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
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.
Many developers also failed to deliver their promised projects due to negative cash flows
Blackstone closed its first Asia PE fund at $2.3 billion