New Delhi: Indiabulls Real Estate Ltd, which is planning to sell shares in a proposed real estate investment trust (Reit) offering in Singapore, paid its UK-listed entity Rs450 crore less than what independent valuers that it had hired estimated the India-based properties were worth.
Interestingly, Indiabulls, in turn, is using the higher valuation—by Knight Frank—for raising money from investors in its Reit, in a sense showing paper asset value growth—between what it paid and what it is valuing the property—of Rs450 crore, thus potentially making Indiabulls more attractive to capital markets.
Indiabulls is among one of the few Indian firms to brave a listing in a lacklustre equities market and is using the December Knight Frank valuation to get investors to buy shares in its Reit in Singapore.
“In my opinion, this (referring to valuation of properties in Knight Frank) is so far the most aggressive valuation for the two office properties,” said an analyst at a leading brokerage who didn’t want to be identified as he is not allowed to talk to the media.
“We will not be able to answer these questions as we are bound by a confidentiality agreement,” said Knight Frank.
Reits such as the proposed Indiabulls one, use money from investors to purchase and manage property. Their shares (or common units as they are called) are traded on major exchanges.
Much of the income from the properties owned by Reits is shared among its investors.
The saga began when Indiabulls bought back the properties held by Dev Property Development Plc., which was floated by it in January 2007, valuing them at that much less than the Rs12,000 crore value that Knight Frank had estimated just two months before.
Knight Frank’s Rs12,000 crore new valuation, meanwhile, was Rs 4,300 crore more than what it had said the properties were worth a year before its most recent valuation.
Knight Frank’s new high valuation of these India-based properties comes even though the local real estate market has been sluggish in the last one year and overall valuations have only damped and not gone up.
Indiabulls’ acquisition of Dev was part of the plan to list a Reit.
In February, Indiabulls acquired the Isle of Man-based Dev, listed in the London-based Alternate Investment Market, a junior market run by the London Stock Exchange with less stringent regulations and disclosures for small companies. Indiabulls, the fourth largest Indian real estate company by market value, acquired all of Dev for around Rs1,100 crore.
In the Reit prospectus filed with the Singapore market regulators this month, Indiabulls said Knight Frank, a real estate consulting firm, had valued two office properties held by Dev at a combined value of S$4.4 billion (Rs12,000 crore) as on 31 December.
When Indiabulls did the acquisition, Dev held only 13% equity stake in two, under-construction office properties located in Mumbai, which are part of the Singapore Reit offer, and another 8% stake in a 6,000 acre proposed special economic zone (SEZ) in Raigarh, Maharashtra, which is not included in the proposed share sale.
When Indiabulls listed Dev Property in AIM, Knight Frank had valued the SEZ at nearly 60% of the listing company at £102 million in December 2006.
A proportional 13% of the above valuation for the Reit listing works out to Rs1,555 crore, around Rs450 crore more than what was paid to Dev by Indiabulls. The amount paid to Dev also includes value attributed to the stake in the Raigarh SEZ.
Dev, meanwhile, has fallen 25% since its listing of £1a share.
Knight Frank’s valuation of S$4.4 billion, which represents a significant premium to what Indiabulls paid for acquiring minority stake in two office properties, is significant as it’s the higher value that has been entered in the pro forma consolidated balance sheet for Reit listing. It’s called pro forma because its prepared on the basis of “what if” the assets were owned by Reit.
A person close to the India-bulls Reit offering said the valuation reflects the difference between two markets, referring to AIM and Singapore market, for the Reit.
“They are independent transactions. Why do they have to be matched? The Rs1,100 crore (the amount paid for acquiring Dev Property) is also for the Raigarh SEZ. You can’t draw a parallel between what we paid for the DPD acquisition and the asset pool in the REIT structure.”This person didn’t want to be identified as he is not authorized to talk to the media.
He insisted that Indiabulls’ pricing of the Reit would provide an opportunity for an upside for potential investors but didn’t elaborate.
Indiabulls had already got a Mauritius-based fund owned by L.N. Mittal, CEO of the world’s largest steel firm, ArcelorMittal Co. NV, as an investor in the proposed Reit. Mittal’s firm picked up a minority equity stake in the proposed realty investment trust for $75 million (Rs310.5 crore), or about Singapore $103 million (Rs314.25 crore).
Indiabulls Property Investment Trust’s initial assets portfolio will have two commercial properties—One Indiabulls Centre and Elphinstone Mills—both located in Lower Parel in Mumbai.
The properties are located within IT (information technology) parks.