Fund sources dry up for realty firms

The funding avenues exploited earlier by real estate sector seem to have dried-up as investments in the sector shows significant decline.

Between March 2010 and December 2011, foreign direct investment in real estate declined by a drastic 92 per cent and its share in total foreign direct investment shrunk from 16.83 per cent to 1.94 per cent, according to a Knight Frank report.

Fate of fund flow through initial public offerings, qualified institutional placements and private equity is also similar. As a result, all hope is stemmed on revival in sales, said the report.

Samantak Das, national head research, Knight Frank said, “over the last few years windows of financing for the real estate sector has changed. While in 2009 the sector has witnessed funds coming through QIP, IPO, FDI but with the volatile market conditions these routes of fund raising have dried up. FDI funding has also reduced significantly due to slowdown in the global economy. Foreign investors also refrained from investing in the sector as there were delays in project execution and returns were low in many cases.”

Further people who have invested in the realty shares had also lost money and are refraining from investing in the real estate stocks, he added.
 

Since 2005, 21 realty firms have raised Rs 21,306 crore through IPO and FPO of which Rs 14,574 crore or 68 per cent was raised alone in 2007, post the opening up of FDI in real estate sector.

The year 2008 had no new issues in the form of IPOs or FPOs while there was just one issue in 2009. In 2010, post the global crisis, the economy saw some support in terms of stronger UPA government at the center which helped as many as five promoters to raise Rs 4,312 crore.

While QIP window opened up for the realty players, improved sentiments coupled with low interest rates resulted in pent-up demand translating into property sales. Of the total fund raised through QIPs since 2009, 84 per cent came in the year 2009 itself.

The year 2011 witnessed a phenomenon of high property prices, high interest rate and low sales. Dismal corporate earnings growth coupled with a weak employment scenario impacted the realty industry. Funding avenues like IPOs, QIP and FDI, which were harnessed in the earlier years¸ dried up.

Ravi Ahuja, executive director, Cushman and Wakefield said, “definitely avenues of funding for the realty sector has dried up in the last couple of years due to which there has been a 15-20 per cent price correction witnessed in commercial prices in some pockets of Mumbai and residential prices also witnessed a bit of correction.”

Realty developer’s holding capacity has strained as funding avenues witnessed a drastic decline.

Das said that the only option real estate developers are left with to raise funds are through private equity investment which are coming much costlier as they are not only picking up stake of companies but are also charging high interests. Source:http://m.mydigitalfc.com/news/fund-sources-dry-realty-firms-394

Parsvnath debt remains a worry, Ansal profit falls

Realty firm Parsvnath Developers Ltd (PDL) said recently that its consolidated net profit fell 28% in the third quarter and it failed to reduce its Rs. 1,300 crore debt because of the rising cost of building material and high interest rates. New Delhi-based PDL’s net profit in the three months ended 31 December fell to Rs. 22.54 crore from Rs. 31.37 crore a year earlier. The firm’s revenue increased 6.8% to Rs. 239.62 crore.

“Our profit has declined because of higher expenditure on construction and employees cost besides higher interest cost,” Parsvnath Developers chairman Pradeep Jain told reporters. The company’s net debt stood at around Rs. 1,300 crore at the end of third quarter, he added. It had reported debt of about Rs. 1,200 crore during the second quarter ended 30 September.
 

“Debt remains a major concern for most real estate companies. The realty index will continue to underperform,” said Param Desai, a research analyst at Nirmal Bang Equities Pvt. Ltd, a Mumbai-based brokerage.

Another Delhi-based real estate firm, Ansal Properties and Infrastructure Ltd reported a drop in third-quarter profit and revenue. Net profit fell 35% to Rs. 21 crore from Rs. 32.37 crore a year earlier. The company’s revenue during the October-December period, too, declined by 35.1% to Rs. 226.1 crore.

According to a January report from brokerage IDFC Securities Ltd, despite the three months to December being the festive quarter, new launches and sales failed to result in any significant improvement for real estate firms. Sale of non-core assets has become the preferred mode of reducing debt for realtors.

“There has been an absolute slowdown. Sales dropped for most firms; results are on expected lines,” said Sharan Lilaney, an analyst at Angel Broking Ltd.

