As many as eight Indian real-estate firms which had plans of listing on the Alternative Investment Market (AIM) of the London Stock Exchange have put their plans on hold for the time being, said consultants who did not wish to be named because of confidentiality clauses. The companies are holding out on the apprehension that they will not be able to raise as much capital as previously expected.
“Investors had soaked up real-estate stocks last year,” said Ibukun Adebayo, manager, business development, India and international, London Stock Exchange. “This year, there is a slowdown in the domestic real-estate market and this mood is reflected at the AIM market as well.”
Among the companies that have decided to defer the AIM listing is Mumbai-based real-estate developer Lok Housing and Constructions Ltd, which had planned to raise $200 million (Rs820 crore).
“We had filed papers at AIM. But we are waiting ...since we feel this is not the right time to list. Stock prices are way too low now. We do not think we will get a fair deal,” said a company official who did not wish to be named because the documents have been filed with the exchange.
According to consultants who did not wish to be named, real-estate players such as Ansal Properties & Infrastructure Ltd and the Embassy Group of Bangalore have put on hold their plans of listing on AIM. Embassy Group declined to comment. Ansal vice-president, marketing and corporate communications, Kunal Banerji said the company was not interested in an AIM listing. “Merchant bankers explained what it (an AIM listing) is all about. And after they explained, we were not interested at this stage,” he said. He didn’t say why.
Real-estate stocks in India have fallen sharply from their highs, hit by rising interest rates that will crimp buying. Prices for property in smaller towns are already starting to slow on concerns they have risen too far, too fast. Three of India’s top listed real-estate firms have shed anywhere between 8% and 36% in market value since January.
Companies do not need a particular financial track record or trading history to list on AIM. There is also no minimum requirement in terms of size or number of shareholders. In fiscal 2007, 12 Indian or India-focussed companies raised over $2.7 billion from AIM, out of which $2.2 billion was raised by construction and real-estate-related companies, and funds focused on India such as Unitech Corporate Parks, Hirco Plc., Ishaan Real Estate Plc., Evolvence India Fund and Kubera Cross Border Fund.
Investor confidence has been shaken by the fact that some previously listed real-estate stocks are trading below their offer price.
Real-estate firms in India which have been priming for a listing face tougher laws and less friendly lenders at home. The stock market regulator recently tweaked the laws governing listing to include a revaluation of the land banks based on current worth, not future projections. It also asked for details on ownership and said the companies should be rated before a listing, in a bid to prevent fly-by-night operators from tapping the market for funds.
Real-estate prices have risen almost 30% in India’s top cities in the last year; now the central bank has cautioned banks to not be excessive in lending to the sector and moved to decrease the amount of money that banks can lend.
“I think the market is in a consolidation mode. Weak developers and weak projects will find it difficult to find investors to fund their projects,” said Nitin Gupta, associate director, PricewaterhouseCoopers. “It is good for the market. These players will eventually move out of the scene”
Adebayo said there was bound to be a slowdown since the Indian real-estate industry was likely at its peak. “There was bound to be a slowdown. It is driven by the poor performance of stocks and also because of the real-estate cycle. Right now, the cycle is at its low,” he added.
Still, Indian firms with good track records may still be able to raise funds from AIM when the market stabilizes.
“We expect more real estate listings during the second quarter of this year,” Adebayo said.
(Prashant Gopal contributed to this story.)