Saturday, May 31, 2008

Emaar-MGF Stake Sale at 50% Discount; IPO Plans Put Off for 2 Years

Emaar MGF, whose Rs 690-per-share IPO was dramatically called off has sold its equity for Rs 300 a share, less than half the IPO target. This was done during the conversion of the preference shares sold to private investors at Rs 300 a share which were to be offloaded during the IPO to retail investors. Now, the same preference shares have been converted to equity at Rs 300 a piece.

Emaar-MGF is a collaboration between Dubai, UAE-based Emaar Group and New Delhi-based MGF Ltd. The IPO, had it been successful at Rs 690 per share, would have raised Rs 7,000 crore for Emaar-MGF, and would have taken its total valuation to Rs 66,000 crore. EMaar-MGF says it may not return to the IPO market for another 18-24 months .

The Emaar-MGF IPO fiasco should serve as a lesson for bleating goats and braying donkeys, who had been danching in the revelry that surrounded Indian realty companies. Most of these companies are more han 50% down from their highest peaks last year. In fact, there is nothing special or different about real estate as an asset class.

During the orgisastic dance pre-January 2008, investors were willing to pay any premium for real estate shares. Like the warm rush of heroin that rises in the addict's bloodstream, retail investors savored the big bold headlines in the newspapers and colorful supplements, pumping their savings and investible money in to shares of real estate companies. The high of Indian real estate had intoxicated everyone, for it was believed that property prices would rise straight from the waters of the Arabian sea to the peaks of Mount Everest.

However, someone forgot to factor in global warming, or so it seems.

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Posted by Eclectic Investor at 12:34 PM  

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KM

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IN PASSING

Consider how the crisis has unfolded over the past eighteen months. The proximate cause is to be found in the housing bubble or more exactly in the excesses of the subprime mortgage market. The longer a double-digit rise in house prices lasted, the more lax the lending practices became. In the end, people could borrow 100 percent of inflated house prices with no money down. Insiders referred to subprime loans as ninja loans—no income, no job, no questions asked. - George Soros in latest book


“When everything’s going up, there’s a feelgood factor and people tell each other how much their houses are going up at dinner parties,” says Professor Mark Stephens of York University’s Centre for Housing Policy. “Then the music stops, as it always does.”

“Last year, Japan was a more attractive market to put money in. If you look at the US, we can now get an internal rate of return of 25% there, so why would anyone want to come to India?” - a senior executive at an international financial services group, who did not wish to be named.

"Most people told us house prices never go down on a national level, and that there had never been a default of an investment-grade-rated mortgage bond, "Mortgage experts were too caught up." - John Paulson, trader, who bet against subprime market and made $15 billion.

The most puzzling are the real-estate projects of Parsvnath. Just have a look at the Pride Asia project near Chandigarh. They are asking almost US $300K-$350 K dollars for 2 bed room apartments. They have Villas in this project that costs more than US $1.5 million dollars. It is true that some people in India have that kind of money in India. However most of their wealth is black money and that can not be used to buy these properties. Obviously, these projects have been launched keeping NRIs in mind. - Sanjeev, comment from another site

Prachi Desai, aka Bani, the star of Balalji Telefilms's soap, Kasam Se, has been house hunting for over a year. She had almost closed a 2-BHK deal last year for Rs 1.5 crore in a Oberoi Constructions' building located at Andheri, Mumbai, but when she went back to confirm it, she was asked to cough up Rs 2.61 crore. Since then, she is still house hunting. - Mumbai Mirror

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