Investors need to keep in mind that real estate developers with high land reserves through the ‘development rights’ model are extremely vulnerable to legal disputes that can delay completion of projects, writes Ashok Kumar.india Updated: Nov 30, 2007 22:59 IST
Towards the end of the Y2K boom, the abnormally good listing of the TV18 stock, shifted eyeballs in the market from the then fiery IT sector to the more potent media sector. Companies like Cinevista revised their IPO price upwards and those in the pipeline turned starry eyed.
However, most of these media companies flattered only to deceive as they were found seriously wanting on the corporate governance front. Soon they found their stock prices on a free fall of a kind that surprised even their worst critics.
Are real estate companies headed the same way? Last year, DLF was constrained to defer its IPO over allegations of having short-changed their minority investors. And now, the recently completed Kolte-Patil IPO is under a cloud.
SEBI has now asked Kolte-Patil Developers which recently raised Rs 276 crore through an IPO, to allow investors the option to withdraw from the issue. This is on account of its not having disclosed some legal cases it is embroiled in, in its offer document. Of course, the company has explained this off as an ‘inadvertent mistake’.
While I shall not burden readers with details of this ‘inadvertent mistake’, it would suffice to point that investors need to keep in mind that real estate developers with high land reserves through the ‘development rights’ model are extremely vulnerable to such legal disputes that can delay completion of projects. Notably, a portion of the IPO proceeds, in this case, is planned to be used for the development of the said area under dispute. No ‘inadvertent mistake’ here, it seems.
At the other end of the spectrum, one has the very successful listing of Mundra Ports following an overwhelming response to its IPO. This is largely on account of the ongoing listing listing frenzy, economic growth prospects and the absence of comparable listed peers that invariably yields a scarcity premium.
However, there litigation is brewing here too. The Dubai-based DP World has dragged the company to court over a breach of contract for allegedly going ahead with the building of a container terminal as part of the port's second phase expansion.
Whether these ‘inadvertent mistakes’ will impact share prices of these stocks in the frenzied near term is a no-brainer, though the longer-term corporate governance implications may be more serious.
Just for the record, the ‘illustrious past’ of the Adani group is supposedly linked with that of the ‘Y2K Worthy’, Ketan Parikh.
Back to Y2K……the wheel has turned a full circle, or has it ?
(The author heads Lotus Knowlwealth and can be contacted at email@example.com)