Mumbai: Construction firm Shapoorji Pallonji & Co. Ltd, which is developing four special economic zones (SEZs) focused on the information technology and back-office businesses, plans to sell up to 10% equity in these projects to private equity (PE) firms.
“We are talking to a lot of private equity firms, including (the private equity arms of) Goldman Sachs and Deutsche Bank, but we have not frozen on anybody as yet,” said Ashutosh Pathare, vice-president (commercial sales and business development) at Shapoorji Pallonji. People familiar with the development, who did not wish to be identified, said Singapore government-owned investment management firm GIC and local firm HDFC Realty were also interested in buying a stake in these projects.
Several reports in the media had earlier said that Shapoorji Pallonji was considering selling a stake in its real estate projects that are FDI (foreign direct investment) compliant. Currently 100% FDI is allowed in projects covering a minimum area of 10ha for residential developments and more than 50,000 sq. m for commercial properties; such investments come with a lock-in period of three years.
Building ambitions: Pallonji Mistry
However, this is the first time that Shapoorji Pallonji has said it is looking for PE investments in its SEZ projects.
The company’s SEZ projects have been valued at close to $1.5 billion (Rs5,955 crore) by the local arms of audit and consulting firm KPMG and investment bank JPMorgan, according to Pathare. He added that the projects would be bunched together when the stake in them is sold, and that the company could consider listing them as a real estate investment trust.
Shapoorji Pallonji or SP as the company is known, is developing the SEZs at Pune, Mysore, Nagpur and Kolkata. Companies that operate in such zones are eligible for tax and other incentives. The SEZs being developed by the firm range between five million and eight million sq. ft. The Pune SEZ is already operational, with companies such as International Business Machines Corp. and Honeywell. Work on the Nagpur and Mysore SEZs is expected to begin in three months, while Kolkata will get off the ground in the next three-six months, Pathare said.
Shapoorji Pallonji’s real estate business is managed by Shapoor Mistry, the elder son of chairman Pallonji Mistry. According to the firm’s website, Shapoorji Pallonji is the single largest shareholder in Tata Sons with an 18.5% stake.
The company also plans to develop integrated townships in the near future. Pathare said that Shapoorji Pallonji is building a land bank of 5,000 acres around Hyderabad (near Shamsabad where the new international airport is coming up), Bangalore (near Devanahalli, where the new airport is located), Chennai (near hardware-hub Sriperumbudur) and Pen (near Mumbai). The company is expected ?to? invest ?around Rs2,500 crore in building the land bank over the next 18 months.
It is investing Rs1,500 crore in developing a mass housing project in New Town, in the Kolkata suburb of Rajarhat. The 150 acre project will house 20,000 families and provide pay-per-use facilities such as swimming pools, a mini hospital and a sports complex, apart from primary schools and shopping centres. The project will be managed by the company for the first 10 years.
The company is also building a 60 storey twin tower residential property at Tardeo in South Mumbai. The Rs500 crore project is being developed by SD Corp., a joint venture between Shapoorji Pallonji and builder Dilip Thacker, and will be the tallest residential building in the city.
Despite concerns about a real estate bubble in India, investments from foreign companies in the sector have continued unabated. Earlier this month, Goldman Sachs invested an undisclosed amount in Pune-based realtor Prajay Engineering Ltd. And Deutsche Bank has thus far invested Rs2,200 crore in two real estate deals: Rs1,700 crore in the Mumbai-based Lodha Group for a 25% stake in three FDI-compliant projects and Rs500 crore in construction firm Hindustan Construction Co. for a 5% stake.