Remember Emaar MGF ?

In a sign that Indian stock markets are unlikely to look favourably at real estate companies any time soon, Emaar MGF Land Ltd, a joint venture between Emaar Group of Dubai and Delhi-based MGF Ltd, has decided to convert Rs922 crore invested through preference shares by the foreign partner into equity at a conversion rate of Rs300 per share.

The conversion rate for the compulsorily convertible preference shares is less than half the price at which the company wanted to enter the stock market with a large—and ultimately failed—initial public offer (IPO) in February.
Emaar MGF had initially proposed a price band of Rs610-690 a share for its IPO, but later cut it to Rs530-630 and eventually withdrew the offer because of poor response from investors in a falling stock market.
At Rs690 per share, a successful issue would have raised atleast Rs7,000 crore and taken the company’s valuation to Rs66,000 crore, or $16 billion.
According  to Shravan Gupta, executive vice-chairman and managing director, Emaar MGF, the conversion is benchmarked to Citigroup’s investment in the company in 2006. Emaar MGF was then valued at $6 billion, or Rs300 a share.

“Under the agreement with Emaar, we had to convert the preference shares into equity at a price to be determined through the book building route at the time of IPO, or in accordance with the timing of the investment,” Gupta told Hindustan Times. “Since the money was invested in 2006 and the IPO was withdrawn, we have decided to convert the debentures into shares at 2006 valuation.” The company has also issued shares to three parties involved in pre-IPO placement at Rs455 per share.

According to its IPO prospectus, media companies Bennett Coleman and Co. Ltd and New Delhi Television Ltd had invested Rs25 crore each, while IFCI Ltd had invested Rs50 crore in the pre-IPO phase. “We issued them shares at a valuation of $10 billion,” Gupta noted.
The Indian real estate market has been losing some of its steam in the last six months in line with the slowdown in the global equity and real estate market. Real estate share offers have slowed dramatically as a result and the valuations of real estate companies have also fallen.
Companies such as DLF Ltd have postponed plans to list their office properties as a real estate investment trust in Singapore while others are finding it hard to get high valuations for private share placements from private equity firms.
Shares of DLF and Unitech Ltd have fallen by 40-50% in the last three months.