A deal struck last week between one of India’s biggest builders Lodha, its key investor Deutsche Bank and an old associate has paved the way for the realty group to move ahead with the planned initial public offering by its flagship, Lodha Developers.
The deal settles a complicated, pending litigation, which Lodha Developers will now not be required to disclose in the draft red herring prospectus it plans to file this week. It also spares the company from mentioning that there has been a delay in interest payment to Deutsche.
But more interestingly, the agreement reaffirms Deutsche Banks’ right under which, in the event of a default the German bank can take absolute control of the main Lodha subsidiary which owns most of the group’s projects.
This right was questioned by one Vilas Samant, who had earlier dealings with Lodhas. Samant had moved the Company Law Board, seeking to assert his alleged right over 200 shares held by his father in Cowtown Land Development, the concerned Lodha group subsidiary. Deutsche had invested Rs 1,640 crore — the single biggest FDI in the real estate sector — by subscribing to fully convertible debentures issued by Cowtown. These debentures carry an interest, and if Cowtown fails to pay it, Deutsche can convert the debentures to get a 99% stake in Cowtown and other entities floated by Cowtown.
Even though the CLB order was challenged by Deutsche at the Mumbai High Court, the litigations made it difficult for Deutsche to effect a possible conversion of the debentures into shares. This roadblock has now been cleared. Deutsche has also agreed to restructure the terms to give Lodhas more time to make the interest payment.
When contacted by ET, a Lodha spokesperson said, “On Thursday Vilas Samant agreed to withdraw all his claims against Cowtown land Development Pvt Ltd and consent terms were filed to the said effect. This validates Cowtown’s contention that there was no valid claim by Vilas Samant.” The Deutsche spokesperson in India said the bank has nothing to comment on the matter.
Sources said that as part of the new terms, Lodhas has agreed to mortgage two more properties at Walkeshwar, a tony address in South Mumbai, in favour of an institutional trustee which has a back-to-back arrangement with Deutsche. Responding to this, the Lodha spokesperson said, “...the company creates mortgage in favour of various lenders as part of general business practice. However, the arrangement with Deutsche Bank is an unsecured arrangement and hence there is no mortgage created in favour of Deutsche Bank.”
The pivotal aspect of the Lodha group structure is the presence of Deutsche Bank as an investor. While Deutsche subscribed to convertible debentures of Cowtown, the latter in turn reinvested a substantial part of the money by subscribing partly and optionally convertible securities issued by other Lodha group companies. Even though the proposed IPO is being planned by Lodha Developers, the bulk of the group’s projects and land assets are with Cowtown and its subsidiaries. And if Cowtown were by any chance to default, Lodha Developers would lose control of the assets.
It’s in this context that Vilas Samant’s decision to move the CLB had assumed a sudden importance. Mr Samant curiously moved the CLB just weeks before Cowtown was supposed to make an interest payment to Deutsche. The CLB order had put a question mark on the very investment terms between Deutsche Bank and Cowtown. The deal entered into last week puts to an end this uncertainty for Deutsche, which in turn has endorsed Lodha Developers decision to go for an IPO.
Courtesy:- ET dt:- 29-09-09
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