Israel's Elbit In Talks With K Raheja To Shed Stake In Realty Assets

September 08 2010, 08:51:14 IST | BOBY KURIAN & MADHAV A. CHANCHANI; Source: VCCircle

Elbit explores investor interest in Chennai and Thiruvanathapuram projects as it wants to pare Indian realty exposure.

Israeli billionaire Mordechai Zisser's Elbit is holding talks to offload majority interests in its Indian real estate investments as part of a strategy to pare exposure to the local market, said sources directly familiar with the situation. Indian developer K Raheja is among the potential suitors discussing a buy into Elbit's assets in the southern cities of Chennai and Thiruvananthapuram.

In 2007, Tel Aviv and Nasdaq-listed Elbit Imaging Ltd, through its real estate and retail arm Plaza Centres NV, acquired land banks in India's southern and western cities just ahead of the global economic crisis, and unveiled plans of over $1 billion investment into developing shopping malls, hotels, hospitals, office and residential units.

One source said, Elbit may consider outright sale of the land as it was coming out of the three-year lock-in on FDI in real estate. This source added that Elbit would be open to exiting mainstream real estate play in India and stay focused on other growth sectors like healthcare in the country. Globally, Zisser's diversified conglomerate Elbit carries interests in real estate, healthcare, agriculture, shopping malls and retail.

K Raheja Corp is believed to be discussing a joint development, in which it would have 70% interest, while Elbit and the other shareholders will keep the remaining 30%. This 70:30 JV is under discussion for developing Elbit's 130 acre land in Chennai, located 
near Sirusseri, and 9 acre property in Thiruvananthapuram, in close proximity to the city's Aakulam Lake. Industry sources said the Chennai land holds potential for developing 8-10 million sqft of mixed use real estate, and the Thiruvananthapuram project could be well over one million sqft by size.

If the deal goes through, it would essentially mean Raheja taking charge of the real estate development, while Elbit and other shareholder will keep minority interests in lieu of the land ownership. Alternatively, if Elbit was to sell the land, it could fetch around Rs 5 crore per acre for the Surusseri propery near Chennai.

The ongoing talks between Raheja and Elbit are still in early stages and a positive outcome is not definite, sources added.

Emails sent to Elbit Imaging and K Raheja did not elicit any response at the time of publication of this article. Text message sent to Elbit India Real Estate executive also did not elicit a response.

Elbit along with local partners had acquired land in Chennai, Thiruvananthapuram, Bangalore, Pune and Kochi nearly three years ago. Sources said Elbit's proposed projects in Bangalore and Kochi, in partnership with Mantri Developers and Salarpuria Group respectively, did not take off. The Israeli firm took complete control of a 6,50,000 sqft mall and hotel project in Pune, which was planned along with Avinash Bhosale Group . The fate of its second project near Pune, in partnership with Panchshil Group, is not clear.

Elbit was the most prominent among a wave of Israeli investments into Indian real estate during 2007, most of which have been rolled back in the wake of the worst global economic slowdown since the 1930s. The  Israeli groups that came with ambitious plans in Indian real estate include Property and Building Corp, Electra Real Estate, Gindi Holdings, Alony Hertz Properties and Meshulam Levinstein Contracting Ltd.

Many Israeli firms were hoping to repeat their past success in the east European real estate markets in India. Elbit, for instance, has significant presence in Hungary, Romania and Poland with a string of shopping malls and hotel assets. In recent decades, especially after the fall of the Communist regimes, Israeli investors have flocked east Europe in a bid to repeat their success in the US property market.

Even as Elbit is paring exposure to Indian real estate, it announced fresh plans in the US property market earlier this year. It formed a JV with Eastgate Property LLC to set up $400 million fund to invest fresh into US assets. Later, it announced picking up 48% interest and becoming the largest unit holder in $1.5 billion Macquarie DDR Trust,
which holds two US REIT portfolio with 78 retail properties and over 13 million sqft of leasable area.