Indiabulls to carve out commercial office business into separate firm

Indiabulls Commercial Assets will focus on the annuity business through rental income of existing office projects, under-development and new projects


The reorganizing of the business has been done to create Indiabulls Commercial Assets Ltd as a separate holding company that will hold the assets and investments related to leasing and commercial business . Photo: Bloomberg
The reorganizing of the business has been done to create Indiabulls Commercial Assets Ltd as a separate holding company that will hold the assets and investments related to leasing and commercial business . Photo: Bloomberg

Shares of Indiabulls Real Estate Ltd (IBREL) on Monday jumped 40% on Monday after the property developer revealed plans to carve out its leasing and commercial businesses into a separate entity.

The IBREL board that met on Monday morning decided to create a new vertical to house the two businesses.

The residential business will continue to remain with IBREL.

The new entity—Indiabulls Commercial Assets Ltd (IBCAL)—will hold existing leasing and commercial assets, as well as future projects.

IBREL expects the new vertical to earn a rental income of Rs692 crore in 2017-18.

The board also decided to explore opportunities for bringing strategic investments into the new entity, the company informed the stock exchanges.

It proposes to either get a strategic investor for its rental arm or demerge the rental arm from the development arm.

A restructuring committee will study the plan and prepare a draft scheme or proposal for the board’s approval.

IBCAL will have a separate management team with a chief executive and a new investor is expected to come on board in the next few months, said a person familiar with the company’s plans, who did not want to be named.

According to the company’s projections on the basis of accounts as of 31 March, IBCAL will have a net worth of Rs2,311 crore and a debt of Rs3,950 crore, with a potential revenue generation of Rs1,357 crore in 2020-21.

IBCAL will have a portfolio of 8.35 million sq. ft of office buildings in Mumbai, Gurgaon and Chennai.

“The net debt of IBCAL (post restructuring) will be reduced over medium- to long-term from the annuity revenues. We believe this model will provide cheaper cost of capital to fund the expansion of business after FY2020-21,” the company said in its filing.

IBREL shares closed 39.96% higher at Rs148.15 on BSE on Monday, while the BSE Sensex lost 0.16% to close at 29,413.66 points.

In the recent past, there have been some large deals in the commercial office space. Singapore’s sovereign wealth fund GIC Pte. Ltd, private equity firm Blackstone Group Lp and Canada’s Brookfield Asset Management Inc., have been buying out some of the largest office parks and acquiring rental portfolios of developers at a time India’s residential market has seen tepid sales and a price correction.

“The eventual plan is to create a separate entity for the commercial and leasing business and target listing the stock at a later date. Indiabulls will also be looking at getting a foreign investor or PE fund to participate in the equity of IBCAL. Most large global investors have preferred to participate in the commercial or leasing market in India...,” said Abhishek Lodhiya, senior equity research analyst-infrastructure, capital goods and real estate, Angel Broking Ltd, in a note.

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