Emaar India’s own ‘Panama Papers’

|ARABIAN POST SPECIAL| On April 13 this year, Emaar Properties disclosed to the Dubai Financial Market (DFM) that the company has agreed to take steps for a demerger of Emaar and Emaar MGF, the premier Dubai developer’s Indian joint venture.

Beginning next week, the Arabian Post launches an investigative series on Emaar’s botched India experiment, which has cost the company billions in write-offs, embarrassing prosecution of the top brass, searches of their premises and arrest warrants, and above all a huge credibility gap and a disastrous PR debacle, finally forcing the company to legally separate from the joint venture partner.

When Emaar decided to launch its India operations in 2005, its choice of the joint venture partner intrigued everyone in the Indian real estate industry. Even the Indian expatriates in Dubai and the Gulf, who’ve had some idea about the real estate scene back home, were perplexed by the decision. For, a company with the reputation and standing of Emaar was expected to go with one of the leaders in the business, like DLF and Ansals of Delhi or the Lodhas, Tatas and Hiranandanis of Mumbai. But Emaar chose a company that was unheard of and had no previous connection to real estate development.

Obviously, Emaar was aware of the pitfalls of going into such a high profile operation with a little –known player like MGF.  From its own admission in one of the official filings, Emaar said its Indian joint venture’s limited operating history was an inhibiting factor.  The blank past was in no way compensated for by the company’s operational track record either. Although Emaar MGF was incorporated in 2005, it had only one completed project to show even after five years and that itself turned out to be quite a messy affair.  It is impossible that Emaar didn’t know that companies in their early stages of development implied substantial business and financial risk, and even acknowledged this in one of the filings.

Then, how did Emaar decide to go with MGF? In a document about all its joint ventures, Emaar pointed out ‘influential promoters’ as one of the strengths of its India operations. At the same time, the company was somewhat circumspect in talking about the promoters.

In a draft prospectus filed for a public issue that never actually took off, Emaar MGF referred to the limited information available on certain people who were part of the promoter group. The reason cited was that these ‘people’ were not quite forthcoming in providing information about their financial dealings or the entities in which they had interest.

Events that unfolded later provided several clues as to why the promoters were a sensitive issue for the company. Obviously, the company wanted to use the influence of these special category of people, but was keen to keep a distance in the public gaze.

For instance, the MGF group is known to have been set up by the grandfather of Shravan Gupta, the executive vice-chairman and managing director of Emaar MGF, who recently resigned from his positions following revelations of irregularities, and Kanishka Singh, who is identified as a close associate of a leading personality of the then ruling party and government. But Emaar MGF has consistently denied any connection, although the sequence of events during the then government’s time does suggest bending of rules and procedures in favour of the joint venture and its associate companies in several instances.

Between them, the promoters launched several associate companies and transacted business among them to reap benefits which were in gross violations of corporate governance and established procedures.  And these companies changed their shareholding structures and management at will to suit the requirements of a given situation.

Emaar MGF and associate companies had faced prosecution even during the former government’s tenure, due to the large number of irregularities they were discovered to have committed.  But to some extent, the companies could extricate themselves using the influence card. Unfortunately for the companies involved, there is no permanency about the ruling party or Establishment in India and the change of government in Delhi has meant that the force of law has started coming down much more heavily on them than before.

When Emaar set out to forge its partnership for the Indian joint venture, it is unlikely that the company would have realised the kind of mess that it was walking into.  Revelations of recent days have been so embarrassing, including a role for the promoters in controversial Agusta Westland helicopter deal and money laundering charges, that the parent company thought it prudent to officially call off its alliance with the Indian joint venture partner.

The coming days are expected to reveal many more damning details of what all transpired during the past 10 to 12 years, many of which may not be to the liking of Emaar management.