Dubai’s Emaar Properties to reorganise India unit through demerger

Emaar will demerge from its India-based joint venture Emaar MGF Land Limited.

An advertisement for Emaar MGF in New Delhi, India. Sanjit Das / Bloomberg News
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Mumbai // Emaar Properties is ending its joint venture with India’s MGF, through which it built the athletes’ village for the Commonwealth Games in New Delhi, a project that was plagued by controversy.

Emaar said that it agreed to the demerger of Emaar MGF “in order to lend greater focus on its Indian operations and for the purpose of developing the pot­ential for further growth and expansion of the business”.

In a statement to the Dubai Fin­ancial Market it said the “reorganisation would enable Emaar to implement focused strategy for its real estate business in India and will allow the business to undertake future expansion strategies”.

“The demerger does not have any financial impact on the company,” an Emaar spokesperson said. “We will announce more details on it in due course.”

Emaar MGF has completed residential projects in Gurgaon and Chennai and had a number of housing developments planned for cities including Hyder­abad and Jaipur, as well as commercial and retail projects in Gurgaon. It is not clear how the projects will be divided between the two companies.

“The demerger, in our opinion, would result in splitting of the assets – including the land bank, current developments, guarantees and advances and liabilities,” Naeem Brokerage wrote in a research note. It said that Emaar MGF has a land bank of 30 million square metres and more than 11,000 units either under development or to be developed.

“Apart from the land bank and projects under development, Emaar’s exposure to Emaar MGF includes loans to associates amounting to Dh2.7 billion, while investments in associates amounted to Dh2.1bn,” according to Naeem.

The joint venture has been operat­ing in India since February 2005. It was set up by Emaar and the Indian property tycoon Shravan Gupta’s MGF, as the Dubai company looked to diversify outside of the UAE.

But Emaar has faced a host of challenges with its joint venture in India. It was caught up in con­tro­versy surrounding the development of the 2010 Commonwealth Games village in New Delhi.

Emaar MGF was blamed by the government for alleged poor quality construction work and delays, resulting in a legal dispute with the Delhi Development Authority. The company also struggled with plans to launch an initial public offering on the Bombay Stock Exchange. It scrapped a number of IPO attempts because of weak market sentiment and regulatory hurdles.

In June 2013, India’s government claimed that Emaar MGF had violated rules by making investments of 86 billion rupees (Dh4.74bn) in farmland using foreign funds.

MGF could not be reached for comment on the demerger.

Abhimanyu Sofat, a co-founder of AdviseSure, an investment advisory company in India, said that he was not surprised to hear of the demerger, adding that possible factors could include the failure of the company to launch its IPO and the current subdued state of India’s real estate market.

It is a “challenging job” for foreign companies to invest in India’s real estate market, he added.

Naeem Brokerage said that for Emaar “from a valuation perspective, the move could turn out to be a positive in the longer run, given the legal and regulatory headwinds faced” by the joint venture.

“The demerger could also signal a change in strategy, possibly resulting in greater focus towards its India operations,” it said.

The Economic Times, an Indian business newspaper, quoted an unnamed source familiar with the matter as saying: "Shravan Gupta has decided to move out India. Gupta is no longer keen to actively participate in the management of the JV that was [a] key issue for separation."

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