The decision is regarded as an attempt to consolidate and re-structure the businesses which are both owned by Dubai world which in turn is owned by the Dubai government. It should result in a cut in operating costs.
'DMCC's property related operations have been integrated with Nakheel to better accommodate current market conditions and optimise resources and expertise,' Nakheel and DMCC said in a joint statement.
'I expect what is important now is for the respective companies to start putting in place restructural changes that allow them to compete more effectively as the market improves,' said Blair Hagkull, managing director, Middle East and North Africa, at Jones Lang LaSalle.
Companies consolidating to ensure growth will be reassuring to investors, he explained. 'This year is all about consolidation. The key is to be guided by early points of recovery but to recognise that some aspects need to be addressed, like how big companies that have done well in the past, do well in the future,' Hagkull added.
'I think it does make sense. All entities, not just Nakheel, are looking to save costs and reduce their economies of scale,' said Nicholas Maclean, managing director of CB Richard Ellis, Middle East.
It is unlikely to be the only merger this year with most property developers strapped for cash as bank continue to restrict lending and property investors default on payments. Marwan Bin Galita, chief executive of Dubai's Real Estate Regulatory Authority predicted at the start of the year that 25% of projects or developers themselves would merge in light of the economic slowdown.
According to Robert McKinnon, the head of research at Al Mal Capital, an investment bank in Dubai, the main benefit of consolidation will be to pool resources to enable firms which would otherwise be competitors to survive the downturn.
'I don't see much financial benefit in a lot of cases for the mergers that have been discussed. But with so many Dubai entities in the development game, it probably makes sense, from a control, quality and management standpoint, to shrink it down so that they're not all competing with each other and there's more co-operation and planning involved,' he explained.
