UAE developers Aldar, Sorouh eye state-backed merger DUBAI (Reuters) - Abu Dhabi's Aldar Properties, rescued twice by the government with bailouts totaling $10 billion amid a property slump, may merge with local rival Sorouh Real Estate SOR.AD in a state-backed tie-up, the two firms said on Sunday. A merger of the No. 1 and 2 developers in the emirate will create one of the largest property firms in the region by assets with more than 54 billion dirhams ($15 billion). The plan comes as property prices slide in the emirate's real estate sector, which has not recovered from the downturn seen after the 2008 global financial crisis. Property firms in the emirate have been forced to cancel projects and restructure their huge pile of debt. "We'll do it if it's good for both companies," Sorouh's Managing Director Abu Bakr Seddiqi Al Khoury said at the developer's annual general meeting in Abu Dhabi. It won't change or shift our strategy from what we are doing today. Any merger decision will be made in the next three months after a joint committee assesses the matter, the companies said in a joint statement on the Abu Dhabi bourse, adding the talks had "the blessing of the Abu Dhabi government." No further details were provided. "I think this is targeted not only for Aldar but also for the real estate (market) in Abu Dhabi," said Ali El Adou, portfolio manager at The National Investor. The current business set up both for Sorouh and Aldar is not viable in the long run. So the government is trying to create an entity which will have stronger (footing). Aldar, which is majority-owned by Abu Dhabi state fund Mubadala MUDEV.UL and built the Yas Marina Formula One circuit, has relied heavily on the government over the past 18 months. State investment fund Mubadala MUDEV.UL has also played a key role in Aldar's bailout by subscribing to a $2.8 billion bond issued by the developer in March 2011. It currently owns 49-percent of the developer. Sources told Reuters in January that Abu Dhabi had held talks to offload all or part of the Aldar stake in an attempt to stop its falling asset value from dragging down Mubadala. "I think it is too early to identify the effect on Mubadala, but this might be an opportunity to exit Aldar or dilute their ownership in it," said Adou. Abu Dhabi pushed back the opening of the much talked about local branches of Louvre and Guggenheim art museums earlier this month. Aldar, the biggest in Abu Dhabi by market value, has been hit by slumping property prices in the United Arab Emirates after embarking on a building spree earlier. The company has assets worth over 40 billion dirhams and finally swung to profits in 2011 after repeated losses in 2010, lifted by the government bailout. Smaller Sorouh, which has assets of 14.1 billion dirhams, has fared better than its bigger rival, supported by a focus on existing project completion and delivery. "The initial reaction has been positive from the shareholders," Sorouh's Al Khoury said. However, both companies have weak balance sheets and this may not be resolved by the merger, analysts said. "Merging the two companies won't turn around the dynamics of the Abu Dhabi property market," said Robert McKinnon, ASAS Capital chief investment officer. Both companies have fairly weak balance sheets and so merging them isn't going to solve that problem. Shares in both companies ended up 8 percent on the Abu Dhabi exchange .ADI on Sunday. The statement came after markets closed. $1 = 3.6730 UAE dirhams Additional reporting by Stanley Carvalho in Abu Dhabi; Matt Smith and Nadia Saleem in Dubai; Editing by Amran Abocar