The builders are back on India's Dalal Street after a gap of more than a year.
At least six real estate firms plan to mop up more than $2.5 billion (Dh9.1bn) from the capital markets by December, 18 months after poor response forced Emaar MGF to scrap its Rs65bn (Dh5bn) maiden issue a day after it opened in February last year.
Emaar MGF, Sahara Prime City, Godrej Properties, Lodha Developers, Nitesh Estates and Sriram Properties will all hit the capital markets this year, signalling that the worst may be over for an industry that virtually cratered in the global economic storm last year.
There are two reasons for this rush, international property consultants Jones Lang LaSalle Meghraj (JLLM) Chairman Anuj Puri told Economic Times. "One, the market is looking comparatively better today, and two, most of these companies are in serious need of liquidity," he said.
With market conditions still tight, it will not be easy for these issuers to demand substantial premium from investors, say analysts.
"Looking at the present volatile market, it would be really difficult to predict the premium. But if we go by the recent response to initial public offering, these real estate companies could debut at a five to 10 per cent premium," said an industry tracker who did not wish to be named.
Five companies have so far raised Rs31.6bn from the capital markets this fiscal, according to market research firm Prime Database.
The last to be listed, Mahindra Holidays and Resorts, debuted on Bombay Stock Exchange seven per cent higher than its issue price. Godrej Properties, the real estate arm of the Godrej Group, plans to sell around 10 per cent through its maiden public issue, a person close to the development said. Before that, the firm will place a 3.5 per cent equity with select institutions.
The IPO is expected to fetch the company anywhere between Rs4.5bn and Rs6bn, said the person on condition of anonymity. It will use the proceeds for building low-cost housing. ICICI Securities and Kotak Mahindra Capital are the merchant bankers to the issue.
Godrej Properties has announced plans to spend Rs50bn on township projects in Gujarat, Maharashtra, Andhra Pradesh, West Bengal, Tamil Nadu and Delhi that would offer homes at less than Rs2 million.
Mumbai-based Lodha Developers, which has just signed the largest property deal of the year so far to acquire Finlay Mills' 10.3-acre property in central Mumbai for Rs7.1bn, plans to raise Rs30 billion through an IPO. Part of the proceeds will be used to fund the Finlay Mills deal, which calls for full payment within three months. Lodha, which has been going through a financially tough time, will use the money to retire debts and fund ongoing projects. It is also planning to enter real estate markets other than Mumbai, said a top official, requesting not to be named.
Emaar MGF, a joint venture between Dubai-based Emaar Properties and MGF Development, is looking to raise Rs40bn this year. Kotak Mahindra Capital has been mandated to manage the issue. According to market analysts, like many other real estate firms, Emaar MGF will have to divert a major chunk of the IPO proceeds to repay debts. In May, a contractor alleged that the company was yet to pay around Rs2bn to a contractor. Sahara Prime City, the real estate arm of the Sahara Group, is expected to mop up $1bn. A Sahara Group official said there was a plan to go public but refused to confirm the size of the issue. Industry sources said the company may invest part of the proceeds to retire its existing debts. Non-Resident Indian investor C Sivasankaran recently picked up a 49 per cent stake in Sahara's Aamby Valley project. The size of the transaction could not be verified.
Bangalore-based Nitesh Estates is planning to tap the capital markets to build its land bank and enter the western Indian market, particularly Mumbai, an official said. While the size of the issue could not be ascertained, a banker said it would hit the markets by the end of August.
The Economic Times recently reported that Chennai-based Shriram Properties, part of Shriram Group, has appointed Macquarie and Enam as advisors for its proposed Rs5bn-7bn initial public offering.
Prior to the elections, the real estate sector was in big trouble with property prices at an all-time low. While prices had dropped up to 40 per cent, buyers were not returning to the market in large numbers as the global financial crisis was affecting the Indian economy as well.
Developers were panicking and even the biggest names in the sector such as DLF and Unitech had to stop work at many sites and sell their non-core assets to deal with the fund crunch.
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