Realty, PE Cos Tap Re­fi­nanc­ing Op­tion

Move helps re­al­tors lower cost of fund­ing, of­fer ex­its to PE firms

The Economic Times - - Companies: Pursuit Of Profit -

So­bia Khan & Kailash Babar

Ben­galuru| Mum­bai: In the back­drop of fall­ing in­ter­est rate sce­nario, realty de­vel­op­ers and pri­vate eq­uity play­ers are in­creas­ingly tak­ing ad­van­tage of the re­fi­nanc­ing route to lower their cost of fund­ing and make an exit.

The trend is likely to con­tinue as cap­i­tal flows are likely to in­crease with newer fi­nanc­ing chan­nels en­ter­ing the mar­ket, en­cour­aged by pol­icy changes such as the Real Es­tate Reg­u­la­tory Act, which will im­prove trans­parency.

“The num­ber of suc­cess­ful ex­its will in­crease over the next 18 months. While of­fice cap rates will re­main the same, the av­er­age ROI ex­pec­ta­tions will ac­tu­ally de­crease in this pe­riod,” said Shob­hit Agar­wal, man­ag­ing di­rec­tor, cap­i­tal mar­kets, JLL In­dia.

In­dian real es­tate de­vel­op­ers, on an av­er­age, raise $1516 bil­lion every year from do­mes­tic as well as global sources such as banks, hous­ing fi­nance com­pa­nies, NBFCs and other in­sti­tu­tions such as pri­vate eq­uity funds via struc­tured debt in­stru­ments, he said. “Go­ing by the num­ber of trans­ac­tions han­dled by JLL, out of every 10 trans­ac­tions, seven were re­fi­nanc­ing,” said Agar­wal.

The deals are keep­ing the pitch busy for both real es­tate de­vel­op­ers and pri­vate eq­uity play­ers that are also keen on us­ing the op­por­tu­nity to in­vest in projects. The pro­pos­als for such deals from builders are on the rise.

Ac­cord­ing to JLL, of­fice real es­tate has emerged as the top as­set class for in­vest­ment, with Of­fice real es­tate has emerged as the top as­set class for in­vest­ment

Mid-level res­i­den­tial and IT/ITeS of­fice round up the top 3 as­set classes for 2017

Mum­bai & MMR, Ben­galuru and Pune are clearly the top 3 cities as in­vest­ment des­ti­na­tions mid-level res­i­den­tial and IT/ ITeS of­fice round­ing up the top 3 as­set classes for 2017. Mum­bai & MMR, Ben­galuru and Pune are clearly the top 3 cities as in­vest­ment des­ti­na­tions.

“Sig­nif­i­cant amount of ex­its in the past 18 months have been through re­fi­nanc­ing,” said Vikas Chi­makurthy, se­nior ex­ec­u­tive di­rec­tor, Ko­tak Realty Fund.

While de­vel­op­ers may be re­lieved with re­fi­nanc­ing deals, they also have their own chal­lenges as newer en­trants will en­sure their mar­gin of safety. “While we have also been con­clud­ing some deals that in­volve re­fi­nanc­ing, we have en­sured that we are step­ping in with at least 200% security cover in projects which have sub­stan­tially com­pleted con­struc­tion and are in the right lo­ca­tions.

“Typ­i­cally, this is last-mile fi­nanc­ing closer to com­ple- Pri­vate eq­uity real es­tate firms an­nounced 24 ex­its dur­ing en­tire 2016 Of these, 22 trans­ac­tions had an an­nounced value of

up com­pared to across 16 trans­ac­tions an­nounced in 2015 tion of projects, which has achieved bench­mark in terms of sales as well,” said Am­bar Ma­hesh­wari, CEO Pri­vate Eq­uity, In­di­a­b­ulls As­set Man­age­ment Com­pany.

Pri­vate eq­uity real es­tate firms an­nounced 24 ex­its dur­ing en­tire 2016. Of these, 22 trans­ac­tions had an an­nounced value of $1.02 bil­lion, up 13% com­pared to $905 mil­lion across 16 trans­ac­tions an­nounced in 2015. To­tal 13 of the ex­its were through buy­backs fol­lowed by sec­ondary sales in­volv­ing sale of stake to an­other PE in­vestor, which ac­counted for five ex­its, ac­cord­ing to data from Ven­ture In­tel­li­gence. While de­vel­op­ers may be us­ing the re­fi­nanc­ing route to lower their fund­ing costs, pri­vate eq­uity firms that had in­vested in land ac­qui­si­tion at pre-ap­proval stage may have to exit now be­cause of the fund’s ten­ure. For new en­trants, in­clud­ing non-bank­ing fi­nance com­pa­nies and pri­vate eq­uity play­ers, the sce­nario is turn­ing out to be an op­por­tu­nity as it al­lows them to en­ter these projects now with a good rev­enue vis­i­bil­ity.

Real es­tate de­vel­op­ers, on an av­er­age, raise $15-16 b every year from do­mes­tic as well as global sources

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