After the Chinese, Japanese now vying Indian realty via private equity

Subsequent to Centre’s nod to 100 per cent foreign direct investment (FDI) in the real estate industry, it was only a matter of time before foreign developers made big investment announcements.
According to a report by realty research & consultancy firm JLL India, developers and private equity investors from the Land of the Rising Sun are looking to enter Indian property market. The Japanese could invest at least USD 2 billion in residential as well as industrial projects over the next three years. “India is emerging as a major investment destination for Chinese and Japanese developers,” the report stated.
Private equity investors from these two countries are also looking at entering India’s real estate sector; China’s biggest developer Dalian Wanda Group has already signed an MoU with Haryana government earlier this year to develop Wanda Industrial New City with an investment of USD 10 billion, spread out over the next decade. More developers from China as well as Japan are expected to penetrate domestic real estate soon.
“Indian realty markets are likely to see an inflow of at least USD 2 billion in investments from Japan over the next three years as Japanese developers are keen to explore strategic partnerships by way of joint ventures with Indian builders; they are predominantly interested in industrial projects,” said Anuj Puri, Chairman and Country Head , JLL India.
62 per cent of the respondents of a RICS-JLL survey conducted in January this year felt that institutions from Japan and China could knock at the doors of the Indian real estate market in 2016.

Altico Capital to finance 450 cr project in Mumbai

The non-banking financial company (NBFC) of Asia-focused investor Clearwater Capital Partners LLC, Altico Capital India Ltd. Has given Rs.450 crore of debt financing to an upcoming residential project in Mazgaon, south Mumbai.

The project will be a joint venture of Radius Developers and Sumer Group which is yet to be launched.  Under the plan, five 65-storey residential towers measuring 3 million sq. ft of saleable area will be developed.

The transaction is structured in the form of non-convertible debentures (NCD) with a four-year tenor, where the funds will be disbursed in tranches. The finance will be used to acquire the project from the land owner, settle tenants on the land and to start project construction.

Funding to the realty sector in the past three years has largely been in the form of structured debt financing, with both private equity (PE) funds and NBFCs aggressively lending to developers, giving the latter a much-needed source of capital especially when cash inflows have dried up due to weak sales.

“This was an exciting opportunity to back one of the most promising real estate entrepreneurs in Mumbai early in his new corporate evolution,” said Karthik Athreya, managing director of Altico Capital. “Our business is built around the significant existing opportunity to meet the capital needs of capable developers, who are in their growth stage with multiple projects that can enable their own growth besides repaying our debt at attractive IRRs (internal rate of returns) of over 18%,” he added.

Speaking on the deal, Sanjay chhabria, Managing Director of Radius Developers said, “We plan to launch the project early next year. The property is at a great location in south Mumbai and is ideal for residential development.”

Structured debt transactions in real estate are getting larger, sometimes with PE funds and NBFCs collaborating to do bigger-sized deals to meet developers’ demand for capital.

India’s largest realty firm is going to raise approx. Rs 3,600 crore

As per the recent reports, DLF, the India’s largest realty firm is going to raise approx. Rs 3,600 crore in current quarter by issuing the securities, which is backed by its IT-SEZ and it is the part of DLF’s strategy to replace the debt of higher interest rates. The same report stated that on Tuesday, DLF rallied about 2.27 per cent in intraday trade. However; the stocks must gains to settle on 0.7 per cent which is higher at Rs 139.3.

DLF is also planning to issue its first ever REIT (Real Estate Investment Trust) in the present fiscal to monetize its commercial assets. According to the statement of Ashok Tyagi, who is Chief Financial Officer of DLF, “Currently we are actively working with different rating agencies and investment bankers for CMBS issue (Commercial Mortgage Backed Securities). The more he added that we don’t have any kind of time frame to launch the Commercial Mortgage Backed Securities, but sources are indicating that DLF will launch its CMBS in next two months.

In February 2015, DLF was set to launch its CMBS of about Rs 3,600 crore as a part of SEZ business to improve its quality of debt. In present the company is waiting for SAT (Securities Appellate Tribunal) judgment on the SEBI’s order that had ban DLF from accessing the capital market for 3 to 4 years.

In March 2015, Securities Appellate Tribunal had passed the order on the basis of ‘majority order’ by imposing the ban for next three to four years from the side of SEBI. In 2014, the DLF had launched the country’s first ever CMBS and was successfully raised more than Rs. 900 crore in two rounds of CMBS with the help of two shopping malls in Delhi. Currently the net debt of DLF is about Rs 20,336 crore as per the data on December 31, 2014 out of which Rs 14,000 crore are from the rental arms.

It is expected that soon company will monetize its commercial assets to list REITs (Real Estate Investment Trusts), as per the statement of Tyagi. Whereas; in current fiscal DLF also want to float its first REIT but currently it is subject to receive the requisite approvals. The more he added that Real Estate Investment Trusts now become viable as government has clarified that MAT (minimum alternate tax) will be applicable on the time of actual transfer of these units. Apart from all that the DDT (dividend distribution tax) will continue to be an alternative for some of the real estate players who are looking for REITs. In simple terms we can say that there are 4 to 5 pilot REITs are about to launch in this fiscal year.

It is clear that REITs will help to unlock the value of completed and leased assets which can be used for debt and capex reduction. The DLF is planning to raise the Rs. 3,000 crore via PE (private equity) on each project level, as per the statement of CFO of DLF. However; the discussion is underway with some of the private equity players, but still there are no timeline for such PE deals. Apart from that company is planning to divest around 50 per cent stake in four of the latest projects to PE firms. Now its clear that DLF is looking for the way to raise the funds through PE routes to boost its cash flow because there have been sluggish nature in the sales of houses in last year.

In past one to two year the DLF has land bank from about 300 million sq ft out of which approx. 50 million sq ft is under construction and due to that the share price went up to 1.25 per cent which is Rs 138 piece on the BSE index with market cap of Rs 24,644 crore.