Loan scam may spur private equity funding in real estate

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Valuations may become more realistic, feel players.

A file picture of unfinished real estate projects in Hyderabad.
A file picture of unfinished real estate projects in Hyderabad.

Moumita Bakshi Chatterjee

New Delhi, Dec. 5

With the ‘bribe-for-loan' scam casting a shadow over builders' access to bank lending, real estate funds and private equity (PE) players now sense a business opportunity.

They are actively scouting the deal street for bargains, hoping that the loan scam will put more equity transactions on the table and prompt “realistic” valuations in deal signing.

Real estate private equity fund Red Fort Capital says it plans to be aggressive and step up investment activities in India, as more and more developers eye the PE route for funding projects in coming months. Another realty fund, Fire Capital, is rolling up its sleeves to deploy nearly $100 million into the real estate market, and expects to snap up 5-10 deals in the next one year.

“The main sources of capital for real estate industry are bank funding and capital markets. With those two options now seen slowing down, it is inevitable that they will look more towards PE for funding,” Mr Subhash Bedi, Managing Director of Red Fort Capital, said.

“We are known to be bullish on the real estate sector. So as a result, when others become more cautious , we get more aggressive in funding. In this market, we are stepping up our investment activities,” Mr Bedi pointed out.

Fire Capital Fund CEO, Mr O.M. Chaudhary, also agrees that bank loan scam will tip the scale in favour of private equity deals. “From a PE standpoint, it means more deals will come our way than before,” he said.

‘More realistic'

A senior official of a dedicated real estate fund, who did not wish to be named, felt that the scam-triggered scrutiny of loan disbursements would turn valuations “more realistic” in the sector, and allow PE players to drive a harder bargain. But Mr Chaudhary opines that despite the bargaining power, he would be careful not to push for terms that are unsustainable.

“We do not want to negotiate deals which do not give builders a chance to do well. Also we would not like to do too many deals as the execution can then become a challenge,” he added.

However, Mr Abhijeet Bhalla, Managing Director with Millennium Spire Asset Management, adds a word of caution. “While it is true that any liquidity pressure in the market will throw up more opportunities for PE, it may be just too early to comment on how much of it will materialise into actual funding,” he points out.

Related Stories:
Mantri Developers prefers private equity
Era Infra looks at QIP, private equity options to raise Rs 750 cr for road projects
ICICI Venture plans to raise Rs 1,000 cr eyeing realty

(This article was published in the Business Line print edition dated December 6, 2010)
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