Dubai’s stock markets have soared today following an announcement by Emaar Properties that it was scrapping a merger with three other state-owned real estate groups, Tatweer, Sama Dubai and Dubai Properties.
After a shaky start, the Dubai’s benchmark index climbed 7 per cent, its biggest one-day gain since February, and reducing the losses since the Dubai World debt freeze last month to 22 per cent.
Emaar, the largest real estate developer in Dubai, has so far survived the debt crisis relatively unscathed. It said it didn’t make economic sense in the current time to seek a merger with three real estate groups owned by Dubai Holding, the personal investment vehicle of the emirate’s ruler, Sheikh Mohammed bin Rashid al-Maktoum.
The withdrawal signals that Emaar, the developer behind the world’s tallest tower the Burj Dubai, feared being saddled with toxic debts from other state-owned groups.
Analysts at Credit Suisse said in a research note that a merger would have been “value destructive for the company”.
The decision also makes it clear that investors fear the Dubai crisis has spread to other government-owned businesses beyond Dubai World.
“The news may also reflect an admission by the government that there are additional bad assets outside of Dubai World – so this does nothing to improve the negative sentiment in Dubai, but should be seen as a positive for Emaar,” Credit Suisse noted.
The merger had been scheduled to take place by the end of the year. Now the government will retain a 31 per cent stake in Emaar, with the company’s remaining shares listed publicly.
Dubai World last week said it is in talks with banks to restructure about $26 billion in debt. A $3.5 billion Nakheel bond due next week is seen by investors as a key litmus test for Dubai’s ability to meet its financial obligations.