Real estate analysts raise questions about Dubai property developer Emaar merger plans

The proposed merger between Dubai developer Emaar and three entities owned by Dubai Holding raises a number of questions about the future of real estate development in the region, it is claimed.

Analysts are concerned about the value of the land owned by Sama Dubai, Dubai Properties and Tatweer and how the property downturn will have affected these assets.

Emaar claims that the merger will result in a business with combined assets of AED194 billion ($52.85 billion) and it expects the merger to be complete n four months.

'There are a lot of questions marks in terms of the valuation. The market couldn't care less about the value recognised on their balance sheet because what is the land really worth in market terms?' said Robert McKinnon, managing director of equity research at Dubai-based investment bank Al Mal Capital.

There are also questions about the viability of Emaar adding more land in Dubai to its portfolio. 'Land bank valuation can exhibit high volatility in stress markets and therefore the true value of land as an asset is tough to gauge. What needs to be assessed is the actual economic value to Emaar from holding additional land in Dubai,' said Saud Masud, an analyst at Swiss investment bank UBS.

'Will property be built upon it in the near term, what is the potential sale value per square foot and to whom may the land be sold to? How marketable is the land?' he added.

Since the merger was announced Standard & Poor's revised the CreditWatch implications for its 'BBB+' long-term credit ratings on Emaar from negative to developing. The agency said it reflected the prospective benefits for Emaar from the merger.

The developer has appointed Royal Bank of Scotland to advise on the consolidation process. The company has also assured that appropriate disclosures will be made in respect of transaction details.

'The proposed consolidation will create a robust and strategic asset base while joining the strengths of the management teams and employees of these companies,' said Emaar chairman Mohammed Alabbar.

There is also concern about the future of Dubai's state-owned developer Nakheel, which has receiving bail out funds from the $10 billion Dubai bond issued to raise cash for state-linked companies hit by the financial crisis.