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Advent of a new season of mergers
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  Article Date:
October 06, 2008


The announcement that the UAE's market leaders in the mortgage business have begun merger talks points to the advent of a new season of financial sector mergers in the UAE and the Gulf region.

Last year two leading banks, the National Bank of Dubai and Emirates Bank International, merged to create the region's biggest bank by assets. Since then there have been on and off rumours about mergers in the financial services sector.

Although this market talk has often been dismissed as mere rumour, Tamweel and Amlak have finally taken the plunge. It may just be a matter of time before we hear similar announcements from other leading banks and financial services companies.

Undoubtedly, the proposed merger will result in the creation of a company with a massive balance sheet - in excess of Dh27 billion - and serve as a financial powerhouse with the increased critical mass required to lead the region's real estate finance market to the next stage in its ongoing organic growth.

As in any merger situation, there are obvious synergies in combining Tamweel and Amlak's expertise and balance sheets. However, the market is sceptical about the ability of this marriage to create adequate liquidity for the merged entity. Clearly, the current concern of the market is funding and a merger at this juncture is not an answer to the shortage of funds or their rising cost in local and international markets.

Although there are fears of an impending correction in the UAE's realty market, the volume of mortgage lending as a percentage of GDP is very low - about five per cent compared with the average for emerging markets of 15 to 30 per cent of GDP. Even if the market corrects, its impact on the economy and these companies will be limited as the size of mortgage assets is relatively small.- Gulf News

Source: Gulf News