A mix of domestic debt and private equity is the best option for developers before going public. This would enhance their transparency and corporate governance levels, which are key factors that investors look for, according to industry experts.
“Despite the squeeze on credit for commercial real estate, good developers still get financing from banks. First raise debt and go for a few rounds of private equity, and then go public. This will make you more disciplined and help maintain high level of standards,” said Sanjay Bansal, partner, Ambit Corporate Finance, during a seminar on real estate investment here.
Unavailability of easy debt, slowdown in IPOs and pre-sales demand are forcing realty players to look for private equity players, both domestic and foreign, said Hari Krishna V, chief investment officer, Kotak Realty Fund.
Drawing a comparison between domestic and overseas fund raising, Hari Krishna said Indian realty funds had to rely on high networth individuals (HNIs) for domestic funds, and could tap institutional investors abroad for the same.
“Though internationally, there is no upper limit on raising funds, domestically, funds have to limit themselves within $250 million to $300 million,” he said.
Bansal also feels that international investors have more funds at their disposal than domestic funds in the realty space. Though there was no dearth of domestic capital, availability of public equity for Indian realty players was limited, he said.
“If you consider a $300 million fund, the ratio of investment is 1:3, one domestic investor for every three foreign investors in a real estate fund,” he said.
Calling for more competitiveness among Indian realty players, Rishi Sahai, director, Indus View Advisors, said most of the Indian realty firms are not financially structured.
“Equity investors always look for financial structuring, better rate of returns, high standard of corporate governance and transparency in the firms where they invest. Companies looking for private equity should look into these factors,” he said.
He suggested that developers should look at how much money an HNI or private equity makes after selling off the property, before diluting their stake in projects and go for private equity partnership.
(Courtesy: Business Standard)