LIC & IIFCL to invest Rs 10k cr in take-out financing scheme

Mumbai: India Infrastructure Finance Company Ltd (IIFCL) and Life Insurance Corporation (LIC) have drawn up plans to invest Rs 10,000 crore during 2011-12 in the infrastructure sector, through the take-out financing route.

They have agreed to jointly buy out up to 40 per cent of infrastructure loan portfolios of banks, each having 20 per cent exposure.

“IIFCL will take all the initiatives with the banks regarding the portfolios. We have earmarked a total of Rs 10,000 crore, each investing Rs 5,000 crore, for the current financial year,” S K Goel, chairman IIFCL told Business Standard.

Under the scheme, IIFCL is allowed to take up to 75 per cent of bank loans for an infrastructure project on to its books, thereby freeing banks’ capital and enabling them to lend in new projects.

Since IIFCL has inherent expertise in infrastructure financing, it will carry out all the due diligence of the projects, Goel added.

A senior LIC official said there are some issues that need to be addressed.

“The main issue is the sharing of the liabilities. We are yet to take a call on the extent of liability which LIC can bear in case an asset becomes non-performing. We need to understand the risk carefully before entering into a particular project. Then we also need to understand to what extent we can invest under the sector investment norms,” the official added.

According to the Insurance Regulatory and Development Authority (Irda) guidelines, LIC’s exposure in a single project is capped at 10 per cent of the total investiable fund. The insurance regulator also mandates life insurers to invest at least 15 per cent of their controlled funds in infrastructure and social sectors.

According to sources, the idea of roping in LIC to partner IIFCL in the take-out financing scheme was mooted by the finance ministry in the wake of the lukewarm response of the take-out financing scheme floated by the infrastructure financier. So far, IIFCL has been able to disburse only Rs 90 crore of the total sanctioned amount of Rs 3,000 crore under the take-out financing scheme.

India to invest $1tn in infra sector in 12th Plan

The move is aimed at achieving the nine per cent growth target for the next Five Year Plan

Prime Minister Manmohan Singh said good road infrastructure was crucial to achieving nine per cent growth, targeted for the next Five Year Plan (2012-13 to 2016-17), and adequate investment would be made towards that.

At the same time, he insisted that the awards on private sector were placed in a fair and transparent manner so as to dispel any fear or charges that the government was resorting to any form of favouritism or arbitrary decisions, reports IANS.

"Infrastructure will play a key role in achieving our growth target of nine per cent. Our effort is to double the investment of $500 billion in the 11th Five Year plan to around $1 trillion in the 12th plan," the Prime Minister said.

"It is also necessary to ensure projects are awarded in a fair and transparent manner to avoid suspicion of favouritism," he told a conference on 'challenges and opportunities in public-private partnership in national highways'.

According to Road Transport and Highways Minister CP Joshi, the government will award contracts under public-private partnership to lay around 7,800 km of national highways worth an estimated Rs 50,000 crore by the end of this year.

"Contracts worth Rs 21,000 crore have already been awarded in the first four months," he said, hoping that the target of 20 km of national highways every day would be met.

Provogue India To Demerge Realty Biz

BY TEAM VCC

The demerged biz will be amalgamate with Prozone, backed by UK’s Capital Shopping & Triangle Real Estate India Fund.

Provogue (India) Ltd is restructuring its business by demerging its real estate business in a move which will give strategic and private equity investors more liquidity. The apparel retailer, backed by ace investor Rakesh Jhunjhunwala, has raised funding for its real estate business from the UK-based Capital Shopping Centres Group (one of the largest REITs focused on shopping centre management and development) and Triangle Real Estate India Fund.

The move is similar to that of Agre Developers, which was demerged from Pantaloon Retail (India) Ltd last year, to focus on retail real estate, infra-logistics parks and development of wholesale markets.

The new entity, to be listed, will be called Prozone Capital Shopping Centres Ltd. The share price of Provogue (India) closed at Rs 30.5 per unit on the BSE on Monday, down 2.87 per cent. The company currently has a market capitalisation of around Rs 350 crore.

Under the deal, Provogue will transfer its retail-centric real estate development division to Castle Mall Pvt Ltd, which will amalgamate the business with Prozone Enterprises Pvt Ltd, a subsidiary of Provogue. While shareholders will get 1:1 share for the demerger, the exchange ratio for the amalgamation is 313:75. Ladderup Corporate Advisory is the advisor to the above transaction.

The Capital Shopping Centres Group, formerly known as Liberty International Plc., had picked up 25 per cent of equity stake in Prozone Enterprises for Rs 202.5 crore in 2005, valuing the company over Rs 800 crore. Prozone is building retail-centric, mixed-use development projects in tier II cities like Aurangabad, Indore, Coimbatore and Nagpur.

Last year, Triangle Real Estate India Fund (co-promoted by ICS Realty Group and Old Mutual Investment Group Property Investments) invested Rs 306 crore for 35 per cent stake in three of its project SPVs – namely, Aurangabad, Nagpur and Coimbatore. The deal valued the projects at Rs 865 crore.

Its Aurangabad property was launched last year with tenants including Shoppers Stop, Globus and Star Bazaar, besides Satyam Cinemas.

Emergence of India as a key global economy by 2050

A recent Asian Development Bank (ADB) report states that India will be one of the seven economies that will lead the rise of Asia. The report—Asia 2050: Realizing the Asian Century—states that India will be amongst these economies that will account for 45 per cent of global GDP.

India will be one of the seven economies that will lead the rise of Asia. These seven economies alone will account for 45 percent of global GDP, according to Asia 2050: Realizing the Asian Century, a report by Asian Development Bank (ADB).

