Script­ing In­dian realty’s IPO re­vival Black­stone raises $9.4 bn for Asia realty, PE funds

2017­18 saw the res­ur­rec­tion of the In­dian IPO mar­ket with as many as 45 com­pa­nies re­sort­ing to rais­ing the much­needed cap­i­tal via the IPO route and about ₹82,100 crore has been col­lec­tively raised al­ready

HT Estates - - FRONT PAGE - Shob­hit Agar­wal let­ters@hin­dus­tan­times.com The author is MD & CEO ­ ANAROCK Cap­i­tal Kavya Kothiyal and Swaraj Singh Dhan­jal kavya.k@htlive.com

A decade ago (in 2007-08), prior to the global fi­nan­cial cri­sis hit­ting D-street, the In­dian ini­tial pub­lic of­fer­ings (IPO) mar­ket gave a stel­lar show with over­all ₹41,300 crore funds raised, mak­ing In­dia the 5th largest mar­ket in vol­ume and 7th largest in value terms. Then the cap­i­tal mar­kets crashed in af­ter the global eco­nomic slow­down in 2008, and the num­bers fell as low as Rs 2,030 crore.

The con­sec­u­tive years also saw a lim­ited num­ber of IPOs be­ing filed by com­pa­nies. How­ever, 2017-18 saw the res­ur­rec­tion of the In­dian IPO mar­ket. As many as 45 com­pa­nies re­sorted to rais­ing much-needed cap­i­tal via the IPO route. A record of about ₹82,100 crore has been col­lec­tively raised by these com­pa­nies - a whop­ping three- fold jump from previous years’ ₹28,200 crore and al­most dou­ble the 2007’s IPO fig­ure.

Strong do­mes­tic liq­uid­ity, the re­silient In­dian econ­omy, the surge in for­eign in­sti­tu­tional in­vestors and im­prov­ing in­vestor sen­ti­ments have pushed the IPO charts north­wards.

IN­DIAN REALTY - PRE AND POST GLOBAL RE­CES­SION

Prior to the global fi­nan­cial apoc­a­lypse that shook the world in­clud­ing In­dia, the real es­tate sec­tor was at its peak. Till then, the wave of fi­nan­cial lib­er­al­iza­tion al­lowed banks to give credit to large-scale bor­row­ers – re­sult­ing in asharp rise in for­eign cap­i­tal in­flows and do­mes­tic liq­uid­ity.

Post-2013, the story changed and the previous roar of In­dian real es­tate first sank to a mur­mur - and then, more or less, fell silent. The liq­uid­ity crunch cou­pled with high in­fla­tion and ex­e­cu­tion de­lays com­pelled hous­ing buy­ers to post­pone their pur­chase de­ci­sions. This nat­u­rally im­pacted hous­ing sales and prop­erty prices, leav­ing devel­op­ers with huge piles of un­sold in­ven­tory.

Bat­tling mas­sive neg­a­tive cash flows, many devel­op­ers also failed to de­liver their promised projects. Things wors­ened when high-risk pro­vi­sion­ing was as­signed to the real es­tate sec­tor when var­i­ous realty firms ei­ther de­faulted or faced bank­ruptcy. Banks be­came re­luc­tant to lend to devel­op­ers as they were al­ready bur­dened with non-per­form­ing as­sets (NPAs).

IPOs as an al­ter­nate source for cheap cap­i­tal also slowed down be­cause of weak­ened con- sumer sen­ti­ments to the back­drop of de­te­ri­o­rat­ing builder rep­u­ta­tion who failed to live up to their prom­ises, caus­ing buy­ers to feel the brunt of de­layed de­liv­ery of projects.

Many builders then re­sorted to over­seas fund­ing, pri­vate lend­ing and qual­i­fied in­sti­tu­tional place­ments (QIPs) which al­lowed only listed com­pa­nies to raise funds, and non-bank­ing fi­nance com­pa­nies (NBFCs) which charged steep in­ter­est rates.

DE­CI­PHER­ING THE BSE REALTY IN­DEX

The BSE Realty in­dex which re­flects the per­for­mance of the top-listed real es­tate play­ers was at its peak un­til 2008. Af­ter that, the in­dex wit­nessed a slump due to weak macroe­co­nomic con­di­tions, ris­ing un­em­ploy­ment and de­clin­ing real es­tate de­mand. How­ever, the re­cent spate of re­forms in­clud­ing DeMo, RERA and GST have helped the mar­ket con­di­tions im­prove due to in­creased trans­parency and ac­count­abil­ity. With this, the realty in­dex also seems to be head­ing north now.

