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Private equity funds bet on India realty

Deepthi Nair
Filed on August 20, 2015 | Last updated on August 20, 2015 at 08.21 am
Private equity funds bet on India realty
Anand Piramal.

Mumbai-based Piramal Realty, the real estate development arm of the $4 billion conglomerate Piramal Group, has emerged as the new darling of private equity investors.


Global real estate investors are returning to India, affirming confidence in the country's long-term fundamentals. As developers struggle with cash flow amid a sales slowdown, reputed private equity firms such as Blackstone Group and Warburg Pincus have placed bets on certain Indian property companies.

Mumbai-based Piramal Realty, the real estate development arm of the $4 billion conglomerate Piramal Group, has emerged as the new darling of private equity investors. After an affiliate of Warburg Pincus acquired a $284 million stake in Piramal Realty in July, Wall Street investment bank Goldman Sachs has now committed to a minority stake in the firm for $150 million.

What makes these deals unique is they are all entity-level investments. While private equity investors usually opt for project-specific investments with developers, both Goldman Sachs and Warburg Pincus have opted for stakes in Piramal Realty.

"We are excited to partner with Warburg Pincus and Goldman Sachs, two of the top 10 most respected global investors. No banks were part of this transaction. For Warburg Pincus, this is the second investment in the Piramal Group. They have had a good experience working with Piramal Healthcare in 2007," Anand Piramal, executive director of Piramal Group, told Khaleej Times in a telephone interview.

"Goldman Sachs was seeking a multi-generational relationship with us. Investors chose to infuse funds seeing our track record, good corporate governance and strategies."

Expansion

The funds will be used to expand the company's real estate portfolio and acquire marquee land plots in and around Mumbai. Piramal Realty has 10 million sqft of residential and commercial property under construction in Byculla, Thane, Worli, Mulund and Bandra-Kurla Complex, or BKC, in Mumbai.

Established in late 2011, Piramal Realty has been busy acquiring lands, drafting designs and getting government approvals for projects.

"We have a good pipeline of land plots. Since the market is facing a slowdown, it is a good time to invest in land now. We want to acquire sizeable plots with clean titles, not ones that are approval-intensive," Piramal said.

Real estate in India is synonymous with delays in getting approvals, mistrust in developers and problems in land acquisition. Under the pro-reform Narendra Modi government, there have been efforts to simpify regulations and improve business climate.

"The government is making efforts in the right direction. But reforms cannot happen overnight. For instance, the municipal commissioner of Mumbai has said that a developer needs to get 199 approvals to start construction for a project," Piramal added.

Buyback scheme

In order to counter customers' trust deficit, Piramal Realty has launched Piramal Assurance, a guaranteed buyback scheme. The company will offer to buy back any residential unit from a customer at a five per cent discount to the market value until possession should a buyer not be satisfied.

"For most customers, buying a home is their single largest and most important investment. Our 'assurance' will reduce the financial risk of purchase and provide peace of mind for customers. Customers can have the satisfaction that they can liquidate their unit in case of any emergency," said Piramal.

Meanwhile, the company will deliver a 17-acre commercial complex in BKC and a residential project in Worli Sea-Face in a year's time.

Despite market reports of an acute residential oversupply in Mumbai Metropolitan Area, including Mumbai, Thane and Navi Mumbai, Piramal Realty has launched a new mixed-use project in Thane, Piramal Vaikunth, which will feature apartment towers, townhouses, retail space, an arts complex and a spiritual learning centre.

Apartments will be priced upwards of Rs6 million and sales will be launched in the autumn of 2015.

"There is a shortage of quality real estate projects in Mumbai. Our project will be world-class. Non-resident Indians are a big market for us. We will have sales staff based out of Dubai," said Piramal.

UAE connection

Piramal Realty is using the expertise of several employees formerly based in the UAE to ensure quality of projects.

"Robert Booth, the former CEO of Emaar, is an active board member. He gives us inputs to deliver quality projects. We have other employees who have worked with UAE companies like Emaar and Limitless. They bring expertise to build world-class projects," Piramal said.

Despite its ambitions to become a real estate leader in India, Piramal Realty promoters have their sights set on Mumbai alone. "Customers' perception of the Indian real estate sector is all about overpromising and under-delivering. We are focusing only on execution. Real estate is a local game. Take a global company like Emaar, for instance. Around 80 per cent of its projects are located in Dubai. In India, developers who have gone national have struggled. We will prove that a large business can be created in one city," Piramal added.

While Indian banks are said to have tightened lending to real estate developers, Piramal Realty has the cushion of a strong conglomerate with interests in pharmaceuticals, glass packaging and financial services, among others. "We have our own debt and equity companies that lend over Rs200 billion to real estate companies. We partnered with WP and GD owing to our ability to build a great business together. But it not wise to always choose equity. A good combination is always a mix of debt and equity," he said.

Shobhit Agarwal, managing director of capital markets at JLL India, said: "The Indian economy is improving and there is now a bigger focus by the government on real estate. This has already created positive sentiments among investors. While the physical market is not behaving in the manner which was expected, investors are now finding the market attractive again over the long term. This is why they are once again keen on closing deals."

- deepthi@ khaleejtimes.com





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