Emaar's India venture sees light ahead

MUMBAI // Shravan Gupta, the managing director of Emaar's Indian joint venture Emaar MGF, hopes his luck is finally changing and he can get the company's investment plans back on track. Last month, when he began a tour of fund managers and investors in Singapore, London and New York, pitching his plan to raise around US$860 million on the Indian stock exchange in May, Dubai World announced it was seeking to delay debt repayments.

The news caused concern among potential investors but Mr Gupta pressed on. After all, two years earlier, when the company last tried to tap new investment, his timing was similarly off. A week after the $1.6 billion fundraising got the go ahead from Indian stock exchange regulator, the Securities and Exchange Board of India (Sebi), the Bombay stock exchange began a year-long slump, leaving Emaar MGF little choice but to pull the offering.

The situation is not quite as bad this time as the appetite for initial public offerings (IPOs) in India, particularly from financial institutions, is starting to return. But it has been tough. Earlier this month, the Enforcement Directorate of India's Ministry of Finance raided ten of the company's offices, claiming foreign currency regulation violations, which the company was quick to deny. Pushing aside the problems, Emaar sent the chief financial officer, Amit Jain, from Dubai to join Mr Gupta on his roadshow to help reassure investors.

Monday announcement that Nakhell, which is part of Dubai World, would repay its $3.52 billion sukuk during the next two weeks will have further helped Mr Jain's case. As for the Enforcement Directorate's raid, the company has described it as "a routine search operation". Shobhit Agarwal, India Managing Director at Jones Lang LaSalle, said the investigation would peter out, but felt it would still deter investors. "Whether they've done anything wrong, I'm not sure: the same company, with the same land bank got Sebi approval in 2007. But any sane investor will factor the risks in," he said

The managing director of another international property consultancy, who preferred to remain nameless, went even further. "It's likely to have been stirred up by a business rival," he said. "The Enforcement Directorate raids, these kinds of things keep happening to property companies." A banker working on the flotation said that Amit Jain was emphasising Emaar's relatively low debt-to-equity ratio, Emaar MGF's successful debt restructuring, and the $50 million additional investment Emaar made into the joint venture in January.

"I don't think there will be any impact from the Dubai developments on Emaar MGF," the banker said. "What are investor's concerns? Does Emaar-MGF have operations in Dubai? No; is Emaar well capitalised? Yes. Are they committed to India? Yes. they just put more money into the joint venture." But PN Vijay, Managing Director of PN Vijay Financial Services, a portfolio manager, said these arguments would not be enough to change the Emaar MGF's perception problem.

"When you do an IPO, the investors tend to look quite closely at the promoters," said "So the fact that there's this bad news coming from Dubai and then this investigation, it will certainly have an impact." All this is could still be a problem for Emaar MGF as the money is sorely needed. The failure of the first IPO in 2008 almost derailed the company's most high-profile project, the building of a residential complex for athletes for next year's Commonwealth Games in Delhi.

In March and April, the group ran so short of funds it could no longer even pay its contractor. It was only when the Delhi Development Authority stepped in and bought 333 of the flats for some $150 million (a discount of 12 per cent), that work could proceed again. In September it was forced to cancel one residential project, The Meadows, near Delhi and reimburse customers unwilling to be transferred to another development.

Fortunately for Emaar, the Indian stock market at is now looking healthy, with the benchmark Sensex index up around 60 per cent so far this year. Indian investors have reason to be wary of property companies. Those who bought shares in the 2007 IPOs of property companies DLF, Omaxe, and Puravankara Projects, during 2007 are still between 35 per cent to 70 per cent down on their investments. But the first property IPO of this year, Godrej Properties, was four times oversubscribed, albeit with nothing like the kind of enthusiasm from investors that there was back in 2007. The signs are that the year's second IPO, that of DB Corp, which opened to investors last Friday, is getting a better response. Godrej was raising just $107 million, however, a fraction of what Emaar MGF is asking investors for.

Mr Gupta has time on his side. He now hopes to raise the funds in May, when Emaar MGF will hopefully have met the deadline for completing the Delhi Commonwealth Village. By then, the ED investigation will be old news, but it will still be hovering over the IPO. Mr Kant says he will take months before he comes to a firm conclusion and files a formal complaint. Similarly, by May, the Dubai government's structured approach to Dubai World's debt should have made global investors much more relaxed, but again, much of the debt will still linger. It seems Mr Gupta will have to hope his luck changes for the better, if he is to finally get his IPO off the ground.

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