credit in the international markets and construction bottlenecks caused by soaring material costs and labour shortages, companies are looking for ways to remain profitable and gain economies of scale by pooling resources. Such moves could reassure property buyers that there would still be money available for home finance, even though there will be fewer lenders. Since the beginning of the year, Tamweel's share price has fallen by about 44.5 per cent to Dh3.8 and Amlak has lost about 35.7 per cent, closing more than a week ago at Dh3.3. The turmoil on Wall Street has worsened their plight even further, because home finance companies are more dependent on interbank lending, unlike banks that can rely on customer deposits. "Whatever the reason, this move is the first step in the right direction," said Aymen el Saheb, the head of operations at Drahem ­Financial Brokerage, based in Dubai. "It is certainly a short-term relief as far as market sentiment is concerned. But we are talking about a merger, and that does not happen overnight to lift the markets." Both Tamweel and Amlak have cut back on their lending in the wake of the financial credit crunch. Tamweel recently changed its lending rules, demanding borrowers put up a deposit of at least 25 per cent of the price of a property and restricted borrowers to just one home loan each. Goldman Sachs International has been asked to advise on the deal, which is expected to be concluded by early next year, according to a joint statement by the companies yesterday. The news will be a relief for Tamweel. Some of its senior executives have been questioned in Dubai's corruption investigation. This is the first of what many analysts expect to be a series of consolidations in the financial and property sectors, particularly among government-controlled entities. This deal comes with the "blessing and support" of Sheikh Mohammed bin Rashid, Vice President of the UAE and Ruler of Dubai. Ali Khan, a director at Arqaam Capital, based in Dubai, said the merger initiative was "logical" in the wake of the global financial situation. "Mortgage institutions should be the first ones here to consider merger option as lending is their core business," said Mr Khan, adding that the larger capital base would help them pass through this critical phase. "It's good to see managements of mortgage lenders having a proactive approach to address the situation. It is certainly better than being a silent spectator, watching the share prices of mortgage lenders being decimated amid the credit squeeze and all kinds of rumours surrounding these firms." The two sides said yesterday that a merger would create a "financial powerhouse" with the "strength, size and scale to pursue significant growth plans in the domestic and regional markets". The arrangement would also lead to "enhanced value proposition for customers" and other operational efficiencies, the companies said. According to a spokesman, the international credit crisis did not play a role in the decision to start merger talks. "The opportunity to provide real estate finance solutions to businesses and individuals in the region has never been greater as the markets are expected to experience continued growth in the years to come," said Nasser al Sheikh, the chairman of Amlak and director general of Dubai's department of finance. "A powerful market participant will be required to manage this growth both at home and internationally, and following the merger, the combined group will continue to execute this aggressive expansion strategy." The major shareholders of both companies, which include Emaar Properties for Amlak Finance and Dubai Islamic Bank and Dubai World for Tamweel, "are fully supportive of the merger discussions", said Sheikh Khaled bin Zayed, the chairman of Tamweel. A joint steering committee has been created to oversee the talks. The committee is led by Mohammed Ibrahim al Shaibani, the chief executive of Investment Corporation of Dubai, a government-owned fund. If a deal is struck, both companies would hold general meetings to get the approval of the shareholders, the statement said. "The Government is recognising the importance of having strength and scale," said Blair Hagkull, the director of the regional office of Jones Lang Lasalle. "There are discussions throughout the financial and real estate industries about having more consolidation." Until these latest talks began, the only visible sign of consolidation has occurred in the property sector. Last week, company sources said Emaar Properties, Dubai's largest developer, was in talks with Sama Dubai to take over development responsibilities of one of Sama's signature projects in Dubai, The Lagoons. The arrangement under discussion would inject cash into Sama, which has been subject to a corruption investigation that detained four of its executives, and replenish Emaar's land bank and profitability. In July, National Bonds - a savings scheme for nationals - turned over its property projects to Deyaar Development in another consolidation. Tamweel and Amlak have been under strain in the past few months. Tamweel especially has taken a hit in the aftermath of the corruption investigation by the Dubai Government that has resulted in several former executives being detained by the authorities. On Sept 22, Wasim Saifi, the chief executive of Tamweel, said in an interview that the tightened credit market could have ripple effects on the mortgage market. "The fundamentals of the economy are so strong, you don't want something to slow that down," he said at the time. "If domestic liquidity dries up then the ability of the mortgage companies will be affected." [e-mail] [e-mail]