Morgan Stanley values Indian developer at $1.5 billion

Morgan Stanley's special situations unit places its largest bet in India's real-estate sector thus far, investing $152 million for a 10% stake in Oberoi Constructions.
Morgan Stanley has invested Rs6.75 billion ($152 million) for around a 10% stake in Indian real-estate developer Oberoi Constructions. This is the largest disclosed private-equity investment in IndiaÆs real-estate sector to date and one of Morgan Stanley's special situations unit's largest equity investments in the real-estate space globally.

Indian media had been speculating that sell-side advisor, Kotak Investment Bank, valued Oberoi Constructions at higher than $1 billion, pre-money. Sources close to the deal say Morgan Stanley has acquired around a 10% stake, suggesting the final valuation agreed, post-money is in the region of $1.5 billion. Morgan Stanley will also have the right to nominate one director to Oberoi Construction's seven strong board.

Kotak ran a book for the stake and received substantial demand, with 14 funds reported to have expressed interest, including global players such as Blackstone, Carlyle, GE Real Estate and local funds such as HDFC Real Estate and IL&FS Realty.

2006 saw some Indian real-estate companies IPO, among them Parsvnath Developers and Sobha Developers. The stocks have performed well in India's prevailing, bullish market and created further retail investor demand for such paper. Indian real-estate companies have also accessed London's AIM market to raise capital.

Vikas Oberoi, chairman and managing director of Oberoi Constructions, says the decision to go the private equity route rather than approach the capital markets was a well thought out one intended to "give the company the benefits attendant with inducting a high-quality investor with global expertise in real-estate".

For Morgan Stanley, the investment has considerably strengthened its footprint in IndiaÆs real-estate sector. In March last year, Morgan Stanley invested $68 million in Bangalore-based Mantri Developers, giving it a presence in south India; in July it invested $65 million in Delhi-based Alpha G Corp, giving it a presence in the north and to a more limited extent in the west.

Oberoi Constructions, which has executed 30 projects mostly in Mumbai, enhances Morgan StanleyÆs exposure to real estate in the countryÆs fast-growing commercial capital. Oberoi Constructions has a development pipeline in the city estimated at 15 million square feet, spread across residential, commercial and leisure projects. In Mumbai it has already established considerable brand equity for high-end residential developments.

In 2004, Oberoi Constructions won a highly contested auction for Glaxo SmithKlineÆs erstwhile headquarters in central Mumbai, bidding through a special purpose vehicle specially created for the purpose, in consortium with local private equity player, ICICI Ventures. The development could, when complete, be IndiaÆs tallest residential building. Oberoi says: "Going forward Oberoi Constructions will be the vehicle for future growth and all our energies will be focused on growing this company."

Oberoi Constructions has lined up projects for Pune, Hyderabad and Bangalore for which it is yet to acquire land. Oberoi says: "The strategy is to expand beyond Mumbai and establish, in the longer term, a pan-Indian presence which will provide us with further avenues to fuel our growth aspirations."

Oberoi agrees that asset prices in India have been on the increase but draws attention to "the equally high demand for real estate generated by increasing purchasing power of the consumer".

With investors willing to commit large amounts of capital to the Indian real-estate sector, prices seem set to continue upwards.
¬ Haymarket Media Limited. All rights reserved.
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