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Monday, November 24, 2008

UAE intervenes in merger of mortgage lenders

DUBAI: Two of the United Arab Emirates' (UAE) largest mortgage lenders, already on track to merge, will be brought under a government-owned bank, the UAE finance ministry said yesterday, in the first sign of federal government intervention in Dubai's troubled property sector.

Trading in both Amlak and Tamweel, which have been struggling amid the global credit crunch, was suspended after the finance ministry said it will supervise their merger under the government's Real Estate Bank to ensure a fair valuation and protect shareholders.

"For Amlak and Tamweel it was always clear that some level of government support was necessary," said Raj Madha, a banking analyst at EFG-Hermes. "There were three problems that Amlak and Tamweel were facing: funding, liquidity and solvency.

"A merger between the two would have made no difference to those problems but an integration with Real Estate Bank effectively addresses all three of those issues," he said.

The combined market value of the firms is 2.5 billion dirhams, or US$681 million (US$1 = RM3.63) roughly one-third of their worth since October 4 when the two Dubai-based firms first announced merger plans.

Little-known Real Estate Bank, which comes under the finance ministry, is a government-owned entity aimed at supporting the real estate sector and provide housing for UAE nationals, according to its website.

Earlier this month, Tamweel said it was in talks with the central bank and the finance ministry about their "short-term requirements facility", and long-term funding options once its merger with Amlak had gone through.

A finance ministry official said yesterday that more details would be announced in coming weeks while an Amlak official declined to comment. Tamweel was not immediately available.

The companies will be combined as the UAE Real Estate Bank to create the largest real estate finance institution in the country, the state news agency WAM said.

Lenders and developers in the UAE have been battered by the credit crisis as market financing evaporated, property values plunged and buyers fled a market where land values have ballooned during a five-year boom.

Speculation has grown, as the financial crisis squeezes credit and hits stocks and real estate markets, that the federal government may step in to help shore up confidence in Dubai. Becoming a licensed bank would enable the two mortgage lenders to take deposits and access emergency federal funds.

By Reuters

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