ADX denies investigating Aldar-Sorouh trading manipulation

Abu Dhabi Securities Exchange (ADX) denied on Tuesday media reports which suggested that it is to launch an investigation into "unusual" share price movements of Aldar Properties and Sorouh Real Estate observed ahead Abu Dhabi's two biggest developers announced that they were in talks to merge.

"Abu Dhabi Securities Exchange denied the claims circulating in some media outlets that it plans to investigate trading in Aldar and Sorouh shares. The unfounded rumours of an investigation allege a suspicious price movement of both companies' shares prior to their mutual public statement of merger talks," ADX said in a statement.

"CEO of Abu Dhabi Securities Exchange M. Rashed Al Baloushi said in an official statement that ADX carries out daily routine checks on all share trading activities through highly sophisticated electronic surveillance systems which can detect any instance of share-trading violations.

"Al Balosuhi also reiterated that the exchange does not perform any investigations unless it was highly confident that trading laws have been violated, which did not happen in the case of Aldar and Sorouh share trading," the statement added.

Earlier, In-sync share price movements in Aldar Properties and Sorouh Real Estate on Sunday, before a merger between the two was announced, has prompted the Abu Dhabi Exchange (ADX) to launch an investigation into the unusual trades.

Even before the Dh55 billion merger was announced in the afternoon (after the close of trading on ADX), share prices of both companies rose in tandem by almost 8 per cent each. Aldar shares jumped 7.96 per cent closing at Dh1.24 at ADX on March 11, 2012, while Sorouh shares also rose 7.96 per cent to end the day at Dh1.24.

This was followed by the merger announcement after trading hours, which led to subsequent share price gains for the two firms the next day, with both the firms surging 9.8 per cent yesterday to close at Dh1.34 per share.

The head of Market Surveillance and Market Operations at ADX has said that his department became suspicious of the goings-on after noticing unusual trading movements on both stocks. There are concerns that the pre-announcement surge could be a result of insider trading.

The share price movements are particularly abnormal because no details of the proposed merger have been made public. Purely going by the size of assets held by each of the two firms, Aldar is much bigger, with assets amounting to Dh40 billion (as of December 31, 2011) while Sorouh’s assets amount to Dh14 billion – or just 35 per cent of Aldar’s.

With that in mind, it isn’t a merger of equals and, therefore, the share price swap between Aldar and Sorouh could be at 2:1, which would mean Sorouh’s share price should trade at half of Aldar’s.

But that hasn’t been the case, with both companies’ shares moving in tandem over the past few sessions and, at 10.20am this morning, Aldar’s shares were down 1.5 per cent to Dh1.32 while Sorouh stock was down 3.73 per cent at Dh1.29 per share.

Last year, Aldar received Dh36 billion in government support with the company selling assets, including the Ferrari theme park, to the government.

Earlier this month, Moody’s Investors Service upgraded Aldar’s outlook to positive from negative, saying, “The asset transaction agreements with the government of Abu Dhabi announced in December 2011 eliminate significant market and execution risk and will allow Aldar to reduce its debt load to an estimated Dh4.5bn by 2015.”

Aldar recorded a full-year net profit of Dh642.5 million in 2011, while total asset at the end of last year stood at Dh40 billion.

In February, Sorouh Real Estate said net profit hit Dh383.3million in 2011, up from Dh16.2 million in 2010, driven by delivery of Sun and Sky Towers. Revenues for the period were Dh3.8 billion, compared with Dh1.2 billion for the previous year, while total assets stood at Dh14 billion by end-2011.

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