Indiabulls Real Estate Ltd and Embassy Group sign definitive merger documentation

- The merged entity will have a balanced mix of commercial and residential assets which should provide a natural hedge against cyclicality and shall benefit from the new promoter, Mr. Jitendra Virwani, chairman of the Embassy Group

- Merger will create one of the leading market players among listed companies in the real estate sector in terms of surplus from launched projects, land bank ownership and residential stock + planned area development in India;

- 30 projects spread across major Tier I and a few Tier II cities of India resulting in launched + planned development area increasing to 80.8 million square feet, a 3x growth to pre-merger planned development area

- Combined IBREL to be renamed Embassy Developments Ltd1 and to be co-headquartered in Mumbai and Bengaluru

- IBREL existing shares to be valued at Rs 92.50 per share; NAM shareholders will get 6.619 shares of IBREL for every 10 shares of NAM (as explained below)

- Certain entities controlled by The Blackstone Group Inc. (collectively, 'BREP') have submitted a non-binding LOI for participation in the proposed merger

- Combined listed entity shall be owned ~44.9% by Embassy Group, 26.2% by the existing public & institutional shareholders, 9.8% by existing IBREL Promoter Group and ~19.1% by BREP & other Embassy institutional investors

- Residential business to have surplus from launched and planned residential projects exceeding Rs 18,500 Cr; Rs. 201 Cr net investment to realize Rs. 10,667 Cr of surplus from launched residential assets

- Near completion inventory to generate a net surplus of Rs. 6,288 Cr

- Commercial square feet under development will increase substantially

- Additionally, there exists a land bank of 3353 acres, including 1424 acres in a Nasik SEZ which has an opportunity to benefit from Government initiatives to position India as preferred manufacturing location

- Platform to take advantage of recent market dislocations and accelerate growth through strong partnerships with investors and financial institutions


Indiabulls Real Estate Ltd (NSE: IBREALEST / BSE: 532832); NAM Estates Pvt Ltd ('NAM') and Embassy One Commercial Property Developments Private Limited ('NAM Opco') (NAM and NAM Opco being subsidiaries of the Embassy Group), today announced that they have entered into definitive merger documentation to amalgamate ongoing, completed & planned residential and commercial projects of NAM and NAM Opco ('Embassy Assets'). Mr. Jitendra Virwani along with other promoter entities of NAM (Embassy Promoters) will become the new promoters of IBREL upon completion of merger and Mr. Sameer Gehlaut along with existing IBREL promoter group entities shall initiate the process of reclassification as required.

The combined IBREL entity shall become one of India's leading real estate development platforms, with 80.8 million square feet of launched and planned development potential. The combined entity shall benefit from a complementary pan-India presence across key markets including a significant presence in the commercial and residential market of Bengaluru. The merger shall provide diversification to IBREL shareholders towards a balanced mix of residential and commercial development with visibility on near term liquidity through sold receivables in excess of Rs. 4,220 crores for the combined entity.

Jitendra Virwani, Chairman & Founder of the Embassy Group said, "This integration provides scale to our two organizations and allows the stakeholders to capitalize on the opportunity created by the market consolidation and dislocations. The transaction also offers growth to the listed entity by combining a portfolio of well-located commercial projects across Mumbai, NCR and Bangalore, which has seen the largest absorption in office space over the past five years. I am excited about the possibilities of what this new combined platform can deliver."

Sameer Gehlaut, non-executive Chairman & Founder of IBREL said, "This merger marks the culmination of a journey I began almost 15 years ago to build a world class real estate company. I am excited to be handing over this platform to Embassy who have a proven track record, excellent execution capabilities and who have created a very strong brand and sponsored a successful listed REIT. I believe Embassy promoters are the right partner to make IBREL a larger, stronger and more balance platform in the future. I look forward to working with him as we integrate these two companies."

Structure & Terms

Under the terms of the agreement, which has been unanimously approved by both Boards of Directors, IBREL's shares are being valued at Rs. 92.5 per share, a 25.7% premium to today's closing price. The proposed merger will be achieved through a cashless scheme of amalgamation. As part of the combination, certain private equity shareholders of Indiabulls Properties Private Limited, which owns the Sky / Sky Forest residential assets, shall swap their shares to NAM Opco and will eventually merge into IBREL by virtue of a National Company Law Tribunal ('NCLT') approved Scheme of Arrangement.

NAM shareholders will get 6.619 shares of IBREL for every 10 shares of NAM whilst NAM Opco shareholders will get 5.406 shares of IBREL for every 10 shares in NAM Opco.

Subsequent to the merger being effected, the resultant listed entity shall be owned ~44.9% by Embassy Group, 26.2% by the existing public & institutional shareholders, 9.8% by existing IBREL Promoter Group and ~19.1% by BREP & other Embassy institutional investors

Management, Governance & Due Diligence

When the transaction closes, Mr. Jitendra Virwani and the current Embassy promoter entities of NAM shall be the new promoters of IBREL. The merged IBREL shall be run professionally with professional management and strong corporate governance being key focus areas. Both companies have done due diligence on each other's assets extensively over the past several months.

Approvals

The merger and reclassification of promoter shall be subject to approval of respective creditors and shareholders and applicable regulatory authorities, including but not limited to CCI, stock exchanges, SEBI, NCLT(s) and completion of other agreements integral to the merger. The merger is expected to be completed by Q2 FY 2022.

Advisors

Shardul Amarchand Mangaldas & Co. acted as legal advisor to Embassy Group whilst J. Sagar Associates was legal advisor to IBREL. Allegro Capital Private Limited and IDFC Securities Ltd. acted as financial advisor to Embassy Group. Further, IDFC Securities will facilitate investor engagement and communication on the proposed merger and on any potential future fundraise. Ernst & Young LLP and PricewaterhouseCoopers Limited acted as transaction financial & tax advisors to Embassy Group. Independent valuations were carried out by BDO Valuation Advisory LLP and N. S. Kumar & Co (an affiliate of Transaction Square LLP). O3 Capital Global Advisor Pvt Ltd, a SEBI registered merchant banker provided a fairness opinion to the board of directors of IBREL.

Shares of INDIABULLS REAL ESTATE LTD. was last trading in BSE at Rs.73.55 as compared to the previous close of Rs. 68.45. The total number of shares traded during the day was 900897 in over 5658 trades.

The stock hit an intraday high of Rs. 74.8 and intraday low of 70. The net turnover during the day was Rs. 65252190.

1 Name change application to be made post-merger completion, subject to share-holder approval, availability and approval from Registrar of Companies

Source : Equity Bulls

Keywords