Warburg Pincus will invest Rs 1,800 crore ($284 million) for a minority stake in Mumbai-based real estate firm Piramal Realty, the company said on Tuesday.
Piramal did not divulge the quantum of stake sale the promoters have offloaded.
FE could not immediately estimate the valuation of the transaction but a minority share typically implies up to 26% divestment. FE was the first to report on March 26 that Piramal Realty is looking to sell stake at an entity level to Warburg Pincus.
This marks Warburg Pincus’ foray into the Indian real estate sector and a rare deal in which a global fund has taken an entity level position in the real estate sector. With this transaction, Piramal joins the elite club of companies, which includes the likes of Oberoi Realty and Rustomjee group, that have been able to attract entity level partners.
“We will primarily use these funds as growth capital, specifically to make further land acquisitions and as working capital in some of our existing projects,” said Anand Piramal, executive director of Piramal Group. In total, Piramal Realty has projects, spanning 10 mn sqft in Worli, Kurla, Byculla, Thane and Mulund. Of this, the project at Kurla is a commercial project whereas the others are residential. Piramal will continue to focus on the market of Mumbai, where it will identify and purchase marquee parcels, Piramal added. The company did not divulge the level of debt it has accumulated.
Warburg had been on the hunt to invest in the Indian real estate sector for years. “Warburg Pincus invests in companies with high growth potential and believes Piramal Realty is best positioned to achieve leadership in the market,” said Niten Malhan, co-head of India.
Piramal Realty, led by Ajay Piramal, made several high-value land acquisitions in the past four years. It acquired a land parcel from Hindustan Unilever in the heart of central Mumbai, in Worli, for Rs 452 crore. It also lapped up a 7 acre plot from Mafatlal Industries for Rs 753 crore in the Byculla area.
Recently, a number of global private equity funds have partnered with developers, including Godrej Properties, Brigade Enterprises and Nitesh Estates but in all such cases, a platform of projects has been created for the partnership.
Industry experts said an equity level stake is an exceptional case in the current context of tepid sales and sentiment. “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 excellent track record, both in partnerships and diversified businesses,” said Rajeev Bairathi, executive director and head of capital markets, north, Knight Frank India.
This certainly won’t be an industrywide trend, Bairathi added. Still, such large sums have not been invested in Indian realty since 2008-09. Right after the economic crisis in September 2008, PE transactions in the domestic real estate sector had shrunk, not only in numbers but also in ticket size.
Ajay Piramal embarked on his real estate venture in late 2010, after selling out Piramal’s branded generic business to Abbott Laboratories. Piramal said there is no larger gameplan of an IPO as of now.