Global Investment Banks to Invest $500mn in Unitech Spv

NEW DELHI: Private equity players Lehman Brothers and Deutsche Bank are set to make a combined investment of $500 million in an SPV floated by India’s second-most valued real estate developer Unitech, according to a person close to the development.
The two PE players are learnt to be in advanced talks with Unitech to pick up a minority stake in the SPV formed to execute two commercial projects in Mumbai. The two projects, located in Santa Cruz, are likely to have a combined developable office space of 2 million sq ft. The deal is likely to be closed in the next three weeks, according to a source. Unitech declined comment on the issue.
This injection of fresh funds would come as a relief to Unitech, which recently put on hold its $1-billion qualified institutional placement (QIP) and the listing of its Singapore REIT (Real Estate Investment Trust) due to poor market sentiment.
Market volatility and the news that Unitech was putting off its QIP and REIT listing have hammered the company’s stock beyond recognition in the past few weeks. Unitech has lost almost half of its market cap since the beginning of the year. Its share closed at Rs 267 on Wednesday as against Rs 508 on January 1. It has shed 28% in a month’s time.
The Santa Cruz project may be one of the first to be completed by Unitech in Mumbai. The company has largely been an NCR player, with a good 70% of its revenue coming from here. The Gurgaon-based firm is now foraying into other parts of the country, and, perhaps, more aggressively in Mumbai.
“Unitech has a land bank of 350 acres in Mumbai. The company is aiming to generate more revenues from Mumbai than NCR in the next two years,” said a source, adding that higher returns on real estate in the financial capital was the obvious reason for this move.
Unitech had announced its entry in the Mumbai market last year with a 97-acre commercial project in Bandra-Kurla Complex.
The likely Unitech-Lehman-Deutsche deal apparently drives home the point that although poor market conditions might have slowed down PE deals, big money is still following certain opportunities in India. The poor sentiments on the street have put public offers out of question, forcing even DLF to put its Singapore REIT listing on hold. Delhi-based developer Omaxe too has put off its plan to raise Rs 1,500 crore through fresh issue of equity since its market cap has reduced by two-third from its peak. Another leading developer Delhi-based Emaar-MGF too had to withdraw its IPO last month after it failed to generate investors’ interest.
In these times, private equity seems to be the natural choice for developers. But as the valutions are down, instead of equity dilution, investments at SPV level makes more sense. Developers can leverage the project’s land for investment. Such investments have been a favourite means of getting FDI as they don’t require promoters to dilute their stake in the company. There have been several deals involving SPVs, including 49% stake sale by DLF in its seven housing projects to Merrill Lynch for $377 million last year.
In another important deal, Government Investment Corporation of Singapore and Citigroup Venture Capital International together bought a 15% stake for Rs 11,559 crore ($290 million) in the construction giant Shapoorji Pallonji’s real estate SPV. Global hedge fund DE Shaw made an investment of Rs 9,965 crore ($250 million) in Mack Star Marketing, a unit of Mumbai-based public listed real estate developer Housing Development & Infrastructure (HDIL).