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HDFC to consolidate funds in Shapoorji Pallonji realty projects
Source: livemint.com Feb 03, 2012
Housing Development Finance Corp. Ltd's (HDFC's) private equity fund is withdrawing its investments in five projects of Shapoorji Pallonji and Co. Ltd, and instead diverting the money to significantly increase its stakes in two of the group's residential projects.

The five projects are special economic zones (SEZs) and information technology (IT) parks, said two people familiar with the development.

No fresh investments will be made for the additional stakes in the residential projects.

HDFC India Real Estate Fund International Llc invested about $60 million (Rs.295 crore now) in 2008 in special purpose vehicles set up with Shapoorji Pallonji for developing SEZs, IT parks and the residential projects in Kolkata, Manesar, Nagpur, Baroda, Mysore and Pune.

It picked up 35% stakes in each of these, leaving the balance interest with Shapoorji Pallonji, the development partner.

"HDFC is in the process of unwinding its investment and consolidating it in only two of the seven projects, both in Pune," said one of the two people familiar with the matter, asking not to be identified. "The fund will give up its stake in the other five projects, but its stake in the Pune projects will go up to 90% and the remaining 10% stake will be with Shapoorji Pallonji."

The second person familiar with the development, a property analyst, said HDFC opted to consolidate its investments into the residential projects in Pune as these are progressing fast.

A spokesperson for Shapoorji Pallonji declined to comment in an email response. Real estate development is a relatively small business for Shapoorji Pallonji, primarily a construction group. The group is raising a PE fund of its own that will also invest in the realty sector.

Rajeev Bairathi, director of investment advisory, at DTZ International Property Advisers, said such a restructuring afford a PE fund easy exits from investments that are unlikely to bear returns quickly.

"Consolidation exercises like this enable a fund to renegotiate terms with a developer, where the former opts for an option where exit is visible in a few years' time," said Bairathi.

Real estate analysts say such restructuring of PE investments in real estate is not uncommon. A usual method adopted is swapping investments at the project level for entity-level ones, or vice-versa.

Gurgaon-based developer BPTP Ltd, for example, received Rs.322.5 crore of entity-level funding in 2007 from Apollo Global Management Llc and later Rs.399 crore into some projects. In 2011, Apollo Global exercised a swap option in the contract to restructure its investments.

HDFC India Real Estate Fund International recently invested about $90 million (Rs.442 crore today) in an IT park coming up near Bangalore airport. The $800-million fund will pick up a stake of about 40% in the 200-acre project being developed by Embassy Property Developments Ltd, a city-based builder.

The fund had previously invested Rs.209 crore in Manyata Tech Park in Bangalore and fetched Rs.544 crore on exiting. In the Embassy Golf Links project also in the city, it had acquired two buildings for Rs.53 crore and exited with a return of Rs.201 crore.

Having nearly deployed the entire $800 million fund, HDFC Property Fund is raising a $600-million offshore real estate fund.

Tag: Real estate in india, property in india, indian properties, apartments in india
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