Private equity major Citi Venture Capital International (CVCI) has exited its investment in Emaar MGF Land Ltd--a joint venture between Emaar Properties PJSC of Dubai and MGF Development Limited and a key player in the Indian realty landscape--by selling its shares back to the promoters.

It is believed that Emaar MGF's delay in floating the long-pending initial public offer could have triggered the exit. Emaar MGF put its IPO plans on hold twice (2008 and 2009) due to adverse market conditions.

CVCI made a complete exit from Emaar MGF last month following the close of the put option date (June 30, 2010). CVCI had acquired above 1% stake at a price of Rs 1557.84 per share for $50.98 million (Rs 227 crore) in 2006.

It is learnt that CVCI received about $60 million for the stake sellout to Emaar MGF promoters. The same could not be ascertained by Emaar MGF. Mails sent to Emaar MGF spokesperson did not elicit any response. Rahul Yadav, managing director-India, CVCI and V Jayasankar, head, financial sponsor group, Kotak Investment banking, who has mandated the deal, did not respond to VCCircle queries.

Moneycontrol and Bloomberg had reported that Emaar MGF will cut its IPO to about Rs 2,000 crore ($430 million), half the size it announced earlier this year. Economic Times had reported that the company is preparing a prospectus with plans to sell 10% for Rs 1,500 crore from the Rs 7,000 crore it aimed for in 2008. In 2008, Emaar MGF was forced it to abandon its $1.5-billion IPO.

Currently, the promoters (Shravan Gupta, MGF and Emaar Holding) of Emaar MGF hold 61.53% stake, while promoter group other than promoters hold another 33.78% stake. According to the draft red herring prospectus filed with SEBI dated on September 29, 2009, other investors including CVCI (1.28%) was holding 4.69% stake. CVCI was holding 11.7 million shares in Emaar MGF. In 2008, CVCI had sold a 40% of its holding in Emaar MGF Land Ltd in a pre-IPO secondary deal. Hedge fund DE Shaw has bought 4.7 million shares from CVCI.

Emaar, which built the world's tallest tower, the Burj Khalifa in Dubai, has developed approximately 89 million square feet of real estate across residential, commercial and other business segments and with operations in 14 countries, while MGF has delivered approximately 2 million square feet of retail space.  The company, which commenced operations in India in February 2005, has its focus on development of residential projects in Delhi and elsewhere in the NCR, Mohali, Hyderabad, Chennai and other key Indian cities.

In April, Reuters had reported that Emaar MGF will launch its $770 million initial public offering in 90 days, quoting Shravan Gupta, executive vice chairman of Emaar MGF. Emaar MGF had received the approval for an IPO from securities and exchange board of India (SEBI) and that the company's board is considering the right time for entering the market, said the report.

Kotak Mahindra Capital Co., Deutsche Bank AG, UBS AG, Credit Suisse Group AG, HSBC Holdings Plc, ICICI Securities Ltd. and Royal Bank of Scotland Group Plc were managing the IPO, according to Emaar MGF’s September 2009 prospectus.

Following the agreement entered with Emaar MGF for investment in 2006, Emaar MGF couldn’t hit the market due to adverse conditions. Later, pursuant to a letter dated November 21, 2008, CVCI called upon Emaar to purchase all of the CVCI Shares under the option agreement.

Emaar disputed CVCI’s put option right and CVCI commenced arbitration proceedings against Emaar. Later, in terms of the settlement agreement, Emaar has also agreed to use all reasonable endeavors to cause the consummation of an IPO by the company and to arrange for CVCI to participate in such initial public offering as selling shareholders.

The CVCI agreements were agreed to be suspended by CVCI pending an IPO by the company and agreed to be terminated by CVCI in the event of an IPO by Emaar MGF, on the condition that if the company were unable to complete the IPO of its equity shares by June 30, 2010, the aforesaid agreements would be automatically, without any further action by any person, reinstated on the same terms and conditions, according to the data from draft red herring prospectus filed with SEBI dated on September 29, 2009.

Apart from CVCI, other investors such as New York Life International India Fund II, a fund managed by Jacob Ballas Capital India Pvt. Ltd. (Rs 43.5 crore), Jacob Ballas Capital India (Rs 2.2 crore) and Evolvence Capital India (Rs 180 crore), invested with total investments in Emaar MGF at $102.21 million (Rs 452 crore)

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