‘Govt-Emaar MGF row may hit sentiment’

New Delhi:  Credit rating agency moody’s has said that Indian government allegation against real estate company emaar MGF that it violated foreign exchange rules by using $1.5 billion of foreign funds to buy farm land is the latest action in a “string of investor-un-friendly moves” that have negatively affected foreign companies.

Recently, the Enforcement Directorate (ED) had alleged that Emaar MGF Land Ltd, a joint venture between Dubai’s Emaar properties PJSC and India’s MGF Development, violated foreign exchange rules by using Rs8,600 crore ($1.4billion) of foreign funds to buy agricultural land in the country.

Under the foreign direct investment rules, according to ED, a company is not allowed to use foreign funds to buy agricultural land. But Emaar MGF in its draft prospectus filed with Sebi in 2010 had received the necessary clarifications from India’s ministry of commerce and industry regarding the acquisition of agricultural land.

A senior real estate consultant said that in 2010 Department of industrial policy and promotion in a clarification had said that a real estate company with FDI up to 100% engaged in development of township, housing, infrastructure and construction development projects can purchase land, including agricultural land to carry out “permissible activities for a specific project.” He said that now only Emaar MGF but numbers of other real estate companies are also engaged in similar activities.

Moody’s said that the latest development in India is a reminder of the risks and uncertainties of investing in emerging markets, even those with positive fundamentals, attractive growth prospects and a rising middle class.

The report said the ED’s allegations create uncertainty around a $1.4 billion investment India. Emaar’s Exposure includes an investment book value of $650 million and an outstanding shareholder loan of $750 million to Emaar MGF.

Experts said that in order to make foreign inventors more comfortable investing in the country, the government must spell out its policy clearly and ensure stability. They said that India remains an attractive destination as it gives one of the highest returns in world, but there must be clarity and consistency in policies.