Till date, around 16 pri­vate realty play­ers and two Govern­ment-owned real es­tate com­pa­nies have opened their shares to the pub­lic. Of this, DLF(is­sued in 2010) owns the high­est is­sue size of ₹9,000 crore till date. In the con­sec­u­tive five year pe­riod, from 2011- 16, there were no large-scale IPOs is­sued by big real es­tate play­ers.

The re­cent IPO fil­ing by the Govern­ment-owned Hous­ing and Ur­ban De­vel­op­ment Cor­po­ra­tion (HUDCO) in May 2017 and Na­tional Build­ings Con­struc­tion Cor­po­ra­tion Lim­ited (NBCC) in April 2018 re­ceived man­i­fold sub­scrip­tion due to their di­verse busi­nesses. While HUDCO em­pha­sizes fi­nanc­ing ur­ban in­fra­struc­ture and hous- ing, NBCC has a hard fo­cus on civil con­struc­tion projects, civil in­fra­struc­ture for the power sec­tor, and real es­tate de­vel­op­ment.

REALTY IPOS GAIN­ING MO­MEN­TUM

To the con­sid­er­able re­lief all stake­hold­ers, the strug­gling real es­tate sec­tor is now sta­bi­liz­ing to some ex­tent. As a re­sult, real es­tate IPOs are also gain­ing mo­men­tum. Re­ports sug­gest that Mum­bai- based Lodha Devel­op­ers Lim­ited, Thanebased Pu­ranik group and Ben­galuru-based VBHC Value Homes are plan­ning to raise funds through pub­lic of­fer­ings.

One pre­dom­i­nant fac­tor con­tribut­ing to this spurt is the im­prov­ing eco­nomic pa­ram­e­ters, in­clud­ing GDP growth rate. Also, RERA im­ple­men­ta­tion in 2017 raised the con­fi­dence of in­vestors and end-users of real es­tate. Af­ter decades of dis­or­ga­nized ec­cen­tric­ity, the In­dian real es­tate sec­tor is trans­form­ing into an or­ga­nized one, with im­prov­ing trans­parency and ac­count­abil­ity pro­vid­ing a new ray of hope.

GOOD TIMES AHEAD?

Look­ing at the record-break­ing num­ber of IPOs in 2017-18, the cur­rent fis­cal is also likely to re­main ro­bust with num­bers sug­gest­ing that In­dia Inc may col­lec­tively raise over Rs2,00,000 crore in equity an­d­e­quity-linked of­fer­ings – and IPOs take cen­trestage. Real es­tate IPOs, which had taken a back­seat over the last few years, are once again get­ting ready to ride the re­vival wave.

ANAROCK’s re­search also clearly high­lights the in­creas­ing real es­tate ab­sorp­tion mo­men­tum with a Q-o-Q rise in hous­ing sales across the top 7 cities. The stage is set and the ac­tors are primed for a mas­sive IPO push over the next few years. MUM­BAI: US pri­vate equity (PE) be­he­moth Black­stone Group Lp on Wed­nes­day said it has raised $9.4 bil­lion for two Asia-fo­cused pri­vate equity funds, sig­nalling the in­creas­ing fo­cus of the global pri­vate equity in­dus­try on Asia.

Black­stone closed its first Asia pri­vate equity fund at about $2.3 bil­lion, while it sep­a­rately raised $7.1 bil­lion for its sec­ond re­gional “op­por­tunis­tic” real es­tate fund, the New York-based firm said in two sep­a­rate state­ments.

The de­vel­op­ment holds ma­jor sig­nif­i­cance given that this is the first time that Black­stone has raised a ded­i­cated PE fund for Asia. Un­til now, it had been in­vest­ing in Asia from its global buy­out funds.

“We are thank­ful for our in­vestors’ sup­port and be­lieve we are well-po­si­tioned to seize the on­go­ing op­por­tu­ni­ties in Asia. The re­gion con­tin­ues to ex­pe­ri­ence strong growth com­pared to other ma­jor mar­kets, pre­sent­ing com­pelling in­vest­ment op­por­tu­ni­ties across sec­tors,” Joe Baratta, Black­stone’s global head of pri­vate equity, said in a state­ment.

