Emaar MGF To Pay Penalty If Games Project Delayed

Real estate developer Emaar MGF Land Ltd, preparing for an initial public offering, will have to pay the Delhi Development Authority (DDA) a penalty if there is a delay in the completion of the Commonwealth Games Village project.

The developer will be liable to pay Rs15 lakh a day for the first 15 days of delay and Rs20 lakh a day after that, the company has said in the draft red herring prospectus it filed with market regulator Securities and Exchange Board of India on Tuesday.

Emaar MGF, which is developing the project in partnership with DDA and is scheduled to complete it by April, is a joint venture between Dubai’s largest developer, Emaar Properties PJSC, and New Delhi-based developer MGF Development Ltd. The company is proposing a public issue of 117 million equity shares to raise Rs3,850 crore.

The penalty will be deducted from the performance guarantee that Emaar has given to DDA. In June 2007, Emaar MGF won the bid to build the Commonwealth Games Village on 118 acres near the Akshardham temple in east Delhi. Emaar is building 1,168 flats at the village for athletes and delegates.

Emaar MGF was to sell 790 flats at market rates and the rest were to be sold by DDA after the 3-14 October games at lower prices. After Emaar was unable to sell the flats, DDA agreed in May to purchase 333 of the 790 apartments for around Rs700 crore to bail out the cash-strapped developer. As of 31 August, the company has sold 632 of the 790 flats, it said in the prospectus. This includes the flats purchased by DDA.

Once the Commonwealth Games are over, the flats that have been booked will be handed over to buyers in January 2011.

For the year ended March, Emaar MGF made a net loss of Rs95.12 crore before minority interest on an income of Rs960.55 crore. In its prospectus, the firm also said that as of 31 August, the company’s outstanding loans amounted to Rs5,807.79 crore.

Emaar has restructured its existing rupee-denominated debt of around Rs2,000 crore by extending the duration of repayments and is also in discussions with certain lenders to reduce interest rates payable on some of the loans.

The company has a land bank of 11,340 acres, out of which around 76.4% comprises agricultural land for which the company has not yet obtained a certificate allowing the change of land use.