On Thursday, the company had announced its plan to form this alliance and also subscribe to equity warrants aggregating to around 10% capital of DB Realty for around ₹400 crore.
Godrej Properties stock plunged 9.75% on Friday after several analysts raised concerns over the deal. While some analysts said investing in DB Realty exposes Godrej Properties to the risk of capital misallocation, a few raised corporate governance issues.
“The market didn’t like this investment decision as there are several issues with DB Realty. Earlier in January, DB Realty had made a default on payment of ₹698 crore,” said Yash Gupta, analyst, Angel One. “We expect some more clarity from the company in the coming month. Till that time, we suggest retail investors hold their investment in GPL stock and not make any fresh investment at this level.”
Godrej Properties stock ended 9.75% lower at ₹1,506.22 on Friday while DB Realty shares locked 5% upper circuit at ₹100.90. Godrej Properties stock has declined 38% in the past three months compared with a 14% fall in the NSE Realty index.
GPL announced the cancellation of the proposed deal after market hours on Friday.
“After prolonged discussions and taking into consideration the feedback from the stakeholders and minority investors, the board has decided not to proceed with any further evaluation of a potential investment in the equity capital of the DB Realty and the platform,” Godrej Properties said in an exchange filing.
The company said it might continue to explore projects with DB Realty on a case-to-case basis.
As per the earlier agreement, Godrej Properties was to invest ₹400 crore through warrants to acquire a 10% stake in DB Realty. Both DB Realty and Godrej Properties were to infuse an additional ₹300 crore each into the joint venture. The ₹600-crore capital was to be utilised to evaluate and develop the SRA and MHADA redevelopment projects with a revenue potential of ₹15,000 crore.
Analysts said Godrej Properties should have invested directly into the joint venture instead of indirect investment.
“The financial investment in DB Realty instead of directly in the platform raises corporate governance issues. Such a decision was taken unilaterally without taking minority shareholders into confidence,” Biplab Debbarma, analyst, Antique Stock Broking, said before the cancellation of the deal.
“A project-level investment with milestone linked payments would have mitigated the risk significantly, especially in highly uncertain slum rehab and MHADA redevelopment projects.”