The move could be a sign that foreign investors now feel there are sufficient alternatives if they want to invest in Indian real estate that they donÆt have to go for anything that comes up for sale. Many investors are waiting for DLF Universal, which is expected to raise more than $2 billion in what is likely to become IndiaÆs largest IPO ever. That offering is scheduled for March or April.
Dev Property is due to list on LondonÆs Alternative Investment Market (AIM) and will be the fourth Indian property fund to debut in this market in just over two months when it starts trading tomorrow (January 31). Of the other three funds, two are still trading below their respective issue price, and according to observers, this also weighed heavily on the interest for yet another fund.
ôIf you are sitting on losses of 15%-20% on your recent investments in the same sector you are unlikely to want to buy into another company,ö notes one source.
ôThere is a certain investor fatigue for Indian fund structures listing on AIM, but I donÆt think the fund theme is dead,ö says another, who argues that funds offer a good alternative in sectors where there are few liquid investments available.
By breaking out a few properties under development and packaging them into a fund the investment will be somewhat less risky as there will be good visibility on cash flows and investors will have a clear idea of what the internal rate of return will be, the source adds. Dev Property will invest in commercial and residential developments in major Indian cities and in Special Economic Zones (SEZ) that are suitable for foreign direct investments.
Most of the investors who participated in Dev PropertyÆs IPO did so because they like Indiabulls, which has a good track record in terms of delivering on its promises when it comes to other listed companies within the group. Since it was set up in 2005, Indiabulls Real Estate has also shown a solid track record in terms of winning competitive bids for landmark properties in both Mumbai and New Delhi.
The company issued a brief statement to the Bombay Stock Exchange, noting the new size of the fund raising, but provided no information with regard to how much stock investors actually ordered. According to one source, it was slightly more than the final deal size, however.
The shares were offered at a fixed price of ú1 each, which meant the size of the offering was trimmed by reducing the amount of shares to 138 million from the original 275 million. The 15% greenshoe, which under the original terms could have boosted the total proceeds to $624 million, was also scrapped. Citigroup, Deutsche Bank and UBS were joint bookrunners for the offering.
Having raised only half the planned proceeds, Dev Property will have to lower its stake in the initial three property projects in its portfolio. The planned 26% stake in each of two IT projects û the Jupiter Mills Project and the Elphinstone Mills Project û will be reduced to 13% and the 15% it was due to take in a property development in a Special Economic Zone (SEZ) will be cut to 7.5%.
An Indiabulls consortium, which was due to own the remainder under the original plan, will pick up the extra shares as well, sources said.
Dev Property is targeting an IRR of about 35% for the three initial projects, which have been valued at $225 million and are expected to be completed over the next three to four years. For subsequent projects, which have yet to be identified, the expected IRR will be lower at about 25% or in line with the returns targeted by a couple of the other Indian development funds that came to market at the end of last year.
Another key attraction with Dev Property, syndicate analysts note, is the fact that 100% of the capital raised will be going straight into clearly identified development projects of which two are already well under way. This reduces the risk compared with funds that ask investors to put money into a ôblindpoolö of assets.
Among the other three Indian property funds already listed on AIM, Unitech Corporate Parks also had identified 100% of its initial investment projects, while Ishaan Real Estate had a clear plan for 70% of the funds raised. Hirco Plc, however, was essentially raising money against a pool of potential investments only. Investors have clearly shown they donÆt like this concept by pushing HircoÆs share price streadily lower and as of yesterday the stock had lost 18.3% from its ú5.00 IPO price to trade at ú4.085.
Unitech was down 10.5% at ú89.50, while Ishaan was still marginally above its ú1.00 issue price at ú1.0025.
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