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Emaar MGF’s aborted IPO costs Citigroup's PE dear

As a fallout of the Emaar MGF Ltd share sale that was withdrawn earlier this month after investors stayed away, the private equity arm of Citigroup Inc., which was an investor in the company, has had to abort a proposed sale of Rs325 crore worth of Emaar MGF shares to DE Shaw, an investment firm. Citigroup would have likely gained Rs200 crore from the deal.

Citigroup’s stake in real estate developer Emaar MGF was through its subsidiary Citi Venture Capital International. Its deal with DE Shaw was contingent on the initial public offering (IPO) going through with the transfer of shares to be made at the issue price, according to the offer document filed by Emaar MGF with stock market regulator Securities and Exchange Board of India.
Confirming that the deal has been cancelled, Ajay Relan, managing partner (regional head, India) of Citi Venture Capital International, a private equity arm of Citigroup, said: “We will now wait till the IPO,” implying a second attempt at fund-raising by Emaar MGF, which has said it will look to raise money when the situation in the market improves.
Executives at DE Shaw were not available for comment.
New Delhi-based Emaar MGF, a joint venture between Dubai-based Emaar Properties PSJC and MGF Development Ltd, offered to sell 102.57 million equity shares to the public on 1 February in an attempt to raise more than Rs6,400 crore. Had the share sale succeeded, it would have been India’s third largest ever, after those of Reliance Power Ltd and DLF Ltd, a rival real estate developer, who together mopped up around Rs20,000 crore from investors.
A tepid response to the February issue forced Emaar MGF to lower the price band of the shares twice—from Rs610-690 to Rs530-630—and also extend the duration of the offer. When that failed to attract investors, the company withdrew the offer.
Emaar, however, wasn’t the only one to be hit by global equity markets trying to come to terms with record writedowns from the US subprime crisis. Wockhardt Hospitals Ltd also had to call off its IPO.
Since the start of the year, global markets have been volatile after banks said they collectively wrote down losses in excess of $100 billion to account for home loans that turned bad.
According to a letter sent by Citi Venture in January to Emaar MGF, the finance firm proposed to sell 4.7 million shares or 40% of its holding in the real estate developer to DE Shaw Composite Investments (Mauritius) Ltd. The deal could have been worth Rs325 crore at the original top end of price band at Rs690, or Rs250 crore at the lower end of price band of Rs530.
Citi Venture holds 11.7 million shares in Emaar MGF and Relan said the firm is not in a hurry to sell the shares. “We are quite happy with the company,” he added. Had the deal gone through, Citi would have seen its investment nearly tripling in less than 14 months.
Citi Venture picked up 1.46 million shares in Emaar MGF for Rs1,558 a share in November 2006.
However, Emaar MGF issued bonus shares in the ratio of seven shares for every one share. With the bonus shares, the effective cost for Citi Venture works out to Rs195 per share.
The DE Shaw and Citigroup deal was timed on the basis of Emaar MGF IPO and one of the conditions precedent to the transaction was the IPO, an Emaar MGF spokesperson said.
“Since the IPO has been postponed both parties have an option of looking at transaction and pricing at a date closer to the IPO,” the spokesperson added.
Source: Livemint

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