VBHC may raise $20 mn from Tano Capital, Ambit

Deal values company that is co-founded by Mphasis Corp founder Jerry Rao at close to `700 crore

Mumbai: VBHC Value Homes Pvt. Ltd (VBHC) is raising almost $20 million (approximately 133 crore) from private equity (PE) fund Tano Capital and Ambit Corporate Finance Pvt. Ltd, two people aware of the development said. The deal values the firm—co-founded by Jerry Rao, founder of software services firm Mphasis Corp.—at close to 700 crore, they said.

The firm was previously known as Value and Budget Housing Corp. Pvt. Ltd.

“They are in talks with Tano Capital for an investment of $10 million and another $10 million is being put in by Ambit Corporate Finance’s proprietary fund," said the first person mentioned above, requesting anonymity as he is not authorized to talk to the media. The person added that the deal with Ambit has been closed, while the deal with Tano should be sealed by October.

“These funds are picking up a fresh stake in the company and none of the existing PE investors are making any exit through this round," said the second person mentioned above, also requesting anonymity.

The existing investors in the firm include The Carlyle Group, International Finance Corp. (IFC), Caspian Investment Advisors and HDFC Bank Ltd. Carlyle is the biggest investor in the firm, holding almost a 19% stake, followed by IFC (13.5%), Caspian (5.37%), Stichting Van Herk (3.27%) and HDFC Bank (1.81%), according to data from a Registrar of Companies (RoC) filing dated 30 September 2014.

The firm also counts several high net worth individuals (HNIs), including PE fund ChrysCapital founder Ashish Dhawan and Singapore-based investor Sat Pal Khattar, as investors.

Jerry Rao and Ambit Corporate Finance declined to comment for the story, while an email questionnaire sent to Tano Capital did not elicit a response.

The funds will be used by the firm for its under-construction projects as well for upcoming projects, said the first person mentioned above.

“It will also help the firm spruce up its financials before it hits the primary market with an initial public offer (IPO) in 12-18 months, he said, adding that the firm is yet to mandate merchant bankers for its planned IPO.

In February, Mint reported that VBHC has initiated talks with merchant banks for an IPO.

This new round of funding follows another $20 million that was raised in June this year by the firm from Rotterdam-based global investment firm Stichting Van Herk. In May 2014, VBHC raised 65 crore through a rights issue, where existing investors Carlyle and IFC bought shares, Mint reported then. Rao, too, had invested in this round, but did not disclose the size of the investment. In August 2011, the firm had raised $26 million from Carlyle.

VBHC, the firm that Rao founded with his former colleague at Citibank, P.S. Jayakumar, aims to address the growing demand for affordable housing in India, catering to middle-income earners.

In August 2010, the company had launched its maiden project, Vaibhava, near Electronic City in Bengaluru. Its homes cost 16.74-30.93 lakh, depending on location. It plans to deliver 18,000 homes in next three years, the firm said in January.

The company currently has projects in the outskirts of Bengaluru, Chennai, National Capital Region (NCR) and Mumbai.

According to a 25 August report by property research firm Cushman and Wakefield and real estate lobby Confederation of Real Estate Developers’ Associations of India, the affordable housing segment is an $11.8 billion (approximately 75,000 crore) opportunity for the private sector across seven cities. The demand for affordable housing is estimated at 535,400 units across Delhi, NCR, Mumbai metropolitan region, Bengaluru, Chennai, Hyderabad, Kolkata and Pune, the report said. A number of corporate entities such as Shapoorji Pallonji Real Estate and Mahindra Lifespace Developers Ltd are expanding in the affordable housing market to tap this opportunity.

According to Anshuman Magazine, chairman and managing director of CBRE South Asia Pvt. Ltd, a real estate services firm, although the demand for low-cost and affordable housing is huge, there are several challenges for the segment.

“The biggest challenge is of supply at the right place. Majority demand is within the city, where the jobs, schools and quality hospitals are. But in such places, the cost of land is so high that one can’t do affordable housing," he said.

Also, as margins are lower, one has to sell more units (to become profitable), while the effort that goes into developing the project is almost the same as any other housing project, he added.

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