Black­stone man­ages ap­prox­i­mately $ 111 bil­lion of as­sets un­der its pri­vate equity busi­ness.

With the re­cent fund rais­ing, the US-based firm has joined the league of other global PE firms such as KKR & Co., Car­lyle, TPG and Bain Cap­i­tal, which ei­ther al­ready have ded­i­cated Asia funds or are rais­ing one.

In 2017, KKRraised$9.3 bil­lion for its lat­est Asia ded­i­cated PE fund. Last month, Reuters re­ported that Car­lyle was set to make a $6.5 bil­lion fi­nal close for its new Asia buy­out fund. Ear­lier, Reuters had also re­ported that Bain Cap­i­tal was look­ing to raise $4 bil­lion for an Asia buy­out fund.

The in­ter­est of top PE firms to raise larger Asia ded­i­cated funds sig­nals a ris­ing in­ter­est in appe- tite to close ma­jor buy­outs in the re­gion.

Re­cently, TPG said that it will be sell­ing In­dian re­tail chain Vishal Me­gaMart­toa­con­sor­tiu­mof PE firms Kedaara Cap­i­tal and Part­ners Group for around ₹5,000 crore.

In 2016, Black­stone it­self was in­volved in one of the largest buy­out deals in In­dia when it ac­quired a ma­jor­ity stake in IT ser­vices firm Mpha­sis Ltd for close to $1 bil­lion. In April, Mint re­ported that Black­stone was buy­ing out Chen­nai-based auto com­po­nent maker Com­star Au­to­mo­tive Tech­nolo­gies Pvt. Ltd for around₹1,000 crore. In­dia will con­tinue to re­main a top pri­or­ity for Black­stone, which has in­vested around $7.5 bil­lion in In­dia till date, across real es­tate and pri­vate equity.

In April, Mint re­ported that Black­stone is likely to in­vest about 60% of its maiden Asia-fo­cused fund in In­dia. Black­stone is ex­cited about the growth in China and In­dia and the open­ing of Ja­pan to for­eign cap­i­tal,

STRONG DO­MES­TIC LIQ­UID­ITY AND SURGE IN FOR­EIGN IN­STI­TU­TIONAL IN­VESTORS HAVE PUSHED THE IPO CHARTS NORTH­WARDS BLACK­STONE MAN­AGES AP­PROX­I­MATELY $111 BIL­LION OF AS­SETS UN­DER ITS PRI­VATE EQUITY BUSI­NESS

Jonathan Gray, Black­stone’s pres­i­dent and chief op­er­at­ing of­fi­cer, said in an in­ter­view to Bloomberg.

The real es­tate fund too is a ma­jor mile­stone for Black­stone, given that it is the largest Asi­afo­cused real es­tate fund from the Amer­i­can PE in­vestor.

“The size of this fund gives us flex­i­bil­ity to pur­sue a range of op­por­tu­ni­ties and com­mit cap­i­tal with speed and scale,” Ken Ca­plan, global co-head of Black­stone Real Es­tate, said in a state­ment.

The­firm’s real es­tate busi­ness was founded in 1991 and has about $ 120 bil­lion in cap­i­tal un­der man­age­ment glob­ally. The port­fo­lio in­cludes ho­tel, of­fice, re­tail and in­dus­trial prop­er­ties in the US, Europe, Asia and Latin Amer­ica.

Black­stone is the big­gest in­vestor in In­dian of­fice space.

In March, Mint re­ported that Black­stone’s real es­tate arm is close to com­mit­ting $5.1 bil­lion across 30 real es­tate in­vest­ments, of which $3.7 bil­lion is in of­fice space span­ning 100 mil­lion sq. ft, con­sol­i­dat­ing its po­si­tion as the coun­try’s largest of­fice space in­vestor. Black­stone, in March, signed a de­fin­i­tive agree­ment with In­di­a­b­ulls Real Es­tate Ltd to buy a 50% stake in the lat­ter’s prime of­fice as­sets in Mum­bai for around $730 mil­lion.

MINT/FILE

Many devel­op­ers also failed to de­liver their promised projects due to neg­a­tive cash flows

BLOOMBERG

Black­stone closed its first Asia PE fund at $2.3 bil­lion

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