Six real estate companies, all set to raise over $2.9 billion or Rs 13,000 crore through the capital market, have postponed their plans till the middle of next year.
Industry experts have blamed the LIC scam for bringing down the interests of foreign and domestic institutional investors in public offers. For some, the government and market regulator the Securities and Exchange Board of India (SEBI) played spoilsport.
Developers such as Embassy Group, Lodha Developers, Emaar MGF and Raheja are not risking their initial public offerings (IPOs) and would be hitting the market only mid next year, sources say. While controversies do not seem to be ending for Sahara Prime and Lavasa whose IPOs, if they see the day of light, will only be able to raise liquidity through the primary market by next year middle. The total amount to be raised by these developers amounts to R13,000 crore.
No developer, however, acknowledged that the delay was due to controversies surrounding the sector.
“Yes we had plans to raise funds by December but SEBI has still not given us the permission, and even if they do, we will only be able to raise money by December. We will be coming out with our IPO around March next year,” said Sandeep Subramanya, general manager, corporate finance, Embassy Group. The Bangalore-based realty group had plans to raise R2,400 crore of which a substantial part was to be raised through pre-IPO placement. However, domestic investors and some high net-worth individuals with whom the company was negotiating, has asked for some time till “the volatility reduces”, a person familiar with the development said.
According to investment bankers, institutional investors are adopting a cautious approach when it comes to real estate.
“Investors will stay away from realty IPOs for at least three months, unless one more scam is unearthed. We hope that the appetite for the sector will improve next year, but that too cannot be generalised for all real estate firms,” said an investment banker with a multinational bank.
“The market condition was volatile and we have decided to wait till the situation stabilises. Although we have never announced when we will hit the capital market, so there is no question of postponing the IPO,” said Abhisheck Lodha, managing director, Lodha Group. Lodha Developers is looking to raise R2,800 crore.
Emaar MGF, the joint venture between MGF of India and Emaar Properties of Dubai, too has postponed the issue, and reportedly reduced its issue size by around 40% to R1,600 crore. Hindustan Times had recently reported that the company was forced to postpone its hospitality expansion plans. The company did not respond to queries about its IPO.
However, given the situation inside the company and outside in capital market, it would be tough for the company to raise the amount at least by mid next year, said a person close to the development.
For many developers liquidity is going to be a problem. After the LIC scam, banks have tightened the loan outflows.
And as capital market too is not a favourable place for some time, developers may opt to reduce prices of their properties to improve cash flows. “Its’ not just about FIIs and DIIs, even the retail investor will stay away from realty IPOs,” said the banker.