New Delhi: Delhi-based realty company Emaar MGF Land Ltd, developer of the Commonwealth Games Village, plans to use at least half the amount it plans to raise from the proposed sale of shares to retire outstanding debt, currently Rs5,000 crore and due over the next two years.
“We will be using 50-60% of the IPO (initial public offering) proceeds to pre-pay a portion of the debt. The rest we will use as operating cash flows for constructing and approvals. Debt is not a concern as of now,” said Shravan Gupta, executive vice-chairman and managing director, Emaar MGF.
The company may seek to raise Rs3,500 crore from the IPO, lower than the Rs3,850 crore mentioned in the draft red herring prospectus (DRHP) as it has repaid some of the outstanding debt from internal accruals. The realty firm, which filed the DRHP with the Securities and Exchange Board of India (Sebi) on 29 September, obtained approval for the issue in February.
The company’s 2007-08 plan to raise a little over Rs7,500 crore from an IPO was aborted after the stock markets slumped in the wake of the global economic crisis.
Gupta said the company wants to make deliveries of some of its projects to customers before going public and that it has a window that’s open until February. “We will wait till the market stabilizes. Meanwhile, we will try to complete our old projects,” he said. The IPO may take place in the next 90 days, Gupta was cited as saying by Reuters.
The company, which reported a loss for the fiscal ended March 2009, shelved some projects following the 2008 liquidity crunch, which hit the real estate segment hard.
Emaar MGF may have miscued a second time according to some analysts.
“The timing to launch the IPO went wrong twice. Emaar MGF will have to wait till there is some sense of stability in the market,” said Ravi Ahuja, executive director, development services, India for Cushman and Wakefield Inc., an international real estate consultancy. “Most of these developers who have announced IPOs are trying to retire their debt from the proceeds.”
The Bombay Stock Exchange’s realty index has fallen 9.5% this year compared with a 1.4% increase in the benchmark Sensex. The performance of the two property companies that made their stock market debuts this year has been muted, with the shares of Godrej Properties Ltd and DB Realty Ltd hovering around their listing price.
On firm ground: Emaar’s Mohammed Ali Alabbar (left) and Emaar MGF’s Shravan Gupta. Alabbar says over the next 12 months, the Indian market will be Emaar’s top priority. Ramesh Pathania/Mint
“It is possible to revise the IPO value to favour a large number of investors. Depending on market conditions, companies who are yet to bring their IPOs have announced more realistic values,” said Param Desai, research analyst, Angel Broking Ltd. “It has to be in sync with the market. Since the real estate market is yet to recover from the slump, we can see real estate IPOs hitting the market in another five-six months.”
The prospect of a second increase in interest rates by the Reserve Bank of India in this month’s monetary policy review isn’t likely to dampen the recovery in residential property, Gupta said. Pricing is a more critical factor, he said. “Buyers will only see the rates at which they are buying the unit,” Gupta said.
Meanwhile, Dubai-based Emaar Properties PJSC prefers India to China, said chairman Mohammed Ali Alabbar.
“Over the next 12 months, the Indian market will be our top priority,” Alabbar said. “In comparison to other emerging Asian markets such as China, we share strong cultural similarities with India.”
Emaar MGF is currently in the process of handing over the Commonwealth Games Village apartments to the Delhi Development Authority. The Commonwealth Games are due in October and there were concerns on the timely completion of the project.
Alabbar rejected the contention that the project had been unduly delayed.
“Generally, it takes three- four years to complete a project. In the case of the CWG Village, we have finished the construction,” he said. “The authority will do the rest of the work. This involves work like interiors and design, setting up of the infrastructure.”
He said Dubai property prices had bottomed out.
“Prices have come down to a stable level. (The) Dubai crisis will have no impact on the Indian operations. (The) company, in India and abroad, will end up making profit based on healthy sales,” he said. “Moreover, cash flows from sales, commercial rentals and hotel division have been regular. We are in the process of handing over possession at Burj Khalifa,” the world’s tallest building.
Emaar MGF said at least four of its projects are due for delivery this year as it gets set to put more properties on the market.
“Over the past 10 months, the company has been able to sell apartments in good volumes,” he said. “When the two companies, Emaar Properties PJSC and MGF Land Ltd, started as partners, almost two years went in the getting the necessary approvals over projects and hiring a strong workforce. We have already completed five years together.”
Apart from the Commonwealth Games Village, the company is ready to hand over possession of apartments at Chennai, Indore and Gurgaon.