Dubai Stocks Drop as Abu Dhabi Takes Over Mortgage Lenders

By Glen Carey and Laura Cochrane

Nov. 24 (Bloomberg) -- Dubai stocks fell the most in a week as a takeover of the emirate’s biggest mortgage lenders by neighboring Abu Dhabi signaled a worsening crisis in financing real-estate debt.

Emaar Properties PJSC, the Middle East’s largest real- estate developer, dropped 9.5 percent, extending its slump this year to 83 percent. The Dubai Financial Market General Index retreated for a third day, falling 5.3 percent to 1,814.90, sending the measure 69 percent lower in 2008.

Abu Dhabi, backed by the largest sovereign wealth fund, is taking over Amlak Finance PJSC and Tamweel PJSC with backing from the United Arab Emirates government, as the credit squeeze and lower oil ends Dubai’s boom that drove development of the world’s tallest tower and man-made palm-tree shaped islands.

“This confirms western investors’ concerns about the deep downturn expected in the Dubai real-estate and property markets in the next two to three years,” said Luis Costa, emerging- market strategist at Commerzbank AG in London. “It’s not Armageddon for the Dubai real-estate market, it just needs to come back to basics.”

Real Estate Bank, the Abu Dhabi-based lender that will take over Amlak and Tamweel, will be combined with Emirates Industrial Bank in a new entity called Emirates Development Bank, WAM reported today.

Tumbling shares cut Amlak’s market value by 80 percent this year to 1.53 billion dirhams ($417 million), while Tamweel has lost 86 percent at 990 million dirhams. Both shares were suspended for a second day, pending the announcement of merger details.

Property Prices

Dubai’s residential property prices surged fourfold in the last five years, spurred by record oil prices and borrowing. The market is reversing as the global seizure in credit markets pushes banks to restrict mortgage lending and developers to scale back projects, according to HSBC Holdings Plc.

Dubai and Abu Dhabi property prices dropped for the first time in the month to October, according to HSBC. Lower oil prices have reduced revenues in the region that produces almost a fifth of the world’s oil and weakening demand for real-estate projects. Crude traded at $52.09 a barrel on the New York Mercantile Exchange.

“When oil was coming down from $120 a barrel, people didn’t really notice,” Ali Khan, head of equity trading at Dubai’s Arqaam Capital Ltd., said in a telephone interview. “When prices started to approach $60, and fell below that level, we started to see actual projects getting delayed.”

Emaar’s Slide

Governments in the region have used their oil wealth to support local stock markets. Oman started a 150 million-rial ($390 million) fund, while Kuwait’s cabinet agreed to form an investment fund, KUNA reported Nov. 18. The Qatar Investment Authority said it would contribute to the capital of Qatari banks.

Emaar dropped to 2.47 dirhams from 2.73 dirhams. The Dubai- based developer’s chairman Mohammed Ali Alabbar said today he would “welcome” a merger with Nakheel PJSC, the real-estate developer building palm tree-shaped islands off Dubai’s coast, if the chance arose.

“You will see more consolidation among third-party developers, who are facing lending difficulties,” Alabbar said.

First Gulf Bank PJSC, Dubai’s third-largest commercial bank by market value, declined 9.2 percent to 10.35 dirhams.

The Abu Dhabi Securities Exchange General Index lost 3.4 percent. The Kuwait Stock Exchange Index dropped 1.9 percent.

Abu Dhabi-based Sorouh Real Estate Co., the U.A.E.’s second-largest property developer by market value, lost 4.6 percent to 2.93 dirhams.

The Bahrain All Share Index retreated 3.3 percent. Oman’s Muscat Securities Market 30 Index fell 0.3 percent and Qatar’s DSM 20 Index declined 1.3 percent.

Saudi Arabia’s Tadawul gained 6.2 percent to 4,529.19 after dropping 18 percent in the previous four days. Saudi Telecom Co., the Arab world’s biggest phone company, gained 7.9 percent to 45.2 riyals. The company was rated “buy” in new coverage at Citigroup Inc.

To contact the reporter on this story: Glen Carey in Dubai at gcarey8@bloomberg.netLaura Cochrane in London at lcochrane3@bloomberg.net