Disc: IBREALEST is my 2nd biggest position, I am offlate starting to feel a bit uncomfortable about my decision. Posting here my reason for both – investing initially and why feeling unsure now.
Why did I Buy?
- Same reason as most investors (speculators) who bought last year. When I read about the impending merger I thought bad reputation of IBREAL will be overtaken by Embassy goodwill. With SG gone, I thought Embassy will resurrect IBREAL’s fortunes. So no fancy rationale, it was just a hope (which isnt a great strategy to start with).
Why I am feeling unsure now?
-
- The merger case in NCLT, which the management initially portrayed as a mere formality and would happen very soon has been dragging on and on, with new players jumping in every few months – IT Dept, then Dhanekula Dharanish and now BSE. I believe the investor (Dhanekula Dharanish) who has lodged so many filings at NCLT (thankfully its case in AP HC was thrown out) is a mere front for a bigger party (Lookup its details in Zauba, certainly doesn’t seem to be an activist investor who will go to such lengths for a fair deal as a minority shareholder). His/Her/Their primary intention is to just delay the proceedings. Most of its filings are a day or two before the main case hearings, not allowing much time for IB/NAM to respond. Note that its my speculation, I am not privy to what’s going on and neither do I have a legal background.
-
While the case dragging on may not be the Managements’s fault, the following is the real reason what’s making me have second thoughts – At the time of the merger announcement I was happy that bad reputation of IBREAL will be overtaken by Embassy goodwill, but now the picture has completely changed. It seems to me that Debt free & asset heavy (IBREAL) is being merged with a company with heavy debt and shaky cashflows (NAM). Even the debt (850 cr by IB Housing) used to buy SG’s IB stake will be on the merged entities’ books. So, its like a LBO transaction. In essence we the shareholders of the merged entity will be footing the bill of SG’s stake sale (This I deduced from the latest filing on BSE, related to NAM’s Assets & Liab. I may have misunderstood this, please correct me if you are sure that I am wrong). Embassy Management has been candid in stating that their plan to reduce debt (at least partially) is by selling IB landbanks. If my inferences are true then what are the current shareholders of IBREAL getting after we have paid off SG? NAM’s debt, dodgy cashflows (Embassy is late in payment of many of its loans – source: Embassy AR) is all I see now.
-
Recently IBREAL sold 35 acres of land in Sec 104 near Dwarka Expressway to SG’s entities for around 240 cr. What will SG do with this land if his intention was to leave RE (thats why he sold out of IBREAL, right?). Also, 240 odd cr for 35 acres is not even 7 cr per acre. I am no RE expert but to me it seems a very low price for land near Dwarka Expressway which is touted as one of the hottest growth areas in NCR. Since Gehlauts are no more classified as Promoters of IBREAL, there is lesser scrutiny for the deal to be at arms length from the regulators (assuming they care). For me this deal doesnt pass the smell test. Also, what about the hefty amount SG owed to IBREAL for the UK property which SG had promised Mr. Virwani that he will pay by Dec 2022. Mr. Virwani had said that he believed SG will come true on his promise. I am yet to see any exchange filing regarding the amount being repaid.
Sorry for the long post. I will be very happy if what I have written turns out to be FUD and the merger goes through soon and the merged entity is indeed strong fundamentally.
I would love to see counterarguments from other participants here.
Best wishes.
| Subscribe To Our Free Newsletter |
