Blackstone’s India IPO confronts rate jitters
About two years after Blackstone Group LP registered India’s first real estate investment trust, the private equity giant is close to taking it public. Rising interest rates threaten to get in the way.
Blackstone and local partner Embassy Group plan to file a prospectus for an initial public offering (IPO) of the Reit as early as next month, a deal that may raise as much as $1 billion, people with knowledge of the matter said. Even so, the listing could be delayed should investors demand a higher-than-expected yield, according to the people, who asked not to be identified as the information is private.
A successful listing of Blackstone’s Reit would send a hopeful message to India’s cash-starved property companies, who are still recovering from sweeping policy changes over the past two years and struggling for new loans. Rising returns from safe instruments such as government bonds are pushing investors to seek higher payouts from riskier ones such as Reits.
Investors may demand yields as high as 15 per cent to subscribe to the Blackstone offering, said Devendra Singhvi, Mumbai-based head of fixed income at Aditya Birla Sun Life Insurance. That is almost double what 10-year government bonds yield.
Blackstone’s Reit is focused on commercial real estate and is said to include properties that count Rolls Royce Holdings Plc and Microsoft Corporation as tenants. This could render it less vulnerable to rising rates given that India’s seeing a revival in the commercial segment of the property market.
Demand for office space grew 23 per cent year-on-year in the first quarter of 2018 after a 5.7 per cent gain the same period last year, data from Colliers International show. Appreciation of a Reit’s underlying assets, together with the yield, would boost total returns for investors.
Holding a REIT unit for 10 years may generate returns as high as 15 per cent annually, said S Sriniwasan, MD of Kotak Investment Advisors. “There will be good demand from evolved and patient investors who understand the yield-plus growth fundamental driving the total return that this product offers."
A Blackstone representative declined to comment. Business Standard had previously reported about a possible listing.Reits have been in the making for about half a decade in India, as the regulator kept tweaking rules. Source: Bloomberg