Goldman puts $150 mn into Piramal arm

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Mumbai | August 18, 2015 1:18 AM

The Ajay Piramal-led Piramal Realty on Monday said New York-based investment bank Goldman Sachs has picked up a minority stake in the firm for $150 million...

The management of Piramal Realty did not disclose the exact quantum of stake the promoters have diluted to Goldman Sachs.The management of Piramal Realty did not disclose the exact quantum of stake the promoters have diluted to Goldman Sachs.

The Ajay Piramal-led Piramal Realty on Monday said New York-based investment bank Goldman Sachs has picked up a minority stake in the firm for $150 million (Rs 900 crore). FE was the first to report in its March 5 edition that Goldman Sachs was looking to invest in the firm.

The management of Piramal Realty did not disclose the exact quantum of stake the promoters have diluted to Goldman Sachs.

Last month, Warburg Pincus had made its maiden investment in an Indian real estate company by investing Rs 1,800 crore ($284 million) in Piramal Realty. FE could not get details of the stake dilution of either deals independently.

However, Anand Piramal, the executive chairman of the company, said the promoters still hold a majority stake in the company after the two transactions.

Piramal confirmed to FE that Goldman will have a stake in four of its existing projects in the micro-markets of Byculla, Kurla, Thane and Mulund. Piramal’s projects in Worli and the Bandra Kurla Complex or BKC have been left out of the deal.

“Part of the funds will be utilised to buy new land parcels, mainly in Mumbai, and Goldman will partner us in all our future projects but not the ones in Worli and the JV that we have in BKC,” clarified Piramal. He did not disclose how much debt the company has on its books.

Historically, few companies have been able to attract foreign private equity firms to invest at the entity level. Mostly, global funds have either invested in individual projects or a platform of projects. Mumbai-based companies Oberoi Realty and Keystone Realtors are among the select few that have had marquee investors and even these firms, with healthier balance sheets, better execution record, etc, have not given funds much return on investments. Industry experts said that while that might be true, depressed valuations of the current market is the major differentiator.

Most funds invested in companies between 2005 and 2009, when prices escalated astronomically in the Indian real estate landscape. Contrary to such exuberance, as Anuj Puri, country head of JLL India pointed out, “Today we are at the bottom of the cycle and valuations are very attractive so the chances that these investments will pay off are far higher.”

Nevertheless, at a time capital is scarce and the real estate sector is bleeding, with several companies even defaulting on loans, raising more than $500 million is no mean feat. Industry experts said that despite the fact that Piramal lacks an execution track record, given that the company is only four years old, the reputation of its promoters, transparency and governance have tipped the scale in its favour. “Funds are not out there scouting to take high-risk, high-return positions, it is only because Piramal as a company has got quality land parcels and the promoters have an excellent track record, both in partnerships and diversified businesses,” said Rajeev Bairathi, executive director and head of capital markets, north, Knight Frank India.

With inventory levels piling up, launches being held back owing to stagnant demand and developers stubbornly holding on to price points, the real estate sector is going through a slowdown that several reports have compared to the 2009 levels, which was triggered by the US subprime crisis. In this environment, the deals, as Piramal explained, raises the company’s “competitive advantage” significantly. “Real estate is a cyclical business and in this business, if you’re in for the long term and have the holding power, I believe you can ride the lows better, which we are poised to do,” he said. In order to incentivise demand, the company has also launched its buyback offer under the scheme “Piramal Assurance”, wherein it has promised to buy back any unit at a 5% discount to market price should the customer not be satisfied until possession.

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