PDL plans to sell non-core assets in Kochi and Chennai to reduce debt, Jain said. While the land parcel in Kochi is meant for developing an information technology special economic zone, the Chennai plot is designated for a mixed-use development. The firm recently invited bids to sell its commercial tower project in central Delhi. Source: Indian Express

Bihar mulls 'private land bank' to woo investors

It will ensure hassle-free availability of land to industrialists looking to set up units in the state

The Bihar government will help set up a "private land bank" to ensure hassle-free availability of plots to industrialists looking to set up units in the state.

"We are studying whether to develop the land bank as a private venture or in public-private partnership mode. The government will soon finalise it," Principal Secretary (Industry Department) CK Mishra said here.

While the state government will not directly purchase land, it will develop infrastructure around plots sold by willing farmers to investors, reports IANS.

It will also provide incentives for industrial units to be set up there. According to officials of the Industry Department, the government is facing problems in acquisition of land for setting up industries.

"The state has high population density and most of the land available is used for farming," an official explained. Chief Minister Nitish Kumar had earlier said Bihar will adopted a new model for acquisition of land for industry and other ventures of public good, where it would act merely as a link between investors and landowners.

"The government will not directly acquire land. Instead, the government would work as a link between investors and landowners," Mishra said.

ArthVeda Scripting Seven Real Estate & Infra Funds, Eyes $2B AUM

Ropes in Lokanathan Nadar from Wadhawan Group to lead the infrastructure vertical.

ArthVeda  Fund Management has set the process rolling for four private equity funds in the real estate and infrastructure domain and is eyeing a total of seven funds with assets under management of around $2 billion by 2015, a top company executive told VCCircle.

ArthVeda  is a fund management company backed by private housing finance firm Dewan Housing Finance Ltd.

The plan appears bullish given the current fund raising climate. However, expectations of softening interest rates could help boost demand for residential housing. Even as overall economic slowdown has cast a doubt on prospects for commercial and retail property, the fund house could be betting on a bounce back in demand with interest rates peaking out.

Out of the seven funds in the planning stage, five is already on the table. These include two separate funds focused on low income housing projects besides a middle income housing fund , an asset class agnostic offshore fund besides an infrastructure fund.

Bikram Sen, chief executive officer of ArthVeda said, “In the next three years we will have asset under management of Rs 10,000 crore.”

The firm is in the final stages of planning to launch the two funds targeted at low income group housing projects. The first of these funds will be launched next month with a targeted corpus of Rs 250 crore. The fund will be raised in collaboration with Aadhar Housing Finance Ltd, the low income housing finance arm of Dewan Housing Finance. Aadhar was formed in partnership with IFC, the private investment arm of the World Bank, in February last year. The first fund will stay invested for a short term period of three years.

The second fund focused on low income housing will be a long term fund with a target size of Rs 500-750 crore. The fund raising for the second fund will happen in 2012-13.

Next month ArthVeda is also planning to launch a small offshore fund which will be open for investment in every asset class of realty sector, said Sen.

This comes after it recently launched a Rs 300 crore real estate fund, called ArthVeda Star Fund including a green shoe option of Rs 100 crore. The fund is focused towards green field projects in the middle income housing segment.

Sen said, “Around 75 per cent of the corpus of ArthVeda Star Fund will be invested in tier II and III cities and in suburbs of metros and for the rest we have flexibility but it will be dedicated to middle income housing projects only.”

He added, this fund will invest Rs 5 crore-25 crore in each project and around 34 investments will be made from this fund.  It will invest from the early stage as it is a purely greenfield focused fund and will exit the projects in three years or maximum four years.

According to Sen, ArthVeda Star Fund will manage to raise Rs 100-140 crore by the end of this month and it expects a final closure by March-April this year. Around 40 per cent of the fund’s capital is expected to come from institutions, banks, insurance trusts and rest from high net worth individuals. DHFL, the parent company will come in as an anchor investor. The fund is aiming at a gross return before expenses of more than 30 per cent.

