Wed, Apr 13 2016. 02 22 PM (Livemint.com
Emaar MGF Land was the first partnership through a large foreign direct investment in India’s real estate sector.
Bengaluru: Dubai’s Emaar Properties PJSC has decided to terminate its 11-year-old joint venture with MGF Developments Ltd, Emaar MGF Land Ltd.
The joint venture will undergo reorganization through a demerger scheme, and Emaar Properties will drive the ongoing projects of the company in India.
In a statement on Dubai’s DFM General Index, Emaar, one of the largest developers in Dubai and the creator of the Burj Khalifa, said: “This reorganization will enable Emaar to implement focused strategy for its real estate business in India and will allow the business to undertake future expansion strategies. It will also enable Emaar to drive the development of ongoing projects in India.”
Details of the possible division of the land assets and projects between the partners were not disclosed.
Emaar MGF Land was the first partnership through a large foreign direct investment (FDI) in India’s real estate sector. The real estate market was at its peak in 2005 when the joint venture was formed. Emaar’s entry was followed by that of several other foreign (real estate) investors and developers.
In a notice to BSE on Wednesday, Emaar MGF Land said, “In order to lend greater focus to the operations of the company’s businesses and projects and for the purpose of capturing the potential for further growth and expansion, the Board of Directors of the company at its meeting held on 11 April 2016 have resolved (subject to approval of the shareholders and creditors of the company and relevant regulatory authorities), to take steps for reorganization of the company through Scheme of Demerger to be filed in court (scheme of arrangement under section 391 to section 394 of the Companies Act, 1956 (as amended)) of its undertaking(s) and have also authorized the company to execute necessary agreements and documents in respect thereof.”
Reports of a possible split surfaced last year but Emaar had always maintained that the joint venture is intact and committed to its projects in India.
Emaar Properties has around 49% stake in Delhi-based Emaar MGF Land, a JV formed in 2005 with the Guptas of MGF Developments, who own the remaining stake.
Shravan Gupta is the executive vice-chairman and managing director of Emaar MGF.
An Emaar MGF spokesperson said that the company had no further comment other than its statement to BSE.
Soon after its formation in 2005, Emaar MGF went on to aggressively acquire land in various parts of the country. It had 11,340 acres of land and 44 (residential, commercial and hospitality) projects in over 20 cities, according to a draft red herring prospectus the firm filed in 2009.
Emaar MGF was severely criticized over the poor quality of construction of the 2010 Commonwealth Games village in Delhi for which it also got a Rs.700 crore bailout package from the Delhi Development Authority.
In the last decade or so, it has completed just three residential projects—one each in Gurgaon and Chennai and the Commonwealth Games village, according to the company website.
Despite actively bidding for hospitality projects, it subsequently exited many of them.
Currently, it has many ongoing residential projects in Gurgaon, Chennai, Hyderabad, Mohali, Lucknow and Indore and a few commercial office and retail projects as well.
“Since the inception, Emaar has put in most of the money, which has been used to buy land and start projects, while MGF provided some loan guarantees in a few projects. It would make sense for Emaar, which has a team here as well, to tie up with a new partner to finish the ongoing projects, and honestly, MGF doesn’t have much to lose in the whole deal,” said a property consultant, who didn’t to be named.
Property consultants believe that despite the financial backing of Emaar Properties, Emaar MGF never really acquired scale because of its many aborted attempts in going public.
Between 2007 and 2010, the firm filed draft prospectuses four times and slashed the size of its proposed initial public offering (IPO) from Rs.7,000 crore to Rs.1,600 crore. It eventually did not go ahead with the share sale.
“Emaar MGF did a great job in acquiring good land plots. Where it failed was in developing and delivering them to customers. Emaar capitalized the company very well, but things still didn’t fall in place and the partnership turned sour,” said a second property consultant, who too didn’t wish to be named.