Home Truth: Unlisted realty cos too taking QIP route

Home Truth: Unlisted realty cos too taking QIP route
The Economic Times, June 15, 2009, Page 4

Sachin Dave & Maulik Vyas MUMBAI

AS LISTED real estate firms brace to raise about $2 billion (Rs 9,600 crore) through qualified institutional placement (QIP) routes, their unlisted counterparts are not far behind. These closely-held real estate firms, which are typically family-run enterprises that build limited projects in suburbs of large cities, are also learnt to be tapping qualified institutional buyers and high net worth individuals to raise money for such projects, in exchange for high returns.

The amount involved in such a fund-raising is also high, totalling about $1 billion (Rs 4,800 crore) according to at least four real estate firms that ET spoke to, signalling a trend where institutional investors are not shying from investing in unlisted family-owned building projects. The move also indicates a return of confidence in the realty space, as builders cut down on frills and come up with affordable, viable housing projects.

Most of the deals with such investors are being negotiated via the special purpose vehicle route where the HNIs or the QIBs take a share of the profit once the building project is completed, thereby reducing the investment period compared, to a pure private equity deal. These HNIs are people with money to invest, while QIBs include foreign institutional investors, banks, insurance firms and mutual funds.

“We are considering to raise around Rs 200 crore from certain HNIs for our project in Pune,” said Vinay Phadnis, chairman of the Sahil Group, one of the four firms that ET spoke to. The group has plans to invest in at least two major projects in Pune.

According to industry experts, these private companies are not too big and had not taken “unnecessary risks” during the boom time and are hence better placed. Such projects are an attractive bet as housing rates are improving and home loans are also getting softer. “Strategically all unlisted players are conservative in terms of expansion and focused on completing existing projects than going aggressively on future plans,” said Jitendra Jain, managing director of Neev Group of Companies, an unlisted Mumbai-based realty player. “While bigger listed companies were aggressive on their expansion plans all over India which affected them during the liquidity crunch, smaller players were better placed.”

Most of the QIBs and HNIs invest in projects which involve an investment of anywhere in the range of Rs 300 to Rs 500 crore.

In another deal, a Pune-based developer, who is also present in the infrastructure front and requested not to be named, is looking to raise Rs 800 crore through the QIP route. The deal is expected to be done by July end, said the developer. A wellknown developer, who has projects in Gurgaon, Haryana and in NCR near Delhi, is learnt to have approached a couple of QIBs to raise about Rs 1,000 crore, a leading banker has said.

The option of raising funds through HNIs and QIBs had almost dried out for unlisted players since late 2008, due to a slowdown in the sector. While most of such investors stayed away from taking a risk, the handful of those who did, expected high returns as liquidity was scarce. But with listed companies managing to raise adequate liquidity through the QIP route, confidence in the unlisted space seems to have returned.