The Hindu Business Line : Withdrawal option not to impact Kolte-Patil valuation

The stock valuation of Kolte-Patil Developers, on listing, is unlikely to be materially influenced by the litigation disclosed after the closure of the offer, involving land in Bangalore on which the company plans a project.

Investors to the initial public offering have been given an exit option up to December 4, as directed by SEBI since the notice disputing the company’s land reserves has been issued after the date of red herring prospectus. Kolte-Patil has issued an addendum to the RHP this week, disclosing the details of this litigation. The company has also stated that the price band of Rs 125-145 is not primarily based on this project.

Kolte-Patil has an agreement with NTI Society for development rights of land in Bangalore. The addendum states that an individual who had earlier disputed and settled some claims with NTI has now raised a fresh claim on the land to be developed. The total estimated saleable area of the project to be built on the disputed land is 0.38 million square feet as against the company’s total land reserve of close to 40 m sq ft. The project under consideration hence appears not very material to the overall operations in terms of size.

Further, of the total 35,000 sq ft of super built-up area under dispute, Kolte Patil has already allotted 20,560 sq ft to NTI. The company may have to give up rights of another 14,440 sq feet of area, if the ruling goes against it. The company has also deposited Rs 3.50 crore as required by the Court.

The above events may not create any sizeable uncertainty about the impact of the final ruling on the company. However, investors need to keep in mind that real estate developers with high land reserves through the ‘development rights’ model are vulnerable to such legal disputes that can delay completion of projects. A portion of the IPO proceeds is planned to be used for the development of the said area under dispute.

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