With the Reserve Bank of India (RBI) restricting banks from investing in real estate, developers are looking abroad to raise money.
Their valuations touching all-time highs, many firms are making a beeline for the London Stock Exchange’s (LSE’s) Alternative Investment Market (AIM) that allows smaller companies to raise money.
On Tuesday, the CL Raheja-promoted K Raheja Corp’s property investment company, Ishaan Real Estate, raised $341 million (Rs 1,534 crore) on AIM. The fund, that includes such assets like InOrbit and Mindspace, has an option to sell 15 per cent more. Ishaan will invest in eight select properties of Rahejas, who will retain 60 per cent of these properties.
The first to spot the opportunity was Trinity plc, which raised $460 million (Rs 2,069 crore) in April. Trikona Capital, Trinity’s asset management firm, has been promoted by two US-based finance pros, Rakshid Chugh and Aashish Kalra, who plan to plough over a billion dollars in equity into India’s real-estate sector through two funds launched in the US and UK. The other one is a private equity fund.
Trinity’s success has caught the imagination of several developers, who are making a beeline for AIM.
At least two other IPOs are in the pipeline — the Jatias-promoted Westfield Pioneer Properties that is cobbling together a $50 million fund (Rs 225 crore) on AIM, while Priya, daughter of developer Niranjan Hiranandani, is structuring a $700 million (Rs 3,149 crore) fund to develop a slew of projects.
“People pick up money where it is easily available and reasonably cheap,” said an investment banker requesting anonymity. Foreign investors feel real estate here is cheap, say bankers. And with raise money abroad, their cost of capital can go down.
Foreign investors have taken a fancy to India as the timing of liberalising foreign direct investment norms last March synchronised with the fall in realty returns in the US and Europe.
Unlike in private equity where they are locked in for a period, investors here can exit at will once the fund is listed. This route also allows investors to participate in an unlisted company, as well as at the project level, as the Rahejas have demonstrated.
But experts advise caution: "AIM is not the most sought-after exchange and requires lower level of disclosures than in India, Singapore or the main market on the LSE,” said a banker.
"So, while the big names will take care of investors, there could be many other firms that could raise money and vanish," warned another investment banker.