Real estate developer Emaar MGF Land’s third attempt to raise Rs 1,600 crore through an initial share sale offer has hit a regulatory hurdle.
Even after seven months, the Securities and Exchange Board of India has not given nod to Emaar MGF for its initial public offering as the New Delhi-based firm’s role came under scanner for alleged irregularities in developing the Commonwealth Games village, according to persons with direct knowledge of the matter. The joint venture between Indian lender MGF and Dubai’s Emaar Properties had filed its draft red herring prospectus (DRHP) with the capital markets regulator on September 30, 2010.
The V K Shunglu committee, appointed by the Prime Minister to look into issues relating to organising and conduct of CWG held in Delhi last year, has come down heavily on Emaar MGF Construction Pvt Ltd, a unit of Emaar MGF Land.
In its second report released last month, the committee has indicted Emaar MGF for failing to meet its contractual obligations, receiving undue financial gains and making unauthorised payments, among other things.
| THIRD TIME UNLUCKY? |
| * First withdrew IPO in February 2008 due to poor response |
| * Filed second time for IPO in September 2009, got approval in March 2010 |
| * Re-filed in September 2010 |
| * No Sebi approval even after seven months, role in CWG comes under scanner |
The committee headed by the former Comptroller and Auditor General of India (CAG) estimated the total financial favours/loss to the Delhi Development Authority (DDA) by a series of decision taken to support Emaar MGF to as much as Rs 1,244.50 crore.
The committee recommended that the Government of India or DDA may take appropriate action against Emaar MGF for knowingly supplying incorrect information and for its various acts of omission and commission.
Separate e-mail queries sent to the spokespersons of Emaar MGF and Sebi on the issue remained unanswered.
Among the risk factors in its DRHP Emaar MGF had said concerns regarding the readiness and habitability of the CWG village could expose the company to reputation and financial risk.
This is the third time in the last four years that Emaar MGF’s plans to raise money through IPO have hit the wall. Earlier, in February 2008, the real estate developer had to withdraw its IPO due to poor response from investors after the stock market collapse. The company again filed for IPO in September 2009 and received Sebi’s nod in March 2010. However, it did not proceed with the issue at that time and re-filed in September 2010.
Besides deferring the issue, Emaar MGF has also significantly scaled down the issue size from Rs 6,400 crore in 2008, to Rs 3,850 crore 2009 and to Rs 1,600 crore in 2010.
The IPO is crucial for the company as it plans to repay and prepay debt of Rs 614 crore and redeem preference shares worth Rs 626.9 crore and pay development charges of Rs 83.6 crore out of the issue proceeds.
According to the DRHP filed by the company in September 2010, it had a total debt of Rs 4,689 crore as on August 31, 2010. Of which the company had to repay Rs 1,199.8 crore by March 31, 2011, around Rs 796.8 crore and Rs 142.6 crore by March 31, 2012 and March 31, 2013, respectively. In addition, it had Rs 2,383 crore as compulsorily debentures as on August 31, 2010.
A spokesperson for Emaar MGF said this month that the company had refinanced some of its debt and had also repaid Rs 1,400 crore in the last year-and-a-half. The company had a net profit of Rs 125 crore on sales of Rs 2,078 crore in FY10.
