IndiaBulls Real Estate shares drops by 20% After NCLT Retrains Merge Of Embassy One Commercial Property Development Pvt Ltd

Indiabulls Real Estate, one of the leading real estate companies in India, recently witnessed a 20% drop in its share values. This significant decline occurred due to NCLT (National Company Law Tribunal) withholding the merger of the company with Indiabulls Commercial Credit Limited (ICCL).

In a filing, IBREL stated that “the National Company Law Tribunal, Chandigarh Bench has refused to allow the merger of NAM Estates Pvt Ltd (NAM Estates) and Embassy One Commercial Property Developments Pvt Ltd into IBREL.

To which IBREL replied that they will decide on the next course of their action once they go through the whole judgment as well as explore the remaining options which may include filing an appeal against NCLT’s order.

The decision has taken place after the Reserve Bank of India (RBI) rejected the proposal without providing any reasons. The NCLT noted that it will hold the hearing on the matter.

The company mentioned that IBREAL’s board is going to conduct a meeting in the coming days to map out their plan and build a strategy of how they are planning to move forward and communicate with their stakeholders in a systematic order. 

It is important to note that the development shares of Indiabulls real estate have dropped by 20% and ended up closing at 55.34 rupees on the BSE.

At the same time on the NSE, the IBREL dropped by 20% and ended up closing at 55.40 per price.

During 2020, the Embassy Group initiated a definitive agreement to merge a number of their residential and commercial projects with IBREL with the help of a cashless scheme of amalgamation. This way the Embassy Group will then become the promoter of the merged entity.

On April 22, 2022, the NCLT’s Bengaluru bench, which has jurisdiction over NAM Estates and Embassy One, approved the merger plan, according to IBREL.

The NCLT, Chandigarh Bench, which has jurisdiction over IBREL, had previously expressed some worries based on the arguments made by the Income Tax department against the merger, the business said. IBREL stated that it “strongly believes that these objections and concerns were unfounded, unjustified, and do not significantly affect the merger” and that it has addressed them before the NCLT.

Embassy Group Chairman Jitu Virwani stated, “We have given all the information and clarifications required by the NCLT regarding the specifics of NAM Estates and Embassy One and have also meticulously addressed the objections cited by the Income Tax department, including giving an undertaking that Embassy Group will bear any prior tax issues and not by the public shareholders of IBREL.

Given that the merger has already been approved by the NCLT’s Bengaluru Bench, which oversees NAM Estates and Embassy One, and that additional regulators like the CCI, BSE, NSE, Regional Director, and Official Liquidator have also given their blessing to the plan, this development is especially surprising, he said.

The proposed merger of the Embassy Group companies NAM Estates Pvt Ltd and Embassy One Commercial Property Developments Pvt Ltd with IBREL was authorized by the Competition Commission of India (CCI) in February 2021.

It is important to understand the reason behind the fall in share values of Indiabulls Real Estate and how concerns about the merger and disallowance of the RBI have mostly triggered it. It will also delve into the implications of the NCLT verdict on the future of the company.

The Merger of Embassy One Commercial Property Developments Pvt Ltd.

The proposed merger between Indiabulls Real Estate and Indiabulls Commercial Credit Limited is believed to have several reasons behind it. One of the primary objectives was to create a platform that could manage commercial offices, housing finance, and property leasing. By merging these two entities, Indiabulls had plans to improve its liquidity position, which is highly crucial in the real estate sector. 

The merger could have resulted in a more diversified portfolio for the company, which, in turn, would have been advantageous for its investors. However, the RBI’s rejection of the merger proposal raises serious doubts in the minds of investors. The central bank has not provided any reasons for its decision, and this lack of transparency has inevitably resulted in dissatisfaction amongst the shareholders.

Concerns for Indiabulls 

The move of NCLT to withhold the merger further worsens the situation for the company. Already facing the brunt of an economic slowdown and weak market demand, the company now has to battle allegations of misappropriation and corporate governance lapses. The Delhi High Court has dismissed all the charges levied on the company’s chairman, Sameer Gehlaut, and other top officials, calling them ‘malicious.’ However, the rejection of the merger proposal has rekindled the concerns related to corporate governance by an array of stakeholders, which might further result in a negative impact on share prices.

Besides, dissenting shareholders’ voices are also resonating, which could further exacerbate the problem. The company’s recent announcement of selling its London property to reduce its debt load has also failed to arrest the declining shares. It indicates that investors are now worried about the future prospects of the company, and require more significant in-depth changes in governance policies rather than superficial measures aimed only at media consumption.

Implications for recovering the significant drop in shares :

The NCLT decision has resulted in several implications both for the company, as well as the investors. Firstly, it has led to a significant decline in share prices, which can result in a panic amongst many of the existing shareholders. It may prompt the investors to withdraw their investment from the company, leading to further financial challenges for the firm. Secondly, it will affect employee morale, as the workforce can perceive the event as indicative of a possible company-wide slowdown. 

Moreover, the NCLT’s decision can lead to a sense of liquidity crunch for the company, jeopardizing the ongoing projects of the real estate giant. As mentioned earlier, Indiabulls Real Estate is already struggling due to the economic slowdown and deteriorating market conditions. Any further depletion of resources can hamper its operational capabilities and create long-term issues for the stakeholders involved.

In conclusion, the recent 20% drop in shares of Indiabulls Real Estate can be attributed to concerns about the NCLT withholding the company’s proposed merger with Indiabulls Commercial Credit Limited. The move comes after the RBI’s rejection of the merger proposal without providing any reasons, resulting in dissatisfaction among the shareholders.

The NCLT verdict has triggered existing concerns related to corporate governance and financial standing, which can further impact the company’s performance. At this juncture, it is crucial for Indiabulls to focus on improving its corporate governance and communicate transparently with its stakeholders about the effectiveness of its governance reforms. As such, the company can restore investor confidence and alleviate lingering fears regarding any broader market implications. Ultimately, it would depend upon how quickly and effectively the management takes corrective measures and provides investors with reassuring evidence of transformation in their corporate governance policies.

Proofread, Edited & Published By Naveenika Chauhan