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Private equity tap runs dry for realty firms

Pvt equity firms have of late turned wary of investing in realty companies whose shares have been hit by a worldwide slide in stock prices. Arun Kumar reports.

india Updated: Apr 14, 2008 02:40 IST
Arun Kumar

Private equity firms, which were once hot on Indian real estate, have of late turned wary of investing in realty companies whose shares have been hit by a worldwide slide in stock prices. Placement deals worth between Rs 15,000 crore and Rs 20,000 crore by Indian realty firms have been put on the hold, according to investment bankers tracking the matter.

“Although investors are willing to renegotiate prices, the companies cannot make any placement because regulations do not permit them,” said Yogesh Kapur, vice-president at Enam Financial.

The Securities and Exchange Board of India prohibits listed companies from making private placements at prices below the average for six weeks or six months, whichever is higher.

Shares of most real estate companies in India have fallen by over 30 per cent since the latest slide in global stock markets began in mid-January.

Companies like Unitech., Akruti Nirman, Parsvanth Developers and TDI are in the process of raising resources through equity placements. Akruti Nirman, for instance, was planning to raise $375 million from AIG and Citigroup. The deal was called off earlier this month. These companies are now looking to raise money from private equity funds and others for specific projects though the so-called special purpose vehicles.

“SPV-level investments are easy to monitor,” Kapur said. “Since these projects are time-bound, it also gives them (the investors) a visible timeframe for exiting from the deal and insulate them from the vagaries of stock market fluctuations,” he added.

Unitech was in the last leg of its road show to raise $1 billion in January but had to put off the deal. Sources said the company was now in talks with Lehman Brothers to raise $500 million for its two Mumbai projects. Lehman Brothers is expected to pick 50 per cent stake in these projects.

Sanjay Chandra, managing director of Unitech, refused to comment on the issue. “We are in discussions with private equity firms to raise funds for the Mumbai projects. But nothing is finalised,” he said.