India’s first real estate investment trust (REIT), Embassy Office Parks REIT, is going ahead with its plans to invite subscription from investors despite a last-minute objection from a third party.
The creditor to one of the equity partners in an underlying asset has claimed that a court order restrains the REIT from including assets owned by the partner. However, till the time of going to press, the regulators had not issued any notice to the REIT lead managers or the sponsors.
Mandava Holdings Pvt. Ltd, one of the creditors to Manyata Promoters Pvt. Ltd chairman Reddy Veeranna, has complained to the markets regulator and exchanges that Embassy REIT has failed to disclose that a Bengaluru court has restrained Reddy, a partner in an underlying asset of Embassy REIT, from creating third-party rights in properties owned by him. Mandava has also sent legal notices to merchant bankers for disclosure violations in public offer papers. A copy of the complaint letter has been reviewed by Mint.
Embassy Manyata Business Park is one of the portfolio assets of the Embassy REIT, which will open for subscription on Monday. Embassy Manyata is owned by Manyata Promoters Pvt. Ltd, Bengaluru-based developer Embassy Group and Blackstone Group Lp. Manyata Promoters, owned by Reddy, holds 27% of the shareholding. According to the REIT’s initial public offering documents filed with the Securities and Exchange Board of India (Sebi), Reddy was to transfer his shareholding to Embassy REIT in exchange for REIT units.
Embassy REIT, backed by global private equity giant Blackstone Group and Embassy Property Developments Pvt. Ltd, plans to raise ₹4,750 crore in India’s first REIT listing.
Of the 33 million sq. ft in the Embassy REIT offer, only 14 million sq. ft from Embassy Manyata has been included. The rest of the properties include Express Towers at Nariman Point in Mumbai and First International Finance Centre in the Bandra Kurla Complex.
Mandava Holdings in the complaint to Sebi on 12 March said the 31 January court order preventing Reddy from creating third-party rights “has not been mentioned anywhere in the DRHP (draft red herring prospectus)."
“The order was passed in view of substantial debt owed by Reddy Veeranna to Mandava Holdings," it said in the complaint. As on date, Reddy owes ₹72.71 crore in principal payment and ₹68 crore in interest, Mandava claimed.
Mandava has also asked the investment bankers “not to proceed with the offer without appropriate disclosures to the public".
“You are also advised not to issue any units in exchange for the shares held by Mr Reddy Veeranna. In the event you issue the same, we shall be constrained to take actions under the law against all concerned at your costs and you alone shall be liable for all consequences," the notice added.
A spokesperson for Embassy Office Parks REIT said: “The matter is a civil dispute between two parties (one being the minority shareholder in one of the REIT assets, and the other a third party) and the matter bears no direct nexus to the sponsors, the REIT manager or any of the REIT assets. Despite having firm legal footing, the manager exercised caution and published a public announcement in newspapers where pre-issue advertisements were published. The amount in question is immaterial, and overall represents less than 1% of the issue size."
An email sent on 16 March to Sebi seeking a response remained unanswered.
However, two people familiar with the developments said Sebi asked Embassy to disclose the court case to investors by way of a notice. On Saturday, a notice was issued in national dailies.
A Mandava Holdings spokesperson said, “ We have shared the court order with a request to Sebi about the non-disclosure of the same in the offer document which is material information. We are awaiting action from Sebi on the notice issued by us."