#Joint investments helping boost #realestate deal sizes Mumbai: Financial services companies are striking larger deals with realty developers than in recent years by getting group firms to invest in or lend to them jointly. Last week, India Infoline Ltd (IIFL) entered into a deal to invest Rs.350 crore in Wadhwa Group’s slum redevelopment project in Chembur, Mumbai. Three IIFL entities—its non-banking financial company (NBFC), its first real estate sector fund and another fund it recently raised—collaborated to put in most of this money. It raised the balance from other wealthy individual clients. In May, two IIFL group firms—the real estate fund and the new fund—invested Rs.110 crore in a residential project in Ghaziabad being developed by Shipra Group. Such joint deals involving group firms enable not only larger but also more lucrative transactions, said Balaji Raghavan, chief executive of the IIFL real estate fund. “Such arrangements also give an opportunity to the clients to participate,” he said. Large transactions provide much relief for real estate firms, coming after years of them having to be satisfied with small investments or loans while they struggled for capital in a sluggish economy. Many developers are looking to raise money to pare debt, buy land or finance the construction of their projects. For the financial services companies, joint deals serve to limit the lending exposure of their group companies, but analysts say this will work well only when there’s good synergy between these entities. Private equity (PE) funds have become more conservative and cautious while lending to or investing in real estate firms, by restricting deal sizes and spreading their risk by doing more transactions. These funds are also striking more debt financing deals with fixed returns, rather than investing in equity. NBFCs, on the other hand, have only gained in importance in lending to developers and become a preferred channel of borrowing capital. Earlier this year, two Kotak group companies put in Rs.170 crore together to back Runwal Group’s acquisition of 150 acres in Dombivali, suburban Mumbai. Kotak Mahindra Bank Ltd’s NBFC provided Rs.100 crore of debt and Kotak Realty Fund struck a Rs.70-crore deal. While these were treated as individual deals, the group firms had collaborated for the transaction. “Kotak hasn’t done similar deals in real estate in the past, but it is certainly possible that it would do them going forward,” said a company executive, who didn’t want to be named. Such joint deals will be the trend as individual financial firms don’t want to take on much exposure to India’s volatile realty sector, said T.R. Srinivas, managing director, O3 Capital. “Clients (of these financial firms) would also get some comfort if they see that the firms themselves have put in their own money. The combined fee income would also be far higher in such transactions,” said Srinivas. A Bangalore-based realty firm is in the process of arranging capital from two group firms of a Mumbai-based financial services company. The developer had initially approached the NBFC for a Rs.150 crore debt, but since the lender didn’t want to write a big cheque, it brought in a group entity for the balance capital requirement, said an executive with the developer, declining to be identified. “From the investee point of view, it doesn’t matter whether the money has come in from a single or two sources as long as there is synergy among them,” the executive said. Such joint transactions also expand the lending portfolio of investors, particularly when they have the same skill-set to understand the credit risk, said Ambar Maheshwari, managing director-corporate finance, Jones Lang LaSalle India, a property advisory. “So while some of the lending will happen from their own books, some of them will underwrite a portion and downsell it to clients,” he said.
Posted on: Thu, 13 Jun 2013 08:29:21 +0000
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