Commonwealth Games no fun for Emaar-MGF

High-stakes wrangle over Commonwealth athletes village has spawned into a multitude of problems for the company.

The Commonwealth Games village contract became a headache for the Emaar-MGF joint venture.

MUMBAI // In 2007, Emaar-MGF, a joint venture between Emaar Properties of Dubai and MGF Development of India, was an object of envy among its competitors.

Despite just two years of operational experience in the Indian property market, it managed to outbid entrenched rivals to bag the coveted 7 billion rupee (Dh569.2 million) Commonwealth Games village contract.

Emaar-MGF envisioned the village as a once-in-a-lifetime dream project, mirroring the Indian government's enthusiasm at hosting the event. It was meant to be a showcase for a new company trying to make a dent in a crowded market.

Instead, the project spawned a multitude of problems for Emaar-MGF, which is blamed by the government for allegedly poor-quality construction and project delays. While this year will be chiefly remembered by most as the year the country hosted the games, it will also be one that Emaar-MGF would rather forget.

The company is embroiled in a bitter legal dispute with the Delhi Development Authority (DDA) and risks forfeiting the remainder of a 1.83bn rupee bank guarantee deposited when it won the games village contract. But more than the financial loss, the legal dispute is hurting the joint venture's image, analysts say.

The DDA is being investigated by the Indian authorities over alleged mismanagement and misappropriation of funds. Paranjoy Guha Thakurta, a commentator on Indian business who is based in New Delhi, says "DDA is not particularly known for its probity", adding that making Emaar-MGF pay damages was a sign the government was eager to deflect blame.

But the legal ruckus could not come at a worse time for Emaar-MGF. The company is short of cash and weighed down by mounting debts. In the year that ended in March, it reported a net loss of 951.2m rupees on an income of 9.6bn rupees. The company's outstanding loans amounted to 58.07bn rupees as of August 31.

It has completed only one project so far - the games village - and has 38 others in the pipeline,but those are not expected to generate much-needed cash in the near future.

More significant, the company is struggling to launch an initial public offering (IPO), the proceeds of which could lighten its debt burden. It has aborted three IPO attempts since 2008 because of weak market sentiment.

In September, it more than halved the size of its proposed IPO with the Indian market regulator to 16bn rupees. The IPO would value the company at about US$3.5bn (Dh12.85bn), down from $15bn two years ago when it first planned to sell shares. Emaar-MGF will have to price its fourth IPO attempt attractively to succeed, warns the property services company Jones Lang LaSalle India.

But a number of problems continue for the company's fund-raising efforts. Most property IPOs, it says, are struggling to raise equity as the Bombay Stock Exchange Realty Index fell almost 20 per cent over the past month due to investor concerns related to debt, demand and a slew of government and corporate scandals. For its latest attempt at a flotation, Emaar-MGF says it expects to raise capital to pay off 6.14bn rupees of debt, redeem preference shares worth 6.27bn rupees and pay development charges.

Jones Lang LaSalle India estimates it is unlikely that property companies will find a conducive investor climate to float IPOs before March next year.

Repeated IPO problems have hurt investor confidence, analysts say.

Amit Goenka, the national director of capital transactions at Knight Frank India, a property advisory company, says Emaar-MGF needs to generate liquidity to pare down debt. Although some of its upcoming projects have registered rising sales amid a buoyant market scenario, "delivery and execution" are a matter of concern, he says.