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Indian RE sector over the last few months has seen a surge in private
equity (PE) deals. Additionally, a number of sector focused private equity
funds (esp. domestic) have announced new capital raising plans for future
deployment. As per news reports (Source: ET), deals aggregating over
~US$800M have happened till date in CY11 (see inside for details) and it
seems there is additional money on the sidelines to be deployed. At first
instance, this seems surprising given equity markets at the moment have
an aversion for the sector. However, tightening liquidity for developers
from debt markets, non-reliance on vagaries of public markets for an exit
and asset backed nature of the investment means a near perfect
opportunity for PE to generate double digit returns here with controllable
risks. All this makes us wonder if our cost of capital (WACC) assumptions
(around 16-18%) esp. for mid size developers is understated. Looking at
recent transactions we see the following key trends:
Where is the money going? – Preference seems to be for (a) mid sized
developers (both listed/unlisted) where debt funding is difficult to come
by; (b) Residential projects– A clear preference among PE players
seems to be for residential asset class as it provides an exit route
irrespective of public market valuations; (c) Metro/Tier 1 cities
including Mumbai, NCR, Pune, Chennai, Bangalore.
Vs 07/08 , new money is trying to play safe with deals happening in
projects where land acquisition/ approval risks have been substantially
mitigated. This vs. 2007 when most of the money was used for land
buying. Off late there a new encouraging trend seems to be happening
whereby funds are picking up stakes in completed income generating
assets (Milestone, Tata Realty, etc).
Historically SPV financing has been preferred but no aversion to
“entity” now given a sharp climb down in valuations. A number of mid
size developers who couldn’t raise money from equity markets over last
two years may be looking at this route to cater to their financing needs
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Indian RE sector over the last few months has seen a surge in private
equity (PE) deals. Additionally, a number of sector focused private equity
funds (esp. domestic) have announced new capital raising plans for future
deployment. As per news reports (Source: ET), deals aggregating over
~US$800M have happened till date in CY11 (see inside for details) and it
seems there is additional money on the sidelines to be deployed. At first
instance, this seems surprising given equity markets at the moment have
an aversion for the sector. However, tightening liquidity for developers
from debt markets, non-reliance on vagaries of public markets for an exit
and asset backed nature of the investment means a near perfect
opportunity for PE to generate double digit returns here with controllable
risks. All this makes us wonder if our cost of capital (WACC) assumptions
(around 16-18%) esp. for mid size developers is understated. Looking at
recent transactions we see the following key trends:
Where is the money going? – Preference seems to be for (a) mid sized
developers (both listed/unlisted) where debt funding is difficult to come
by; (b) Residential projects– A clear preference among PE players
seems to be for residential asset class as it provides an exit route
irrespective of public market valuations; (c) Metro/Tier 1 cities
including Mumbai, NCR, Pune, Chennai, Bangalore.
Vs 07/08 , new money is trying to play safe with deals happening in
projects where land acquisition/ approval risks have been substantially
mitigated. This vs. 2007 when most of the money was used for land
buying. Off late there a new encouraging trend seems to be happening
whereby funds are picking up stakes in completed income generating
assets (Milestone, Tata Realty, etc).
Historically SPV financing has been preferred but no aversion to
“entity” now given a sharp climb down in valuations. A number of mid
size developers who couldn’t raise money from equity markets over last
two years may be looking at this route to cater to their financing needs
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