Mumbai: Just a week after the State Bank of India (SBI) announced a $2 billion (Rs8,100 crore) infrastructure fund with Australia’s Macquarie Group, the nation’s largest lender is set to tie up with an affiliate of Unitech Ltd, the country’s second biggest publicly traded real estate company, to float a private equity (PE) real estate fund.
Attractive bet: India is a strong contender for PE funds in realty. Photographer: Madhu Kapparath / Mint.
A senior SBI executive said the state-run bank has signed a preliminary agreement with New Delhi-based Unitech Realty Investors Ltd for the proposed fund, but the bank is yet to get the board approval.
The executive didn’t want to disclose the size of the fund. SBI’s anchor investment in the real estate fund is yet to be decided.
“We want to be in areas where we are not,” said Deepak Chawla, a deputy managing director at SBI, in charge of corporate strategy and new business.
Unitech Realty Investors manages Rs3,000 crore of money under three domestic funds and one foreign fund. The company invests only in Unitech’s developments. Mint couldn’t ascertain whether the SBI-Unitech fund will invest only in Unitech’s developments or in those of other companies too.
Prior to the infrastructure fund with Macquarie Group, SBI had bought a 20% stake in February in Mumbai-based Sage Capital Fund Management, which is tapping investors for a $250 million special situations fund.
The bank also plans to make anchor investments, or the initial commitments, in funds that it will manage. Typically, an investor contributes not more than 10% to a PE fund.
In the $2 billion infrastructure fund, SBI, Macquarie and International Finance Corporation, the World Bank’s investment arm, will contribute about $450 million as anchor investment. In the special situations fund, SBI and other investors have already contributed $100 million in capital commitment, according to Manish Kanchan, managing director of Sage Capital.
SBI is a late entrant in PE. Its competitor and India’s second largest lender, ICICI Bank Ltd, has been in the PE space for 20 years, and its subsidiary, ICICI Venture Funds Management Co., is now one of the country’s largest PE players.
In 2005, ICICI Venture tied up with New York-based fund manager Tishman Speyer Properties to manage a real estate focused fund in India.
Among the public sector banks, Bangalore-based Canara Bank was the first to float a PE arm called CanBank Venture Capital Fund in 1989.
Axis Bank Ltd, too, has a PE arm. Axis PE recently announced the first closure of its Axis Infrastructure Fund at Rs600 crore; its target is Rs2,000-2,400 crore.
A late-2007 study of global trends in the real estate PE industry by audit and consulting firm Ernst and Young predicted $10 billion worth of foreign investment into the Indian real estate sector in 12-18 months. “With over 30 Indian cities having a population of one million or more, India should remain a strong contender for real estate private equity investments for years to come,” the study said.
Deutsche Bank, which rolled out its real estate investment management business, RREEF Alternative Investments, in India, plans to pump in $1 billion in the country’s real estate and infrastructure sectors over three years.
Merrill Lynch is raising a Pacific Rim real estate investment fund to the tune of $2.5-3 billion, to invest in markets, including India.
GIC Real Estate, an arm of the Government of Singapore Investment Corp., an active PE investor in Indian firms, is also looking at the country’s real estate sector.
Other project-level PE investments in real estate sector include US-based Warburg Pincus’ $75 million investment in Unique Affordable Homes Pvt. Ltd, part of the Jaipur-based Mannat Group.
Shabana Hussain in New Delhi contributed to this story.