Maytas has no land bank, claims govt

New Delhi April 18, 2009
Mulls action against E&Y for ‘incorrect valuation’; company claims it has agreements with land-owners.

The government said it may take action against global audit and consulting firm Ernst & Young (E&Y) for not properly valuing Maytas Properties Ltd, a company promoted by Satyam Computer’s former promoter B Ramalinga Raju, according to a senior official in the Ministry of Corporate Affairs (MCA).

This follows findings of an independent investigation by the government that the Hyderabad-based real estate firm did not have a land bank, though the company claims it holds the right to develop land through agreements with land-owners, which is the same thing.

The government recently appointed one nominee director on Maytas Properties’ four-member board. Unlisted Maytas Properties is run by B Rama Raju Jr, the younger son of Ramalinga Raju. It is one of the two companies — the other being Maytas Infrastructure — that Satyam Computer Services controversially proposed to acquire in December. The proposal was withdrawn after objections from shareholders. The company was evaluated by E&Y at Rs 6,523 crore. The company had said it possessed a land bank of 6,800 acres.

“Contrary to what it claimed, the company has no land bank,” said the ministry official. “On what basis did E&Y do the valuation? Action can be taken against the audit firm for doing untrue valuation,” he added.

Another person closely monitoring Maytas Properties confirmed that the firm has no land bank. “Had they had it (referring to land bank), then the problems that are there today would not have happened,” he added.

The government is yet to decide which agency will take action against E&Y. The MCA official declined to comment on this. Asked about the government’s claims, E&Y in a statement said the valuation services provided were conducted in accordance with the applicable professional standards. “We are confident of the quality of our work,” the audit firm said.

The audit firm’s statement explained that Maytas Properties or its subsidiaries either owned land or had land development rights on a perpetual basis, practices common in the Indian real estate industry.

“When conducting the valuation, land as well as the perpetual development rights were considered and this has been stated in our report as well,” E&Y’s statement said.

Describing the government official’s claims as “untrue and baseless”, a Maytas Properties official told Business Standard, “Under government norms, no property developer can hold hundreds or thousands of acres under its fold nor can it register them in its name. Holding land to that extent as a long-term asset for years together is not a viable proposition either.”

He went on to explain that it is standard practice for developers to have development agreements under which the land-owner cannot sell his land to any other entity or individual.

“As and when the realty firm proposes a new project, the land will developed and the revenues generated from the project shared between the company and the land-owner, in accordance with the agreement. Maytas Properties also follows this model,” the official said.

Earlier, E&Y had told Business Standard that it did not audit the SPV (special purpose vehicle) or subsidiary companies of Maytas

Properties. It also denied valuating Maytas Properties for the Satyam-Maytas transaction.

Ernst & Young was engaged by a law firm in an unrelated context to undertake a valuation of Maytas Properties, as required under the guidelines of the Reserve Bank of India, for a proposed share transaction involving existing shareholders of Maytas Properties.

Last month, the government appointed Ved Jain, former president of the Institute of Chartered Accountants of India, on Maytas Properties’ board following an order by the Company Law Board in this regard after government investigations found a nexus between Satyam Computer and Maytas Properties and Maytas Infra. Maytas Infra, a listed entity, has four government-nominated directors on its board.