Real estate developer Emaar MGF Land Ltd recently filed a draft red herring prospectus with the Securities and Exchange Board of India (Sebi), the country’s stock exchange regulator, in what will likely be the second largest real estate share offer after DLF Ltd, which raised Rs9,000 crore. Emaar MGF, which is a partnership between New Delhi-based MGF and Dubai-based Emaar, is headed by managing director Shravan Gupta. Edited excerpts of Gupta’s interview with Mint:
Do you think your initial public offering (IPO) is coming at a good time as the markets are at a high and that’s a huge advantage?
I don’t think the current market for serious long-term players is either an advantage or disadvantage frankly because IPO is only the first step in a long journey. A company with good fundamentals and a good lineage will always find a good response.
Frank appraisal: Emaar MGF managing director Shravan Gupta says the current market is neither an advantage nor a disadvantage for long-term players. A company with good fundamentals and a good lineage, he says, will always find a good response.
In fact, to be honest, at this point of time, when the markets are heated up, some people may view this as not a time to enter the market. Would you like to enter the market at a higher level as an investor? I’d say the markets on its own are not lending any great significance to the IPO.
But, having said that, with the escalation in markets in the last couple of weeks, do you feel you can command a better premium?
Our company’s management philosophy has always been to leave value for the investors. That’s whether we sell our product, whether we sell our homes, whether we sell shares in the company. So, I don’t think we are going to be pricing ourselves more aggressively because of the current market conditions.
Sebi has come down heavily on land valuation methods. Where does this leave your land bank?
First of all, our documents are as per Sebi guidelines. So it is completely in adherence to Sebi rules that are apparently applicable and complete disclosure has been made in terms of ownership of land. I think we are on a good footing. More than 90% of our land bank is either paid for or it is where we have complete development rights.
In your prospectus, there is some mention about 52% of your land bank being owned by associate companies of Emaar MGF. Can you explain this?
These are companies associated with us. For some reasons they may not be subsidiaries of Emaar MGF. They could be partners, landowners with whom we have tied the land or some kind of a joint development where they are the land owners.
A lot of your land bank is still in agricultural use. What is the explanation for this?
This is a process in time and I think this is standard for all large companies in the sector. We go through land conversion and entitlement every year. Land which we are going to market five years from now, we are not going to get that converted today and pay a heavy government fee. It doesn’t make economic sense, but we don’t see any challenge to this process. It is part of system, so every year if you were to sell 1,000 acres or develop 1,000 acres, we will be entitled to that much. It is a question of the way the business works.
How do you plan to use the IPO proceeds?
I think a lot of the proceeds will go towards construction of hospitality vertical, towards retail malls and towards our IT parks. Some of the money would be used in the very short term to repay debt. I think the balance part would be used for land acquisition. Our need for funds is clearly greater than what we are raising.
What is the interest of private equity investors in the Indian real estate market, say from a year ago to now?
The interest in India is still there. There is substantial money chasing development, but investors have become smart. There was a time when a year ago investors were looking at picking up any paper, any developer anywhere. Investors have become more choosy and they do a little more research, they have got more people on ground.
What are your plans for special economic zones (SEZs)?
We are looking for SEZs in Punjab, Haryana and Andhra Pradesh, and these are predominately IT-SEZs. We also have some plans for multi-product SEZs. At the moment we have kept those plans on hold because the policy on SEZs...I think is still getting resolved. We don’t have all the answers on what will be the real benefits of developing an SEZ or what will (be the) benefit for users of those SEZs.
Are you relooking at the bid for developing space at the Delhi International Airport? Do you have any concerns?
Our concern on development as far as the airport bid is concerned has more to do with concerns around multiplicities of authorities, which exist as far as Delhi airport district is concerned.
For instance, the land is owned by the Airport Authority of India (AAI) but you need NoC (no objection certificate) from DDA (Delhi Development Authority) to do construction, whereas building plan will be sanctioned by MCD (Municipal Corporation of Delhi). Now, AAI has different development norms and both are in variance with each other.
The biggest challenge for us is if we were to put a project there and get stuck in a long, drawn-out process where we are being tossed from one department to another because of lack of clarity within the system itself. Wherever there are two government departments looking at one issue, there is bound to be confusion, unless the consortium works out a model with the government where they get a single-window clearance.
At the end of the day, I view the Delhi airport project as of national importance. We need to desperately improve our airport infrastructure. It is the first signal to foreigners. Our marketing to foreign investors is quite sloppy. There is an interest in India despite these problems. If we did a little more, imagine what our growth will be.