IPO from Emmar MGF looks interesting if it happens this time

Is India the jewel in the crown of Dubai’s leading property developer Emaar Properties? It certainly looks as if this rapidly growing emerging market could be a substantial contributor to group profits in the years ahead but it will be hoping to get its IPO away this time.

Previous plans for a $1.6 billion IPO were blown apart by the global financial crisis in February 2008 and the local joint venture Emaar MGF has been waiting for the right moment since then. Now Emaar MGF has permission to raise up to $866 million within the next year, and is expected to go to market within the next quarter.

$1bn land bank investment

Not that Emaar MGF is waiting to start construction. Emaar has invested more than $1 billion in India since 2005 and has a 11,340 acre land bank and 29 projects under development including the Commonwealth Games Village.

If the projects and designs look familiar to residents of Dubai that is no surprise as Emaar has basically transplanted its planned community model from Dubai to the subcontinent, complete with off-plan sales. The rising property aspirations of India’s upcoming middle classes seem a good match for this business plan.

Besides many of Emaar’s key staff in Dubai are Indian expatriates anyway, so this makes the transfer of expertise particularly painless. The local business partner MGF also seems a good choice.

Emaar MGF plans to use the funds to partly pay down debts of $1.3 billion and redeem $184 million in preference shares. But Emaar Properties is not facing the same kind of debt pressure as many of its rivals in Dubai. Earlier this month the group said it would roll over $1.2 billion of debt maturing this year into long-term project finance.

John Laing Homes

Emaar’s outlook in India certainly appears a total contrast to its ill-timed acquisition of John Laing Homes in the US just before the subprime crisis hit. That cost the group a $1 billion write-off.

However, Emaar MGF will be competing with some $4 billion in local property IPOs, including Lodha Developers, Sahara Prime City and Nitesh Estates. And it is very uncertain how the market will respond to so many real estate IPOs at a time when interest rates are rising, not usually a good sign for property companies.

There is also the global backdrop. Another downturn in global financial markets could scupper Emaar MGF’s IPO for a second time. Indeed, rather ominously some of the market indicators are back to where they stood two years ago.