Aldar Properties and Sorouh Real Estate, Abu Dhabi's two largest developers, moved a significant step closer to a US$15 billion (Dh55.09bn) merger last night as the pair began due diligence on the deal and appointed advisers.
The firms have picked some of the biggest names in investment banking and corporate law. Aldar has hired the law firm Allen & Overy and the investment bank Credit Suisse. Sorouh has taken on Clifford Chance and Morgan Stanley.
"A due diligence process is now under way to assess in detail the implications for all stakeholders, and this process will take a number of months," the companies said in a joint statement.
Aldar shares rose 1.8 per cent to trade at Dh1.13 yesterday, while Sorouh rose 0.9 per cent to Dh1.05. The two stocks accounted for more than a third of daily trading volumes on the Abu Dhabi Securities Exchange last week as investors built up positions ahead of an expected announcement.
The statement comes before Sorouh's board meeting being held today at 2.30pm at its headquarters after the market closes.
In March, Aldar and Sorouh said they were preparing a study to be put before both boards within three months.
A steering committee to oversee the merger has hired Goldman Sachs and National Bank of Abu Dhabi, along with Ernst & Young to provide accounting advice and Jones Lang LaSalle to provide a valuation.
Aldar and Sorouh were together responsible for delivering some of the capital's biggest property developments.
Aldar built the Formula One Yas Marina Circuit and Central Market developments in the capital, while Sorouh is the developer behind projects that include Reem Island's Sun and Sky Towers.
Abu Dhabi property developers were hit hard by the global financial crisis in 2008, with prices in some places tumbling by up to 60 per cent from their peak.
Aldar has already received more than $10bn in government funds and last November cut 105 jobs. Sorouh has also shed jobs over the past year.
"Retail investors are expected to get excited in today's trading session, as the deal is looking like it's moving forward," said Fadi Al Said, a senior fund manager at ING Investment Management in Abu Dhabi.
"Institutional investors still have a lot of questions on their minds: what is the structure of the merger? What is going to be the strategy of the company going forward? [What] is the new company going to look like?" said Mr Al Said. "Overall, when you have a sector that is struggling, you will usually see a wave of consolidation. A merger of Aldar and Sorouh will be a good thing. It will bring more synergies and lower operational cost, flex more muscle leading to bigger companies."
Aldar wrote down a number of assets last year with some Dh3bn in impairments, provisions and fair-value losses recognised overall. It completed 1,930 residential units including Al Zeina and Al Muneera communities at Al Raha Beach.
It also added about 76,000 square metres of retail space. Aldar is in the process of selling Dh16.8bn in assets to the Abu Dhabi Government. That includes Dh5.7bn for Central Market, the city centre souq designed by Lord Norman Foster. In January 2010, the company disclosed a funding plan under which the Government would buy Dh10.9bn of its Yas Island infrastructure assets, including the Ferrari World theme park and Dh5.5bn of residential units and land.
"The fact that it was confirmed by both companies [yesterday] is a positive development and the share price appreciating in both stocks reflects investor belief that this is progress in right discussion," said Mohammed Ali Yasin, a capital markets expert in Abu Dhabi.
"The sooner we get outcome of valuation of [the] new joint company, that will help to energise stock market and shareholders."
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