Leveraging its parent, DHFL’s housing finance clientele in these markets, the fund has earmarked 16 cities across the country for its investments. It has already vetted and signed Memorandum of Understanding (MoU) for close to 16 projects. DHFL is tying up with a bank to provide construction finance to the developer where ArthaVeda Star Fund will invest.

Lokanathan Nadar To Head Infrastructure Vertical:

The fund house has also announced today the appointment of Lokanathan Nadar to lead the infrastructure vertical.

Nadar joins ArthVeda from Wadhawan Group, where he was CEO - Infrastructure & SEZ, where he was heading both the development of Pavana Multi Product SEZ and other Infrastructure initiatives of the group. He comes with almost 15 years of experience in the core infrastructure sector in the areas of project development & construction, conceptualization, business development, marketing and identification of new business opportunities.

“ArthVeda’s growth strategy is built around a number of verticals; we are already managing funds in the real estate vertical. With Mr Nadar joining the management of ArthVeda the company is opening up its infrastructure vertical. His wide and all round experience and in-depth knowledge of the core infrastructure sector will help us launch a series of specialized infrastructure funds,” said Bikram Sen.

Before Wadhawan Group, Nadar has worked with Sterling SEZ & Infrastructure Ltd as COO and prior to that he worked with IL&FS. Source: VCCircle

Kotak Realty Fund Invests $16M In Orris' Gurgaon Residential Project

The transaction involved issue of optionally convertible cumulative preference shares to Kotak Realty Fund.

Kotak Realty Fund has invested Rs 80 crore($16.3 million) in  Orris Infrastructure’s group housing project in Gurgaon(Haryana), a top company executive told VCCircle. The latest deal adds to the list of such residential projects in the northern belt of the country to have attracted interest from private equity funds.

A senior executive of Kotal Realty Fund privy to the deal said the investment is for the project called Orris Carnation, which is already under implementation at sector-85 in Gurgaon. “We have invested from our domestic real estate fund,” he said.

The group housing project is spread across 29 acres with a near completed residential apartment called Orris Carnation Residency. The transaction involved issue of optionally convertible cumulative preference shares or OCCPS to the realty fund.

International property consultancy Cushman and Wakefield advised Orris Infrastructure whereas Kotak Realty Fund managed the deal on its own.

Orris Infrastructure is a Gurgaon-based realty company which is owned by Vijay Gupta and apart from real estate it has interests in energy, hospitality and education.

The group has also formed a joint venture with the country’s largest property developer by market value, DLF Ltd called DLF-Orris where it will develop a 50 acre land parcel in Sector 88, Gurgaon for a commercial office space.  According to the company, it has a land bank of 1,000 acres with an estimated valuation of Rs 2,500 crore.

Kotak Realty Fund at present has assets under management of $850 million and it has fully deployed its first fund of $100 million called Kotak India Real Estate Fund I.  It has recently raised a domestic fund of Rs 523 crore.

In another deal in the same space, Sun-Apollo Real Estate Fund invested Rs 75 crore to acquire 50  per cent stake in Assotech Ltd’s group housing project spread across 12 acres in Sector -99 in Gurgaon. Few months back, India Property Fund had picked up 49 per cent stake in Ramprastha Group's housing project Skyz in sector 37D in Gurgaon for Rs 120 crore.

These PE deals comes at a time when bank funding has become costlier for developers but residential segment of real estate looks attractive for investment as the rate of interest is now peaking out. Given high suppressed demand for residential units in the Delhi NCR area, investors are betting on uptick in consumer demand for housing as housing loan rates starts retreating from current highs.

Besides these small and mid-size PE deals, the real estate sector has also seen a few large size transactions in the past one year including Ascendas India Trust acquiring a portfolio of five buildings in Phoenix Infocity Pvt Ltd’s SEZ for Rs 855 crore. Kotak Realty Fund sold Peepul Tree Properties (an IT park in Goregaon) to Tata Realty and Infrastructure Ltd and Tata Realty Initiatives Fund 1 for Rs 525 crore. Blackstone invested around Rs 875 crore to buy 37 per cent stake in Manyata Promoters Pvt Ltd and more recently the PE giant also struck another large deal where it acquired Pune SEZ of DLF and Hubtown for Rs 810 crore. Source: VCCircle