Is Vijay Mallya not keen on letting go of UB City now that he’s got a deal with Diageo Plc for a stake in his spirits company? While the reason isn’t clear, the prime property may not be changing hands soon.
A joint offer made by private equity (PE) firm Blackstone Group LP and Embassy Property Developments Pvt. Ltd to buy a 55% stake for around Rs.560 crore in Bangalore’s upscale UB City property from Mallya’s UB Group seems to have fallen through, said three people familiar with the development.
The potential buyers and UB officials participated in several rounds of negotiations, but a deal failed to materialize even though there wasn’t a significant difference over valuation between the parties.
Mint spoke to people involved in the transaction talks, who indicated that the UB Group seemed less willing to sell its stake and monetize the real estate asset once Mallya struck a deal on 9 November to sell a 53.4% stake in United Spirits Ltd to Diageo for $2 billion (around Rs.10,820 crore today). Mallya’s holding company, United Breweries (Holdings) Ltd, is expected to get Rs.2,400 crore from Diageo.
UB Group chairman Mallya himself said, “Nothing is happening,” in a phone text message when asked about the sale. He also said that the UB Group was only contemplating the sale of 50% office space in one specific building.
The liquor baron desperately needs money to restart his grounded Kingfisher Airlines Ltd, which on Monday lost its international flying rights and domestic slots.
On 21 November, The Economic Times and The Times of India newspapers reported that the parties mentioned above were in talks for a stake sale and a deal was under way.
UB City, with a total built-up area of 1.6 million sq. ft, is home to India’s first luxury mall as well as the headquarters of the UB Group’s alcohol companies. The property also houses offices of top companies such as Apple Inc., Citibank NA and Ernst and Young LLP.
Talks were on for a stake sale in three towers in UB City, primarily occupying retail and office space. UB group chief financial officer Ravi Nedungadi led the talks from the seller’s side.
Jitendra Virwani, chairman and managing director of Bangalore-based Embassy Property, told Mint that after a few rounds of discussions, the deal didn’t go any further.
“Then we were told that they wanted to sell only one tower, but it was too small a deal for us,” said Virwani. UB officials had said they would revert once Mallya gave his consent, but didn’t do so.
Blackstone, in an email response, said it won’t be able to comment.
Another UB Group executive said the sale of UB City has been put on hold due to valuation issues.
The UB Group is yet to take a final decision on whether to sell its real estate properties, said one of the persons mentioned above. Such a step doesn’t seem to be among the group’s top priorities right now.
Around 25-30% of UB City has been leased at less than Rs.65 per sq. ft, 50% of space at Rs.85 per sq. ft or below, and the rest at Rs.85-125 per sq. ft, said a property analyst in Bangalore who didn’t want to be named.
A new, upscale residential tower is also being built at UB City, in the space where Mallya’s family home used to stand. Kingfisher Towers is a joint venture partnership between Mallya and real estate firm Prestige Estates Projects Ltd, and is one of the most expensive properties in the city today.
Loans of more than Rs.856 crore from Housing Development Finance Corp. Ltd (HDFC) to UB Holdings are partly secured by future sale proceeds from Kingfisher Towers, according to UB Holdings’ latest annual report.
Investing in good rental generating assets in India has been a trend with PE funds.
Blackstone and Embassy last year formed a special purpose vehicle, Pune Dynasty Projects Pvt. Ltd, to jointly buy rental generating assets. Pune Dynasty has since invested in three projects being developed by Embassy.
Blackstone and Embassy, along with HDFC Property Fund, are also set to buy out Vrindavan TechVillage, a special economic zone in Bangalore, for Rs.1,951 crore. Blackstone and Embassy together will invest about two-thirds of this sum and HDFC will invest the remaining one-third. The deal is under way and will take a few months to close.
PE funds invested around $876.23 million across six deals in commercial office projects in 2012, compared with $798.75 million in 14 deals in 2011, according to data from VCCEdge, a research platform that tracks PE and venture capital deals, and mergers and acquisitions.
P.R. Sanjai in Mumbai contributed to this story.