Complaint of ‘inadequate disclosure’ lodged against Embassy REIT IPO

PALAK SHAH | | Updated on: Mar 18, 2019
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Complaint has no link to REIT: Embassy; issue subscribed 0.2 times

Mandava Holdings (MHL), part of Hyderabad-based NSL Group involved in fertiliser, sugar and power, has raised concerns with SEBI over what is called insufficient disclosures in the offer documents filed for the IPO by Embassy Office Parks REIT (EOP REIT). While SEBI is yet to take any action on the complaint, the IPO opened for investors on Monday.

EOP REIT is a joint venture between Bengaluru developer Embassy Group and private equity firm Blackstone. Reddy Veeranna, who owns 27 per cent stake in one of the sponsor companies of the REIT, was served an ex parte order by a court this year restricting him from creating third-party rights in his properties including shares in the particular sponsor company. MHL has told SEBI that the particular court order, ‘material’ to the IPO, has not been disclosed in the IPO offer documents.

MHL has a pending dispute with Veeranna and says that portfolio assets linked to the individual and his company cannot be created. It has requested SEBI to “seek explanation from the IPO sponsors and global co-ordinators responsible for due diligence and preparation of offer documents about the non-disclosure.”

EPO REIT IPO is the first of its kind in India. Embassy Manyata has been proposed as one of the portfolio assets in the Embassy REIT. Embassy Manyata holds a large chunk of assets of EPO REIT.

Embassy Manyata is owned by Manyata Promoters Pvt Ltd (MPPL), in which Veeranna holds 27 per cent stake. Veeranna and Suguna Reddy were to transfer 27.25 per cent of their shareholding in MMPL to Embassy REIT in exchange for the units to be issued in Embassy REIT. This is how they are linked to the IPO. On January 31, a Bengaluru court passed an order restraining Veeranna “from creating any third-party rights over his immovable and movable properties particularly shares held by him”. The IPO offer document does not mention the restraining order issued against Veeranna, which is a violation of disclosure norms, MHL said.

According to MHL, Veeranna defaulted on payment of ₹72 crore.

The total amount with interest now is ₹141 crore. Cheque issued to MHL by Veeranna had bounced.

A spokesperson for EPO REIT said, “The matter is a civil dispute between two parties (one being the minority shareholder in one of the REIT assets, and the other a third party) and the matter bears no direct nexus to the sponsors, the REIT manager or any of the parties. Despite having firm legal footing, the manager exercised caution and published a public announcement in newspapers prior to the issue. The amount in question is immaterial, and overall represents less than 1 per cent of the issue size.”

A spokesperson for MHL said, “The page referred to in the notice to investors does not disclose the court order shared by us. This is again misleading and non-disclosure of material information. We have shared the court order with a request to SEBI about the non-disclosure of the same in the offer document which is material information. We are awaiting action from SEBI on the notice issued by us.” A query via email sent to SEBI did not elicit any response.

Meanwhile, the IPO received bids for 1.39 crore shares on Monday — Day 1 of IPO, against 7.12 crore shares on offer, according to NSE data at 5 pm. The issue was subscribed 0.20 times.

Published on March 18, 2019

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