The Abu Dhabi Securities Exchange (ADX) General Index was up 1.01 per cent on 12 March, after local developers Sorouh Real Estate and Aldar Properties announced their intention to merge.

Shares in both companies rose by 9.84 per cent, trading at AED1.34 ($0.36), after a joint statement announcing the possible tie-up was issued to the bourse on 11 March. As a direct result, the real estate sector index was up 9.7 per cent, the highest since July 2011.

The merger, worth about $15bn, will be decided within the next three months after a joint committee assesses the legal and commercial viability of the deal.

The two firms are also awaiting the “blessings of the Abu Dhabi government”, according to the statement.  

“The markets have responded positively, but there are many faults and a lot of things are not clear,” says one real estate analyst who asked not to be named. “Sorouh is a lean organisation, which is why it survived through the financial crisis, but Aldar does not make returns and it will be a long time before it is profitable.”

In 2011, Aldar received $9.8bn from the Abu Dhabi government and sold some of its assets to the state, including the Ferrari World theme park.

“If they merge, the entire entity will be more risky for banks to lend to and they might have issues raising funds to complete properties,” says the analyst.