Significantly, reinforcing the economic credentials, India's foreign exchange reserves reached an all-time high of US$ 321 billion, up by US$ 1.6 billion, for the week ended September 2, 2011.

Growth of India after 1980s was one of the catalysts that spurred the re-emergence of Asia and the country falls into the fast growing, converging economies category of Asia.
In recent times, Indian firms have led the rest of the world in developing the cheapest cars (Tata's Nano is priced at US$ 2,500), cheapest mobile phones (at US$ 20), cheapest phone call rates, cheapest cataract surgery (at US$ 30), and the cheapest laptop (at US$ 35).

Read the report ASIA 2050: Realizing the Asian Century

Carlyle Group invests $26 m in Value & Budget Housing

Global alternative asset manager The Carlyle Group has invested $26 million into Value & Budget Housing Corporation (VBHC), a pioneer in the construction and development of affordable entry level housing in India. The capital, which will be used to fund the building of these new homes, comes from FCG IX, a part of Carlyle Asia Growth Partners IV (CAGP IV), a $1.04 billion sector-agnostic growth capital fund. Existing investors in VBHC have also committed additional capital alongside Carlyle, a press statement said. VBHC is setting up an expansive network of integrated housing projects nationwide that will apply the latest industrial engineering and construction technology to improve the construction process, according to a press statement. VBHC aims to bring value to home-buyers by maximising their financial options, lowering maintenance costs and ensuring sustainable living through renewable energy and water & waste management. — Source: Hindu BusinessLine

"PE Investors In Real Estate Pushing For Mezzanine Structures"

BY SHRIJA AGRAWAL, vccIRCLE

Since real estate is a cyclical biz with ups and downs, investors are now looking for some sort of downside protection.

Private equity action in real estate has hit a snag. But such trends are being considered as a consequence of global sentiments, which are not necessarily too strong to support the cyclical nature of the business. As investors are now cautious about making new investments in this space, they prefer to take a safer route – a mezzanine structure which offers some downside protection. In an exclusive video interview with VCCircle, Ravindra Pai, MD of Century Real Estate, talks about investors’ concerns and what lies ahead. The real estate company is in talks with PE investors to raise about Rs 500 crore. Pai says that they are hopeful to close a transaction within the next three months. Excerpts:

Recently, we have not seen much private equity investment activity in the real estate space. How would you explain it?

Pai: I think that the funds are really struggling to determine the right way to make these investments. Any activity in this sector has a very long gestation period, which means it takes a long time for projects to mature. As you know, funds have their own cycles, typically spanning two-three years. On the other hand, real estate projects can take longer; small projects may take around three-five years while larger projects take around five-eight years. So, it is always a challenge to manage fund expectation from a life cycle perspective and a project life cycle perspective.

What we have seen during the last six-eight months is that private equity, in its true sense, doesn’t exist in real estate. Funds are very happy to invest more on a structured transaction basis where they are looking at some downside protection.

Private equity funds have been struggling to raise funds over the past three years, but the problem appears to be acute in case of real estate-focused PE funds. What are the key concerns in this space?

Pai: I think it’s largely sentiments. Historically, nobody has made money in real estate. There have been many companies who went public and you now find most of them trading at 30 per cent below their list price. There is also an angle of transparency which continues to plague the industry. There is some discount that the industry takes due to the lack of corporate governance. Thirdly, real estate is a cyclical business with many ups and downs. I think we are going through a cycle where global sentiments are not necessarily strong. So, all things combined, it is taking a toll in the real estate sector.

What are the structures that the investors are exploring?

Pai: We have found that investors want some sort of downside protection. They want to make sure that there is some debt-style protection. They are more interested in a mezzanine or structured kind of transaction.

You have recently raised money via non-convertible debentures (NCDs). Would you be exploring the same route to raise fund in the future?

Pai: At this point of time, we are more open to doing an equity kind of transaction. We are quite aware how much debt we hold in our books. So, we don’t want to over-leverage the balance sheet.

How much are you looking to raise?

Pai: We are actually in talks with private equity investors to raise up to Rs 500- Rs 550 crore primary for pre-development. We have already identified land parcels where acquisition is over and these are now ready for pre-development. But it’s going to be very difficult to get this capital from traditional sources. For instance, banks are not willing to invest unless project approvals are in place. But you actually need huge investments to get those large projects to the approval stage. Therefore, we are looking to raise money to be spent in these development areas – so that we can create an inventory worth Rs 4,000-Rs 5,000 crore.

So, when will you be able to raise money?

Pai: In three months’ time, I should think. We have made significant progress from the diligence perspective. So, we are pretty much there. Currently, we are thrashing out the finer points and trying to determine who will be the right partner to invest in.

What are your expansion plans?

Pai: We have been in this business for nearly 35 years now and consequently, own very large land banks at historical costs. In fact, we only have prime land parcels, which is an added advantage. We have been able to pass some of these historical costs to customers in the sense that our pricing is very competitive and aggressive. Going forward, we propose to create destinations and townships – so it will be more integrated sort of investment.

What about the real estate prices from a consumer’s point of view? What can we expect?

Pai: From a retail buyer's point of view, I would say that if you are buying a home, there’s no good time as such. I think every time is a good time. In my limited experience, I have not seen prices coming down. There might be a certain freeze on transactions, but prices never really come down. Or at least, that’s what I believe. I hear that Mumbai and Delhi are overheated and there is some pressure in terms of pricing and absorption. But in Bangalore, we have not seen anything so far. The good thing and the bad thing is that, prices did not scale up as they did in other cities.

(Transcribed by Bhawna Gupta)