Dubai Islamic Bank (DIB) will become the majority shareholder in Tamweel, one of the UAE's two big Islamic mortgage providers, paving the way for an end to almost two years of financial limbo. The deal is expected to lead to the long-awaited resumption of trading in Tamweel shares. DIB said yesterday it would increase its 20 per cent stake in Tamweel to 57.33 per cent, taking full control of a company it started in 2003 in a joint venture with Dubai World.
Tamweel, which amassed a portfolio of loans valued at about Dh10 billion (US$2.72bn) during Dubai's property boom, faltered at the end of 2008 when it struggled to secure financing to sustain its lending activities. It ceased doing business that November as a government panel contemplated a merger with Amlak Finance, the country's second Islamic mortgage provider. A source familiar with the talks said the increase of DIB's stake probably meant the merger plan was dead.
The transfer of control to DIB will allow Tamweel to resume lending, according to a statement from the Dubai Media Office. Adnan Chilwan, the head of retail and business banking at DIB, said shares would remain suspended in the short-term pending the outcome of a review of Tamweel. "We are reviewing Tamweel's business model and I can assure you that the shares will not be suspended for one day longer than is required," he said.
Shares of both Tamweel and Amlak have been suspended since merger talks began, frustrating investors and spurring a grey market in the securities. "This strategic move is the culmination of intensive efforts over the past few months to resolve the stalemate at Tamweel that will allow the company to resume its core activity of providing mortgages and real estate financing," the Dubai Media Office said. "The move will give new momentum to the local mortgage market, which has entered a recovery phase after a series of decisive measures taken by the Government in the wake of the recent global financial crisis."
After the transaction, Istithmar World, which owns about 20 per cent of Tamweel, will transfer its share to DIB along with other institutional shareholders including HSBC Dubai Capital Group (DCG), which owns 8.82 per cent, and Dubai Investment Group (DIG), a subsidiary of the Dubai Government-owned Dubai Holding. The companies would not say what price DIB would pay for the bigger stake but DIB has been accounting for its existing holding at Dh2.30 per share.
"All majority shareholders of Tamweel, including Istithmar, DIG and DCG among others, are satisfied with the process", said Abdullah al Hamli, DIB's chief executive. "Through this transaction, DIB will effectively buy out the larger stakeholders and be in a position to provide strong support to the mortgage lender going forward." The deal could be a mixed blessing for Tamweel and DIB, analysts say. While it was a victory for both Tamweel and for the resumption of mortgage lending in Dubai - Amlak and Tamweel together are estimated to hold more than half of all mortgages in the UAE - taking control of Tamweel could entail some financial stress for DIB. As the majority owner, DIB will have to consolidate Tamweel's profits and losses into its own financial performance at a time when the bank is trying reduce its exposure to property in the UAE.
"This adds another Dh9bn to Dh9.5bn in mortgage loans for DIB, which already has about 40 per cent of its loan book in real estate and mortgages," said Murad Ansari, a banking analyst at EFG-Hermes. "What that means is that DIB's total lending to real estate and mortgages would account for roughly about 50 per cent of its total loan book, so there's obviously added risk and we understand real estate is going through a difficult phase now where there is still risk of further write-downs and defaults."
Despite the halt on lending almost two years ago, Tamweel has shown improving financial results during the suspension. After taking Dh188.1 million in losses between the final quarter of 2008 and the second quarter of last year, the company reported modest profits for four quarters in a row, the latest a Dh5.4m gain in the second quarter of this year. The backing of DIB will give Tamweel access to funding at lower interest rates and resolve problems caused by using short-term borrowing to finance longer-term mortgages, a model that fell apart when banks and investors withdrew funding during the financial crisis. The takeover also removes another impediment to Dubai's economic recovery following the resolution this month of Dubai World's $24.9bn debt restructuring with 99 per cent of its creditor banks.
The burning question now, analysts say, is what happens to Amlak. Tamweel had long been rumoured as ripe for a takeover by DIB but analysts say Amlak has no obvious white knight, although it is understood that a combination with Emirates NBD could be in the works. Amlak, which was set up by Emaar Properties in 2000, has reported Dh385m of losses between the final quarter of 2008 and the second quarter of this year.
"From our perspective our link-up with DIB is the solution for Tamweel," said Wasim Saifi, the chief executive of Tamweel. "For Amlak whatever the solution is, at some stage it will come out but we're not aware of what the solution is."
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