In January, Parsvnath had announced plans to monetise the KG Marg land, which it had bought for Rs 200 crore in 2008. Parsvnath, which is eyeing about Rs 700 crore from sale of this land, got the building plan approved from local authority last week and potential buyer can start construction on the land immediately after the deal, sources said.

“The first round of bidding and due diligence have been already completed. The process will be expedited now as the company was waiting for the building plans approvals before it starts negotiation with potential buyer,” a source, who is involved in the process, said. Sahara Group, ICICI Bank, Bhushan Steel, Bharti Realty, private equity firm Red Fort Capital, rice company Shri Lal Mahal and one leading realty firm from NCR have shown interest in buying this land, sources said, adding that Parsvnath had got bids up to about Rs 700 crore in the first round of bidding.

When contacted, Parsvnath Developers Chairman Pradeep Jain said: “The process for sale of this land is on. We cannot comment any further.” Property consultant Jones Lang LaSalle India is helping Parsvnath in this deal. The built-up area allowed on this prime land is about 1.5 lakh sq ft with 300 car parking. Realty consultant said that prime office buildings near CP are currently commanding a monthly rental of 350-400 per sq ft.

Although Jain did not give any timeline for completion of this transaction, sources said that the deal could be closed in this quarter. Parsvnath has a net debt of about Rs 1,200 crore and plans to reduce it to about Rs 500 crore by utilising the proceeds from sale of this prime property. The company has two housing projects and several shopping malls at metro stations in the National Capital. It is setting up an office building near Gole Market here with an investment of Rs 300 crore.

That apart, Parsvnath had bought in 2010 a 38 acre of land near Sarai Rohilla from the Railways for Rs 1,651 crore, making it the second biggest land deal in Delhi. The company, in partnership with Red Fort Capital, plans to provide luxury housing and commercial space in this project. Parsvnath, which has a land bank of about 200 million sq ft across the country, had received private equity funding from Sun Apollo and JP Morgan in some other projects in NCR.

May 06, 2010

It has been known through some sources that by the end of this month, the venture capital firm promoted by ICICI Bank, the ICICI Venture is expected to launch a fund of Rs 1,000-crore for the domestic realty to invest in country’s residential projects.

The plans are to end the fund in six to twelve months and then invest in top 5-7 cities. Also, some sources revealed that it was looking forward to launch by the end of this year, an offshore fund.

The president, real estate, ICICI Venture, Sanjeev Dasgupta, confirmed the development. However, he said that the exact amount which is to be raised is not yet fixed. The current fund of ICICI Venture in offshore and domestic real estate funds is 550 million dollars.

However, small projects are the choice of Dasgupta since exit from them can be faster.

The market for loan securitization was Rs 31,000 crore, of which real estate loan securitization accounted for 20% of the total market as on March 2008. Both ICICI bank and the State Bank of India refused to comment.

It is allowed to a bank or a NBFC to sell the loan as a securitized paper. Mutual funds are the major buyers of these papers, return on which is linked to the rating of the loan. Following the securitization, loan disappears from the balance sheet of the banks or NBFCs, who in turn communicate to the borrowers that their loan has been sold to an investor.

From borrower’s point of view, it could mean lesser disclosure. Borrowers then keep repaying to the Special Purpose Vehicle (SPV) where such paper is parked instead of the bank or NBFC. Banks make good the spreads between lending at a certain tenor to selling the loan for a higher yield. Rajiv Shastri, Lotus MF said, “We have been very wary about these loans from the very beginning, primarily because they didn’t offer high asset cover-age. Most papers floating in the market offered one-and-a-half times asset coverage, which is nothing if prices start falling. Last November-December, we just took two papers, which offered us a coverage of 3-4 times”.

Debt funds from the houses of Reliance, DWS and HSBC have been fairly aggressive in buying real estate loans. Reliance MF CEO Vikrant Gugnani said, “We are more cautious in today’s conditions like anyone else. We have always been conservative in our investment policy and we remain so”.

BNP Paribas Chief Investment Officer (CIO) Mr. Ram Kumar said, “If it is a loan taken by a big realty company, the rating will be higher and there are more buyers for such papers. But we treat these investments like any other paper, although they are illiquid. We do not invest in them anymore. We did, two years go”. Many other fund managers too have changed their stance now.

For over two years now, the RBI has raised the risk weight for commercial real estate loans to 150% in addition to issuing guidelines on multiple occasions to banks to limit their exposures to the sector. Nevertheless, real estate loans form only a small part of most banks’ balance sheets, thus allowing them to continue financing real estate assets.