Piramal to invest Rs1,200 crore in Omkar’s Mumbai luxury project3 min read . Updated: 31 Mar 2015, 01:29 AM IST
Piramal will invest Rs1,200 crore as project-specific debt in a luxury residential development of Omkar Realtors
Bengaluru: Piramal Fund Management Pvt. Ltd will invest ₹ 1,200 crore as project-specific debt in a luxury residential development of Omkar Realtors and Developers Pvt. Ltd in Mumbai’s upmarket Worli neighbourhood, where the property developer has cleared a slum to build apartments that will cost as much as ₹ 100 crore.
This is one of the largest single project financing transactions in India and comes at a time when developers are finding it hard to sell units in luxury residential projects.
Piramal Fund Management, a Piramal Group company, has structured the transaction in a way that ₹ 400 crore will be used to refinance existing debt of Omkar Realtors. The remaining ₹ 800 crore will be secured against a so-called 20:80 scheme and is intended to be drawn on as construction progresses over the next two years.
In a 20:80 scheme, a buyer pays up 20% of the apartment cost at the time of booking and the remaining on possession. The developer, in between, ties up with a bank, or in this case, a private equity (PE) fund, who then advances capital to the developer, as construction finance.
Omkar 1973 is the flagship property of the company and will have three high-rise towers spread over an area of 9 acres. This is a slum redevelopment project, with the apartments priced at ₹ 15-100 crore, where a ₹ 100 crore home will be spread over 18,000 sq. ft.
“We realized that buyers don’t mind paying for high-end products as long as the project is ready. Sales are slow and they want execution and completion security," Khushru Jijina, managing director, Piramal Fund Management, said on Monday. “This is a novel structure with a combination of senior debt as well as project funding secured against a very successful 20:80 scheme in a project that is clearly established with 60% sales and visible construction progress."
Home sales have been slow in large property markets such as Mumbai and the National Capital Region (NCR) centred on New Delhi over the last two years, and luxury projects are the ones that have suffered the most.
The high-end residential segment has seen a significant slowdown in the past couple of years, leading to developers launching different schemes to push sales. Omkar launched the 20:80 scheme in January and said it had sold 400,000 sq. ft in a market that has otherwise experienced slow velocity for big-ticket apartment purchases.
“...With this funding, we have achieved full financial closure for the construction and development completion of Omkar 1973," said Babulal Varma, managing director, Omkar Realtors.
The project was launched 15 months ago and is expected to be completed in 18-24 months, said Gaurav Gupta, director, Omkar Realtors.
This is the latest in a string of tie-ups between Piramal and Omkar. Last week, Mint reported a ₹ 200 crore investment by Piramal in a joint development project of Omkar Realtors and Kolkata-based Forum Group in Mumbai.
The first transaction of Piramal’s new apartment fund was in Omkar’s Alta Monte project in suburban Mumbai, and three out of four of its transactions from the Mumbai Redevelopment Fund were in Omkar’s projects.
“The size of the transaction is driven by the project’s ability to generate cashflow, which will service debt. For the developer, this is a win-win transaction where he gets to repay earlier liabilities as well as get the comfort of construction finance," said Shashank Jain, partner, transaction services, at PricewaterhouseCoopers India.
Jain said large transactions such as this typically take place in the commercial office space sector, but are not common in the residential space.
“A transaction like this is possible when someone like Piramal, which has one of the largest fund corpuses to deploy, backs it and also the cashflow cover that the project provides the fund with," he said.
Separately, Piramal is also in the process of raising a $150 million offshore fund, out of which it has already raised around $50 million.
Piramal is now looking to do a long-term partnership with a single investor or limited partner (LP) instead of a number of LPs who typically commit capital to a fund.
“We are looking at a long-term, 8-10 year association through this partnership," said Jijina.