Tuesday 20 March 2018

Bollywood developer goes on the lookout for private equity investment for India deals

Residential and commercial buildings stand in the Marina beach area in Chennai, India
Residential and commercial buildings stand in the Marina beach area in Chennai, India

Pooja Thakur

A developer of luxury condominiums in one of Mumbai's popular business districts is seeking private equity funds to buy distressed assets from rivals reeling under record debt.

Sunteck Realty, whose clients include Bollywood stars such as Aishwarya Rai and Sonam Kapoor, is in talks with investors as it sees acquisition opportunities similar to those that followed the 2008 collapse of Lehman Brothers Holdings Inc., Chairman Kamal Khetan said in an interview.

"Developers with huge debt are in pain with high interest rates and servicing debt is a struggle for many," he said in an interview from his Mumbai office.

"We can use this to our advantage, we will use our strong balance sheet to grow the company double or triple from here."

Many Indian real-estate companies, grappling with a funding squeeze, are turning to private equity as lenders struggling to pare bad loans shun more risk.

Sunteck is among those real estate companies that emerged relatively unscathed from the global meltdown and also from a domestic slowdown, even as bigger rivals found themselves holding excess inventory amid dwindling sales and were unable to shift their properties when they needed to do it quickly.

Home sales in India's top six property markets fell 8 percent in the quarter through March from a year earlier, according to research firm Liases Foras, which estimates it will take at least 46 months to find buyers for unsold homes in Mumbai alone.

Some of India's largest developers have seen debt surge more than two thirds as mortgage interest rates which are currently in the region of 10pc continue to deter buyers. Debt at Godrej Properties Ltd. climbed 63pc to 27.64 billion rupees (€401 million) in the quarter through March 31 from a year earlier, while DLF Ltd., India's biggest, saw its net debt increase my an estimated 7.7pc to 209.7 billion rupees.

Stressed assets accounted for 11.1pc of loans in the country's banking system as of March 31.

That is the highest level in the last 13 years, with levels not seen since 2002, official data shows. Sunteck, with a net debt at 9.6 billion rupees as of March 31, said it will take advantage of its relatively better balance sheet to acquire assets, Khetan said.

The Mumbai-based company plans to build condominiums and offices after purchasing the assets, and may lend its brand to help complete projects that are stuck, he said. It may even develop property jointly with the existing builder, he said.

Funds are chasing commercial properties more for better returns, and Sunteck may look to double the share of its office and retail assets to about 40 percent and cut residential assets from 80 percent if there is increased demand, Khetan said.

His aim is to boost rental income from yield generating commercial assets 10-fold to 2 billion rupees in the next three to four years.

Even as Khetan expects higher prices for his condominium projects, Pankaj Kapoor at consulting firm Liases Foras Real Estate Rating & Research says high-end home sales will remain subdued over the next few years and prices will stagnate.

"The luxury residential market will remain slow for the next two to three years," said Kapoor, founder of Liases Foras.

"We will see a time correction even as sales start to pick up."

Private-equity property funds disclosed 64 investments last year in India, of which 54 had a combined value of $2 billion, according to data from Venture Intelligence. The number of transactions was 14 percent higher than the 56 investments, with 52 disclosed deals valued at $1.86 billion in 2013.

Warburg Pincus said last month it will invest 18 billion rupees in Piramal Realty Ltd. Sunteck has private equity investments from Kotak Alternate Opportunities (India) Fund.

Sunteck, whose cost of borrowing is about 12 percent, will look for strategic partners to grow without raising its debt levels, Khetan said.

Shares of the company dropped 6.2pc Tuesday, extending this year's loss to 8.6pc versus an 11 percent drop in the S&P BSE India Realty Index comprising 13 stocks.

"We now feel there are lot of distressed assets in the market so we can grow the company to a different level, but we will require capital," Khetan said. "We will look to cut our debt levels further and still do acquisitions with our strong cash flows." (Bloomberg)

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