Saturday, January 17, 2009

Hunting for private equity

For now, several domestic and international PE firms have lined up to buy stake in real estate projects and SEZs, including Goldman Sachs, Deutsche Bank, Blackstone, Lehman Brothers, Kshitij Real Estate Funds (a Pantaloon Group company), HDFC Realty, and so on.

According to a source, DLF’s subsidiary DAL (DLF Assets) is in discussions with global investment company TPG (Texas Pacific Group) and Mumbai-based investment firm JM Financial to raise over Rs 2,500 crore.

Unitech Ltd, the second largest realty firm in the country, is looking to raise about Rs 28,000 crore ($560 million) from PE funds, for which company is in continuous talks with several agencies.

The company already has a debt of over Rs 8,000 crore, which it has to repay by March 31, 2009. The company is facing tough times as it has lost over 93 per cent of its market value in the last 12 months. According to Fitch Ratings, the management of Unitech is in talks with several banks and is expected to raise Rs 900 crore from them.

According to an insider, the company is in talks with PE funds to raise Rs 15,000 crore at the corporate level and as much as Rs 7,400 crore for specific projects.

Striding with caution:

According to market experts, as the demand for real estate is sluggish, and the projections by builders on selling price and swiftness of sales are also on the negative side, PE funds too are treading with caution.

Jain of DTZ assumes that the situation would get even more demanding in the next few months on account of the downturn in the market. “But this also offers a great opportunity for PE investors to look at the real estate industry again,” he says. “Also PE should not always be considered as a substitute for debt, as it comes at a much higher cost than debt. However, as debt has become difficult to arrange today due to the reduced lending from the financial institutions, developers are looking for other alternatives.”

Moreover, as the real estate sector has a long gestation period and does not show results in less than two to four years, PE funds too need to come in with a long-term investment horizon. “This should be a good time for PE firms to start evaluating deals,” says Jain.

To read more, please, visit - Praveen K Singh-IndianExpress

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