The Hindu Business Line : Private equity firms build up on Indian realty firms

New Delhi, July 17 Real estate and infrastructure management sector saw Private Equity (PE) deals worth $2.32 billion in the first half of 2008, nearly three per cent higher than the year-ago period, even as the average deal size fell over nine per cent reflecting the sluggishness in the market.

According to Grant Thornton, 33 deals were inked in the first six months of the 2008 compared to 29 deals in the January-June 2007.

PE deals, during the month of June, stood at about $247.5 million, almost half the level seen in May 2008 when about $ 478 million of PE money was infused into various projects.

Low valuations

“The valuations are certainly down as the market is in the midst of a slowdown.

“With access to capital market out of question and bank debt getting tighter, we see more and more developers tapping PE sources to bridge the fund gap for projects.

“Although in the short-term PE players may take a cautious stance, over a 12 - month horizon, the number of PE deals is likely to go up,” says Mr Subhash Bedi, Director and Partner, Red Fort Capital.

Red Fort Capital has concluded seven transactions in the first six months of 2008 compared to six deals during entire 2007.

Pumping in

Earlier in June, Lehman Brothers Real Estate Partners had announced an investment of Rs 740 crore ($185 million) for 50 per cent stake in the initial phase of a Unitech project, located on the Western Expressway of Mumbai.

During the same month, Axis Bank too invested Rs 250 crore in Lavasa Corporation, a subsidiary of Hindustan Construction Company, in the form of convertible preference shares and convertible debentures.

An industry official pointed out that while investors were still interested in the real estate market, they had adopted a selective approach towards projects.

“With more projects on the negation table now, and given the current market sentiments, PE players will pick and choose. Only those projects which have the required approvals in place would hold their interest,” the officials said.