Prestige Estates places shares amid India rally

One of India's largest real estate development firms becomes the latest to hold a QIP, raising $100 million and illustrating the country's improved post-election mood.
Bangalore is one of the country's most popular destinations for real estate investment
Bangalore is one of the country's most popular destinations for real estate investment

Indian real estate development firm Prestige Estates Projects raised $100 million from an accelerated qualified institutional placement on Tuesday as investors continue to flock to India after its recent election.

Demand from global institutional investors led the issuer and syndicate to increase the 18.75 million base deal size to 25 million shares and price the shares at Rs2.45, the middle of the indicative Rs2.40 to Rs2.48 range, according to a banker close to the deal, who noted that it was covered multiple times in the single digits. CLSA and JP Morgan led the deal.

All 25 million shares are primary and represent 6.7% of the enlarged share capital.

About 30 institutional investors bought shares through the placement, which was top heavy as a few investors bought more than half of the deal. “About 63% [of the shares] went to the top three investors,” the banker told FinanceAsia. “It was comfortably covered.”

The issuer had strong support from long-only institutional investors, both international and domestic, which made up some 90% of the book. Global hedge funds bought the remaining shares.

Prestige Estates has registered strong performance this year, rising more than 50% so far this year. Most of those gains have come since the start of May, after Narendra Modi won the country’s general election.

At Rs2.45 a unit, Prestige Estates is trading at 20.18 times its 2015 earnings, right in the middle of two of its closest peers, which are trading at wide price-to-earning ranges.

Oberio Realty, the company’s main comparable, is trading at 16.26 times its 2015 earnings and is up 6% year-to-date. DLF, meanwhile, one of the country’s largest real estate development firms, is trading at the other end of the spectrum at 37.92 times its forward 2015 earnings, with shares up 18% so far this year.

Shares in both Oberio and DLF spiked in May — with Oberio up 23% and DLF 42%, according to Bloomberg.

While not cheap, Prestige Estates’s focus on luxury residential, commercial and retail properties in Bangalore separates it from its peers. “It is more expensive [than some] but people pay for quality,” he said.

Other deals
This deal underscores the confidence that has returned to the country during the past few months. Indian infrastructure companies Jaiprakash Associates and GMR Infrastructure each raised $250 million from QIPs earlier in July.

Both of these deals came one week after Anil Ambani’s Reliance Communications raised Rs61 billion ($1.017 billion) through a QIP and warrants issue, the biggest-ever equity deal by a private sector Indian corporate in rupee terms.

Timing has been key in all of these deals. Modi’s victory in the general election has lifted the entire stock market. The S&P Sensex Index is up 15% since May.

“There’s been a massive turnaround on the back of Modi,” the banker said. “And there’s a lot of optimism. India has effectively been closed for four to five years. On the back of his win, there’s been a large amount of activity, and we expect to see more [going forward.]”

The three equity deals completed in July should lift the weight of the debt overhang on all three companies. In the case of Reliance, the company tried to spin of its subsea cable unit via a $1 billion business trust in Singapore. Despite offering a double-digit yield, the deal failed to get off the ground.

But the return of confidence plus the successful completion of more equity deals removes these issues.

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