Dubai's Emaar Properties said it would not merge with Dubai Holding's property units. Dubai Holding, owned by the ruler of the Gulf emirate, and Emmar, the Arab world's largest listed developer, said in June they were in talks to merge four local real-estate companies, as a move to mitigate the crashing real estate market.
December 9, 2009
Analysis and Forecast: decreasing risk
The move in itself is not good news as it does nothing to improve the financial standing of either Dubai or the companies involved. Emaar, whose share price is used as an indication about the health of the Dubai stock market, had its shares plummet since the news about Dubai World’s debt standstill were announced. With the extent of the difficulties previously known to the decision makers, it would appear that in retrospect the merger was not a positive move. After the news emerged, failure to call off merger talks would only contribute to making the situation worse. As a result, calling off the merger is positive in as much as it limits further deterioration.
Emaar’s share price has risen sharply in trading since the calling off of the merger announcement was made. However, this was after several days of falling sharply. It appears that institutional investors, particularly international ones, have been selling massively and the lift in the share price is largely due to speculation. The high degree of volatility in the share price indicates that the confidence has not returned, but has merely been held at bay, at least temporarily.
The figure below shows the movement of the Emaar share price in the period since the Dubai World announcement was made.