New Delhi: Unnerved by withering global equity markets, India’s two leading real estate developers, DLF Ltd and Unitech Ltd, have indefinitely postponed plans to list their real estate investment trusts (Reits) on the Singapore Stock Exchange until market conditions improve, in turn increasing pressure on them to find alternative means to fund projects.
DLF, which was looking to revive the initial public offer (IPO) of its promoter-owned company, DLF Assets Ltd, confirmed that it has postponed the IPO. It had initially planned to update the IPO documents in Singapore by May end or this month.
“We are not going to look at a Reit listing till market conditions improve,” said Ramesh Sanka, group chief financial officer, DLF. He didn’t say what kind of funding the firm would now look at.
Unitech is also not looking at a Reit listing in the immediate future. The company had planned to raise around $700 million (Rs3,000 crore) from the IPO in Singapore.
“At this point, Unitech Corporate Parks is not planning to float a Reit,” said Sanjay Chandra, managing director, Unitech. “We are not talking to any banks.”
Unitech Corporate Parks, the London-listed investment company of Unitech, hopes to sell three commercial assets to the Unitech Office Trust, the proposed Reit of Unitech.
The underperformance of recently listed property trusts is discouraging developers from raising money through this route, which, until six months ago, was considered the most promising way to raise funds. Indiabulls Real Estate Ltd, the fourth-largest listed Indian developer raised only S$262 million from its Reit offering, less than the S$286 million it had initially sought. And Indiabulls Properties Investment Trust, which made its debut on the Singapore stock exchange on 11 June, has traded for three straight days below its offer price of S$1.
Key bankers to the deal said it was a “tough’’ offer to pull off because of the weak sentiment in the equity markets.
But, it’s not just Singapore where buyers are turning reluctant. Investors have been punishing developers in the domestic market: DLF’s shares are trading 8% below their July listing price of Rs525, whereas Unitech’s shares have plunged 61% in six months.
Unitech says it is looking at private equity investment in various projects to meet its funding needs though it did not say how much the company intends to raise through the private equity route, something which analysts say may become scarce.
“Private equity deals will happen, but valuations will start to fall or could become depressed. Also, nobody knows how long private equity funding will last because fresh equity money raising is not happening,” said Unmesh Sharma, an analyst with Macquarie Research. “The Indian property market is at risk because both the physical property market and stock prices of property companies are down. Till things look up on both these fronts, going for an IPO will be very difficult.”
Property values have already come off their highs of last year in most markets in India, and developers are being forced to delay projects because of a funding delay. Unitech and DLF were planning to raise between $700 and $1 billion from the IPO which is not the most easy deal to do, he said.
“There is no sense of recovery in the Singapore market in the near future,” said Sharma, who notes that the only funding option for developers is private equity investment.
Equity markets worldwide have been caught off guard after a bad debt crisis in the US spread and deepened, bringing some of the world’s biggest banks to their knees. As a result, lending has become scarce and expensive and banks have turned wary of the kind of indiscriminate loan giving that led to the crisis in the first place.
DLF Assets was formed by DLF to bid for commercial properties that could be put up for sale by DLF. Sales to DLF Assets, owned by the same promoters as DLF, accounted for 40% of DLF’s profit in the year ended in March through the arrangement where DLF sells the bulk of its commercial properties to DLF Assets. DLF Assets bought Rs5,345 crore of properties from the New Delhi-based developer in that period, according to an investor presentation on the company’s website.
DLF Assets has already raised $1.15 billion from three investors through private equity placements, the latest of these being $450 million from London-based Symphony Capital by issuing compulsorily convertible preference shares. Previously, DLF Assets received $200 million from a fund sponsored by Lehman Brothers and $400 million from another global investment firm, DE Shaw. Promoters of DLF have also stepped in by giving more than Rs1,100 crore worth of interest-free loans to DLF Assets to help the firm pay for properties it had bought from DLF.
DLF had first announced plans for the initial public offer in 2007.
The company says it has already received regulatory approval in Singapore