Private equity all set to take on Indian property

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Mumbai, April 30:: Private equity funds sense their time has come in the Indian property arena, with developers offering plum deals as banks tighten lending and a stock market slump shuts off public share offerings.

Since India eased rules on inward investment in the construction industry in early 2005, foreign investors have earmarked an estimated $20 billion for the booming property market. But government figures show only about $2 billion has actually been spent in the last three years.

Funds used to complain that Indian developers slapped inflated price tags on themselves, their land, and projects.

But a fall in company valuations, and prospects of a drop in overheated land prices, has cheered private equity investors while making life tougher for developers.

"It's brutal," said Parry Singh, managing director of Red Fort Capital, which runs a $300 million fund that includes sovereign wealth fund money.

"Capital markets are shut down for developers who thought money was always there," the ex-JPMorgan banker added. "Banks are very conservative. Little boys aren't getting any debt, big boys are getting it but on a global scale, it's very expensive."

Indian banks are banned from lending for land purchases and the central bank has raised the cash reserve ratio by 75 basis points in the last two weeks, which could crimp other loans and raise lending rates from the 12-13 percent charged now.

"Developers are a lot more realistic than six months ago because of the credit squeeze," said Richard Yue, chief executive of Arch Capital Management, who runs a $400 million Asia property fund set up by Philippines developer Ayala Land

Debacle

The failure of Dubai-backed developer Emaar MGF Land to push through a $1.6 billion initial public offering in January was the defining moment for developers.

Pune-based developer Vascon Engineers Ltd has postponed its IPO and Unitech Ltd has shelved a planned $1.5 billion private placement, according to property analysts.

"After the Emaar MGF debacle, there's been a marked shift to private equity capital-raising," said Rish Tej, chief executive of Sheer Trade Consultants, who brokers private equity deals.

"But it's at the project level," he added. "Developers are trading as low as 60 percent of net asset value and don't want to dilute at such low valuations."