Indian property developers turn to private equity
Indian property developers will borrow about $1 billion from private equity funds this fiscal year as banks cut back on lending, according to Knight Frank. PE funding to the sector came to INR12 billion ($252 million) in the last three months and the property consultancy expects it to reach INR35 billion by end March 2012.
Deals are being made on the basis of internal rates of return of 25-30%, Bloomberg reported.
Developers have turned to private sources for funding following a slowdown in sales and a consequent tightening of lending conditions by banks and finance companies. Interest rates have also become an issue, with India's central bank having raised rates 11 times since March 2010 in a bid to rein in inflation.
The combined net debt of India's 11 listed developers rose 15% to INR385 billion in the 12 months through June, according to Mumbai-based Edelweiss Securities. If developers can't reduce debt, a spate of distressed asset sales is expected.
Parsvnath Developers in May raised INR5.2 billion from private equity sources including SUN-Apollo India Real Estate Fund, J.P. Morgan and Red Fort Capital. Ansal Properties & Infrastructure raised INR2 billion from Red Fort for a residential project in Gurgaon in February.
Amit Goenka, national director of capital transactions at Knight Frank's Indian unit, said that private equity funds have bought about INR25 billion in assets from developers so far this year. He estimates that property companies will need to repay INR260 billion rupees of debt in the 2011-2012 fiscal year.
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