Realtors hop on to Street to raise $2.5 b

Realtors hop on to Street to raise $2.5 b
The Economic Times, July 27, 2009, Page 1

Sachin Dave MUMBAI

THE builders are back on Dalal Street after a gap of more than a year. At least six real estate firms plan to mop up more than $2.5 billion from the capital markets by December, 18 months after poor response forced Emaar MGF to scrap its Rs 6,500-crore maiden share issue a day after it opened in February last year.

Emaar MGF, Sahara Prime City, Godrej Properties, Lodha Developers, Nitesh Estates and Sriram Properties will all hit the capital markets this year, signalling that the worst may be over for an industry that virtually cratered in the global economic storm last year.

There are two reasons for this rush, said international property consultants Jones Lang LaSalle Meghraj (JLLM) chairman Anuj Puri. “One, the market is looking comparatively better today, and two, most of these companies are in serious need of liquidity,” he said.

With market conditions still tight, it will not be easy for these issuers to demand substantial premium from investors, say experts. “Looking at the present volatile market, it would be really difficult to predict the premium. But if we go by the recent response to IPOs, these real estate companies could debut at a 5-10% premium,” said an industry tracker who did not wish to be named.

Five companies have so far raised Rs 3,160 crore from the capital markets this fiscal, according to market research firm Prime Database.

Godrej Properties to sell 10%

THE last to be listed, Mahindra Holidays and Resorts, debuted on BSE 7% higher than its issue price.

Godrej Properties, the real estate arm of the Godrej Group, plans to sell around 10% through its maiden public issue, a person close to the development said. Before that, the company will place a 3.5% equity with select institutions.

The initial public offer (IPO) is expected to fetch the company anywhere between Rs 450 crore and Rs 600 crore, said the person on condition of anonymity. It will use the proceeds for building low-cost housing. ICICI Securities and Kotak Mahindra Capital are the merchant bankers to the issue.

Godrej Properties recently announced plans to spend Rs 5,000 crore on township projects in Gujarat, Maharashtra, Tamil Nadu, Andhra Pradesh, West Bengal and Delhi that would offer homes at less than Rs 20 lakh.

Mumbai-based Lodha Developers, which has just signed the largest property deal of the year so far to acquire Finlay Mills’ 10.3-acre property in central Mumbai for Rs 710 crore, plans to raise Rs 3,000 crore through an IPO. Part of the proceeds will be used to fund the Finlay Mills deal, which calls for full payment within three months. Lodha, which has been going through a financially tough time, will use the money to retire debts and fund ongoing projects. It is also planning to enter real estate markets other than Mumbai, said a top official, requesting not to be named.

Emaar MGF, a joint venture between Dubai-based Emaar Properties and MGF Development, is looking to raise Rs 4,000 crore this year. Kotak Mahindra Capital has been mandated to manage the issue. According to market analysts, like many other real estate firms, Emaar MGF will have to divert a major chunk of the IPO proceeds to repay debts. In May, a contractor alleged that the company was yet to pay around Rs 200 crore to a contractor.

Sahara Prime City, the real estate arm of the Sahara Group, is expected to mop up $1 billion. A Sahara Group official said there was a plan to go public but refused to confirm the size of the issue. Industry sources said the company may invest part of the proceeds to retire its existing debts. NRI investor C Sivasankaran recently picked up a 49% stake in Sahara’s Aamby Valley project. The size of the transaction could not be verified.

Bangalore-based Nitesh Estates is planning to tap the capital markets to build its land bank and enter the western Indian market, particularly Mumbai, an official said. While the size of the issue could not be ascertained, a banker said it would hit the markets by the end of August.

ET also recently reported that Chennai-based Shriram Properties, part of the Chennai-headquartered diversified Shriram Group, has appointed Macquarie and Enam as advisors for its proposed Rs 500-700 crore initial public offering.

Prior to the elections, the real estate sector was in big trouble with property prices at an all-time low. While prices had dropped up to 40%, buyers were not returning to the market in large numbers as the global financial crisis was affecting the Indian economy as well. Developers were panicking and even the biggest names in the sector such as DLF and Unitech had to stop work at many sites and sell their non-core assets to deal with the fund crunch. The share prices of realty firms had hit rock bottom before the election results, but started picking up after that. In fact, the realty index has been outperforming most other sector-specific indices in the past several weeks.