Bengaluru: Piramal Fund Management Pvt. Ltd has sanctioned Rs360 crore for realty firm Ozone Group’s 150-acre mixed-use Urbana township project in north Bengaluru, which will help the developer refinance existing loans.
The structured debt transaction will help Ozone give a full exit to Urban Infrastructure Venture Capital Ltd from the project, and a partial exit from its entity-level investment in the developer.
Urban Infrastructure, which is led by chairman Anand Jain, had invested Rs200 crore in the Urbana project in 2009 through its Urban Infrastructure Real Estate Fund and Urban Infrastructure Opportunities Fund. It also picked up a 50% stake in Ozone Group for an undisclosed amount before that.
This is the second large transaction between Piramal and Ozone for the Urbana project, after the Mumbai-based investment firm put in Rs575 crore in early 2015 to refinance the developer’s existing loans and to step up construction.
“The progress and maturity of the project gave us confidence to further invest in it. Since our last investment, the project has stepped up construction and sales have been good even when the overall residential market continues to be slow,” Khushru Jijina, managing director of Piramal Fund Management, said in a telephone interview.
Urbana started off as a plotted development project over 30 acres, and gradually expanded to become a 150-acre township, which will have 20,000 homes once it is completed. It will also have a 2 million sq. ft information technology (IT) park and 300,000 sq. ft of retail space along with a school and a hospital.
“The risks of the project have come down and we are selling nearly 90,000 square feet every month,” said Srinivasan Gopalan, chief executive of Ozone Group. “The capital will help us to exit Urban Infra, who has been our investor partner and will also help bring down our cost of funding.”
The homes are priced between Rs50 lakh to Rs1 crore, he added.
Gopalan said that soon Piramal’s capital from the earlier transaction will also be refinanced with the help of banks, so that the investor gets an exit.
Apart from Urbana, Ozone is developing a 45-acre township Metrozone in Chennai and has launched a premium residential project in Mumbai’s Santacruz (east) this week. It also launched three other projects in Bengaluru in the last 18 months.
Piramal has emerged as the single largest investor in residential projects, mainly helping developers refinance expensive loans and step up project construction. In September, it invested Rs.2,320 crore in Lodha Developers Pvt. Ltd’s signature World Towers project in central Mumbai, in what was the single largest debt financing deal in a residential project.
The transaction helped Lodha to give an exit to HDFC Property Fund, which left with about Rs1,500 crore on an investment of Rs500 crore in 2010.
In a slow real estate market, developers are heavily depending on raising funds for a variety of reasons.
Refinancing of loans has become critical when project cash flows are slow, but often developers are also replacing earlier loans with new lenders to bring down the cost of money as the project matures.
“Refinancing of loans has become the main reason why developers are lining up investors today and it will continue till the sector recovers and projects start generating cash flows on their own. Apart from the fact that it may lead to debt escalation for developers, refinancing can breathe life into a delayed project and take care of operating needs so they can continue building the project without pressure on repayment,” said Shashank Jain, partner-transaction services at PwC India, a consulting firm.