Real estate company Emaar MGF Land Ltd, a joint venture between Emaar Group of Dubai and Delhi-based MGF Ltd, has decided to convert Rs 922 crore invested through preference shares by the foreign partner into equity at a conversion rate of Rs 300 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 an initial public offer (IPO) in February.
Emaar MGF had initially proposed a price band of Rs 610-690 for its IPO, but later cut it to Rs 530-630 and eventually withdrew the offer because of poor response from investors in a falling stock market. At Rs 690 per share, a successful issue would have raised more than Rs 7,000 crore and taken the company's valuation to Rs 66,000 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 Rs 300 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 “Since the money was invested in 2006 and the IPO was withdrawn, we have decided to convert the debentures into shares at 2006 valuation.”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 Rs 455 per share. According to its IPO prospectus, Bennett Coleman & Co. Ltd and New Delhi Television Ltd had invested Rs 25 crore each, while IFCI Ltd had invested Rs 50 crore in the pre-IPO phase.
“We issued them shares at a valuation of $10 billion,” Gupta said.