Embassy Group, poised to become a prominent player in the real estate sector following its merger with Indiabulls Real Estate, is actively seeking to reorganize its debt while emphasizing its commitment to both residential and commercial ventures. Additionally, the company intends to challenge the recent ruling by the National Company Law Appellate Tribunal that temporarily halted the merger.
Jitu Virwani, the Group Chairman, addressed the apprehensions surrounding valuation and ongoing land disputes, highlighting the company’s dedication to addressing these concerns.
The proposed scheme of merger was put on hold by the National Company Law Tribunal (NCLT) on May 9, due to objections raised by the IT department. Despite dismissing the concerns raised by minority shareholders about the deal, the NCLT deemed it necessary to withhold the merger at this time.
The NCLT, Chandigarh bench, has dismissed the opposition raised by a shareholder who has consistently objected to the scheme. Despite holding a mere 0.003% stake, this shareholder has persistently raised objections in various forums, including the High Court of Vijaywada, SEBI, SAT Appellate, and Punjab and Haryana High Court, in an attempt to hinder the merger for undisclosed motives.
Additionally, we have reason to believe that the IT department did not oppose the merger as long as their concerns were adequately addressed, which Embassy has confirmed through an affidavit.
The reports claiming that Embassy Group has a debt exposure of Rs 19,940 crore are completely inaccurate and lack factual basis. The correct information is that Embassy Group’s total Net Debt is Rs 8800 crore. It is important to note that Embassy Group collaborates with various investors and partners to develop real estate projects through separate Special Purpose Vehicles (SPVs).
The debt associated with these projects is jointly held with the respective investors and partners involved. For instance, the mentioned article states that Embassy One Developers Private Limited (EODPL) has an outstanding amount of Rs 700 crore as of 11 May 2023.
Subsequent to 2023, it is important to highlight that the factual and current outstanding debt for EODPL from banks or financial institutions amounts to a sum of Rs 220 crore. The conclusion reached in the article is flawed and misleading since it fails to consider the complete facts and circumstances, thereby providing a skewed perspective.
The debt position of NAM Estates (consolidated) from banks and financial institutions is clarified to be Rs 5200 crore as of March 2022, not Rs 8040 crore. The remaining amount consists of shareholder/intercompany debt and IND AS adjustment. The NAM Consolidated debt is primarily secured by completed OC-received residential inventory in its luxury and premium projects, which is currently being sold at prices higher than our initial assumption/forecast.
When considering both land parcels and finished residential inventory, the assets amount to approximately Rs 10,000 crore, which serves as collateral against the NAM consolidated debt. To reduce the total group debt by one third in the upcoming two quarters, we are exploring the option of selling some assets.
The valuation of the merger and its potential impact on Indiabulls’ shareholders have raised concerns. However, it is anticipated that the merger will give rise to a prominent real estate development company listed in India, encompassing a significant footprint in West, South, and North India.
The determination of the swap ratio for the merger was conducted by two independent and reputable valuers, and it was supported by a fairness opinion issued by a SEBI Registered Category I Merchant Banker. The Embassy has thoroughly addressed all the observations made by NCLT and the income tax department, providing substantive and meticulous responses on record.
Moreover, the valuation reports themselves have undergone scrutiny and have been found satisfactory by other regulatory bodies such as SEBI, BSE, and NSE.
It is important to note that the Residential assets of Embassy are primarily backed by completed OC received inventory, which is currently being sold at a price higher than the value considered for the share swap in the merger. Additionally, the internal restructuring and the assets/liabilities involved in the merger scheme have been extensively disclosed in the Investor update dated August 18, 2020, available in the public domain, and have also been disclosed as advised by BSE.
The clarification has been unequivocally provided to both the National Company Law Tribunal (NCLT) and the Income Tax department, emphasizing that the internal restructuring process has no influence on the merger scheme or its valuation. It is important to note that the internal restructuring had already been finalized prior to submitting the merger petition to the NCLT, as outlined in the Scheme, and this fact has been duly supported by the valuers.
Furthermore, with respect to any Income Tax claims, it is noteworthy that the Income Tax Department expressed no objection to the merger, provided that their interests were adequately safeguarded. This position was fortified by comprehensive evidence and documentation, affidavit and undertaking from Embassy to the Department.
The accusations regarding the land held by Embassy East Business Park Private Limited (EEBPL) are unfounded and unsubstantiated, clearly intended to obstruct the merger process. In relation to the KIADB litigation allegations, it is important to note that the land in question was allocated by KIADB in June 2007. However, a legal dispute arose between the Range Forest Officer and KIADB, rendering the KIADB land unavailable for development.
This case was resolved and concluded in November 2020. Subsequently, EEBPL has diligently commenced pre-development activities and obtained crucial approvals such as environmental clearance and a no-objection certificate from the Airport Authority. Additionally, in May 2022, we submitted applications for building plan approvals to KIADB, signaling our intent to initiate construction.
It is vital to recognize that our track record speaks for itself, with the successful development of over 200 acres of KIADB land, equivalent to more than 20 million square feet, accommodating over 90 esteemed tenants and generating employment opportunities for over 180,000 individuals. We are fully committed to ensuring the successful realization of this project as well.
Lastly, it is worth mentioning that Embassy Knowledge Park, situated on a pristine 200-acre land parcel in North Bangalore near Embassy Riding School and Stonehill, possesses a clear title and is devoid of any litigation concerns affecting either the project or the Special Purpose Vehicle (SPV).
The MLDs are financially supported by cash flows generated from quarterly dividends provided by Embassy REIT and other identified sources. These MLDs have consistently met their obligations, with no instances of default in the past or at present. Additionally, we have successfully reduced our overall debt exposure by Rs 1200 crore. It is important to note that the downgrade of these MLDs was solely due to a technical interpretation related to a specific construction term loan obtained by EPDPL from a CF lender for a commercial project.
The delay in converting this unrelated loan to LRD resulted in a rating downgrade for these market-linked debentures. However, Embassy has taken steps to refinance a portion of this CF loan through lease rental discounting, effectively resolving the issue and mitigating the downgrade. EPDPL has diligently serviced all loan dues, and as of March 31, 2023, there are no outstanding dues in any of our other loan facilities. Consequently, the rating has been reassessed and revised to B+.
Furthermore, it should be clarified that these loans are associated with projects and assets that fall outside the scope of the merger and therefore do not impact it in any way.
Proofread & Published By Naveenika Chauhan
