How and why did you decide on London to mark your overseas presence Did you look at other markets as well
We looked at multiple markets like Singapore, London and Dubai. But we felt London fits the criterion of a mature market, a true global city and resilient market very well.
At a time the realty market is going through one of its worst phases, how do you intend to close such a high-value transaction
We are planning to do this in the same manner as we did the DLF transaction last year. That was also done in a sluggish property market and that has worked very well for us. And we believe that this will also do the same. The funding is happening from the sales that Lodha has clocked in the last 18 months, which is about R14,500 crore. No debt will be taken.
Are you looking at any other markets overseas
London was very exceptional in terms of what we have done and what we expected and in terms of its attractiveness, too, so we are not looking for any other place.
Are you looking at expanding your presence there
In London, yes, since we have gone there and set up shop, this is our first acquisition, but obviously we would not like to stop here. If there are land parcels available which fits our financials, we would like to participate. We have been in the process of setting up presence in London for over a year and hired a CEO, Tyler Goodwin, who was MD (global assets fund) of JP Morgan, for the business. We have an office, which is about 1,000 square feet, near Eaton Square in west central London.
Is there a target you have set on how much are you looking to invest in Londons property market
Not really, but we are looking at high-end properties only in central London, which could be residential or commercial as long as they make economic sense.
This over 300 million investment is for acquisition of property, how will you fund the construction
That will also be only through sales and internal accruals. We are not looking at raising any debt, or private equity participation or joint venture for the project.
What sort of return expectation and margins do you expect from the project
Difficult to say, but if we do it right, it would see a 20% plus internal rate of return over a four-year cycle, in which we intend to complete the project. Margins would be in the range of 25-30%.
How is London as a property market
If you look at the size of the market, it is a 200,000-apartments-per-year market and more than 50-60% is bought by locals, and this could be larger. Property prices have grown by about 6% in central London in the last one year, and there is a lot of demand for central London market from all over.
You have paid R300 crore as of now, how are the other tranches going to be Is there any hedging risk involved and what exchange rate have you pegged the transaction at
Everything else is to be paid before March, there is no definitive tranching in the agreement. We are hoping to close the deal by January 2014.
We closed the transaction only late Thursday. It makes financial sense to hedge, which is normally for a far longer tenure. Since here there is only three months window, we may or may not look at doing that. It is R102 for a pound that we have done the deal.
If rupee depreciates there will be an escalation in cost, so we may take a decision on whether to hedge or not in the next couple of weeks.