Bangalore: After a hiatus of some six months, real estate firms are again turning to qualified institutional placements (QIPs) to raise money, this time mainly to fund expansion.
Bangalore-based Brigade Enterprise Ltd wants to raise Rs750 crore through a QIP and Mumbai’s Orbit Corp. Ltd passed an enabling resolution last week to raise Rs1,000 crore both from a QIP and an issue of non-convertible debentures.
Overall, at least six realty firms are expected to raise a total of Rs5,000 crore from QIPs this fiscal year.
Photo: Ashesh Shah & Graphic: Paras Jain/Mint
The method is a relatively quick process of raising money through a private placement of shares or convertible securities with institutional buyers.
Last year, as the real estate sector began recovering from the slump of 2008-09, many developers including India’s top three realty firms—DLF Ltd, Unitech Ltd and Indiabulls Real Estate Ltd—resorted to QIPs, raising around Rs13,000 crore overall. But investor sentiment slackened again and some planned QIPs fell through.
Property analysts say investor appetite hasn’t improved much and realty firms are merely keeping the option of QIPs open while exploring other possibilities.
“If companies go for a QIP now, there would be a feeling that they are in real trouble or else they wouldn’t dilute stake in the current situation,” said Bhaskar Chakraborty, an analyst with brokerageIndia Infoline Ltd.
The other fund-raising options, he said, include asset sales, a “slow, painful” process, and approaching banks to refinance debt. “If there is a continuing problem in European markets, it could lead to a tightening of credit markets here.”
Most developers have lowered debt considerably and the focus now is more on project execution and acquiring properties.
Brigade Enterprises, which is also eyeing investments from private equity (PE) funds, wants to use QIP money for expansion. Its debt of Rs675 crore is repayable over seven years, beginning July.
“In 2009, most developers raised money for deleveraging themselves. In 2010, everyone is talking about expansion,” said R.J. Shyam Sunder, general manager (finance), Brigade Enterprises.
But the developers are undecided on the timing of their QIPs because of the volatility in the equity market. The BSE realty index has dropped 16.78% so far this year, whereas the benchmark Sensex index has gained 1.05%. On Wednesday, the realty index rose 1.43% to close at 3,208.83 points and the Sensex ended at 17,755.94 points, up 0.04%.
Analysts suspect the fresh crop of QIPs will mature only towards the end of the current fiscal year.
Ajit Krishnan, partner-real estate practice, at consultancy Ernst and Young, says QIPs would be an option only if PE deals take long and debt repayment becomes a problem. “There is a lot of uncertainty among international investors though they feel India and Brazil are great opportunities. Capital markets are also very relative,” said Krishnan.
Developers have mostly kept away from QIPs since November, and a few raised less than what they had originally planned. Other options such as public listings have also been inconsistent performers, say analysts.
So far this year, only three of the 12 initial public offerings (IPOs) planned by real estate companies have taken place. Godrej Properties Ltd, DB Realty Ltd and Nitesh Estates Ltd raised a total of Rs2,374 crore through IPOs, with anchor investors making up for weak retail participation.
Analysts say PE deals are taking longer to be finalized as the investors have turned cautious and aren’t agreeing with high valuation demands, though property consultant Knight Frank India sees $1 billion (Rs4,630 crore) of investments coming into the realty sector in the next one year through this channel.
New Delhi-based Omaxe Ltd is looking to raise Rs800 crore both through a QIP and from PE funding to repay part of its Rs1,650 crore debt and to fund expansion, chairman and managing director Rohtas Goel said in an email. “It depends more on the liquidity position in the overall system. We believe that there is still enough appetite for a growing company with a strong track record and wide geographical spread like ours,” Goel wrote.
Orbit managing director Pujit Agarwal said the company will use QIP money to fuel acquisitions and not to retire debt. The company is also actively looking for PE funding for its projects, he added.