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Merger of top Middle East mortgage lenders halted

Last November it was announced that Amlak and Tamweel would merge under the Emirates Development Bank as both firms were struggling due to the global economic downturn, restructuring, cutting jobs and cutting back on lending.

The United Arab Emirates government has now appointed a new committee to examine what other options might be available for the companies.

The Ministry of Finance has formed a Steering Committee, headed by Sultan Bin Saeed Al Mansouri, UAE Minister of Economy, which aims to review Amlak and Tamweel and recommend possible ways the two companies can go forward.

'The Steering Committee appointed by the Cabinet is reviewing the operations of Amlak and Tamweel. It is also evaluating their performances in light of the emerging economic situation,' Al Mansouri said.

'Various options are being considered in the long term interests of the mortgage market and investors. Merger continues to be one of the options, however, not a definite option,' he added.

After reviewing both Amlak and Tamweel, the committee is expected to give its recommendation to the government at the end of this month. 'Mortgage finance has been one of the key drivers of real estate growth in the UAE. The ripple effects of the global financial meltdown have necessitated a renewed approach to the business models of Amlak and Tamweel,' Al Mansouri explained.

Some analysts have been critical of the merger plans and are now saying that the only viable alternative is to let the companies go under.

'If the companies don't merge, then other options include letting them go under. Or they could not merge and the government could throw more money at both of them, which is pointless. It's like burning money,' said Barmak Besharaty, managing director of Al Mas Capital.

'The correct thing to do is let these companies sink and create another, more nimble entity,' Besharaty added.

Other analysts say that merging two high risk companies is not a solution to their liquidity problems and that some sort of nationalisation might be the best option. 'They have substantial losses that need capitalisation from somewhere. Merging doesn't necessarily solve the problem, but shifts the problem around,' said Raj Madha, senior research analyst banking at EFG-Hermes.