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ShareNew Delhi: Emaar MGF Land Ltd, which plans to hit the market with an initial public offer (IPO) soon, might be carrying a jinx of sorts.
The developer of the Commonwealth Games Village 2010 is now under investigation by the Enforcement Directorate for alleged violations of foreign direct investment (FDI) norms. The ED believes the company diverted some of the FDI, meant for real estate, into "barred" sectors, including agricultural land.
The company had on February 1, 2008 hit the market with an issue of 10.25 crore shares in a price band of Rs610-690 each to raise Rs7,000 crore. But it was forced to withdraw the issue after failing to find takers despite extending the closing date from February 6 to February 11 and rolling down the price band from Rs610-690 to Rs530-630. Barely 0.43 per cent of the shares on offer got subscribed as the markets tanked and investors turned wary.
Now, with investor sentiment gradually returning to normalcy, Emaar MGF is ready to hit the primary market again.
In fact, the ED action comes just when it has filed a draft red herring prospectus with the Sebi for the second time, to raise up to Rs3,850crore, nearly half the amount it had planned to raise last year.
Emaar MGF Land is a joint venture between the Dubai-based Emaar group, which claims to have operations in 16 countries, and MGF Development Ltd of India.
The company bagged the contract for constructing the Commonwealth Games Village in Delhi in 2007.
The project, spread across 118 acres, is to house over 8,500 participants from across the globe.
The ED has found that the company brought FDI worth Rs7,000crore into India between 2005 and 2008, purportedly to invest in real estate.
However, a substantial amount of the FDI is reported to have been diverted to purchase cheap agricultural land in Haryana and Uttar Pradesh.
As per the company's agreement with the Indian government, agricultural land was "barred" for investment.
A senior finance ministry official told DNA the company has already been booked under the Foreign Exchange Management Act (Fema) and repeated summons have been served on it by the Enforcement Directorate. "At least three summons have been served on the company. However, it has failed to respond. The ED is examining the next course of action," the official said.
The total amount of diversion is under evaluation, the finance ministry official said.
The company faces a fine three times the amount of diversion made, if proven.
This isn't the first time the company has run afoul of the authorities.
In 2007, the income tax department had raided the company's premises in Hyderabad, Chennai, Jaipur, Chandigarh, Delhi and other places for alleged income-tax evasion, and seized several documents. However, a mysterious fire broke out in the tax department's Connaught Place office in the first week of October and all relevant documents pertaining to the case were lost. The Delhi Police even registered a case under section 436 IPC, implying fire by mischief or sabotage, against unknown perpetrators.
Notably, the Emaar MGF group is being supported by Dubai-based Trimex Group, one of the largest industrial raw material conglomerates in the Middle East and the Indian subcontinent. It is run by Koneru Rajendra Prasad, a Dubai-based businessman who had opened a number of companies in the name of his wife and children in south India and was working with the Emaar-MGF group on real estate projects in south India. He is said to be close to several top south India politicians, including a former chief minister.
