Real estate funds, PE players and foreign institutional investors are exploring options to buy equity stakes in listed realty companies, as valuations of these companies have fallen by over 65% during the past three months.
The move has also come as a blessing in disguise for these realty companies who have been finding it difficult to source funds after the RBI tightened lending norms to property developers following a global liquidity meltdown. Sources said that funds floated by majors such as HDFC, ICICI, Kotak and Anand Jain’s Urban Infrastructure Opportunities Fund as well as foreign funds are in talks with listed real estate developers to pick up minority stakes.
Although domestic real estate funds have raised over $2 billion during the past year, a major chunk of these funds is yet be invested. So, most real estate companies are keen to close such deals with the funds.
Mumbai-based Lok Housing chairman Lalit C Gandhi said, “There are 4-5 such proposals that we are working on. No deal has been finalized yet”. The company is in the process of raising around Rs 1,800 crore from the market. Interestingly, foreign institutional investment in various companies has also been on the rise since March.
Companies such as Orbit, IVR Prime, Kolte Patil and Peninsula Land have seen an increase in FII holdings, with IVR Prime and Orbit recording the highest such increase in institutional holding by over 1%.
Private equity interest in real estate companies has also revived as the slowdown in the economy has beaten down valuations, which were once quoting triple digit price earnings multiples when the market was at 21,000. Private equity players are now shifting focus from special purpose vehicle (SPV) investments in individual projects to entity-level investments. The fact that most of these real estate stocks have high promoter holding could leave scope for some equity participation by these private equity players.
Promoter holding in various companies has been going up sharply. Puravankara Projects and Akruti City have 89.96% promoter holding. If DLF was to go ahead with its entire buyback, it could have one of the highest promoters holding of 89.3%. DTZ director investment Amber Mahasweri said, “We are working on a few of such proposals. Though promoters are asking for a premium, many funds are keen to invest in the entity level”. DTZ is an international property consultant.
Many developers have also admitted that the investment bankers are also approaching them with proposals. “In the last two months, we have received as much as 12 proposals from PE players to pick equity stake. We are yet to come to any decision,” said Orbit Corporation head finance and strategy Ram Yadav. Realty stocks have fallen 65% from their 52-week high market capitalization. Companies like Parsvnath and Omaxe have already fallen by about 79% and 77%, respectively.
