JP Morgan Asia Pacific Research : India Property

Is private equity still bullish? Yes. Delhi, Bombay, Ahmedabad, Pune and Bangalore emerge as prime investment destinations. Negativity prevalent in the local stock market investing class, than in PE Investors.

Top Stock picks: Anantraj, DLF, Unitech, HDIL, IBREL & Ganesh Housing


Private equity has emerged as one of the most important source of capital
raising for Indian developers especially after the market sell off in Jan 08. The sector over the last few months has witnessed a surge in PE deals as capital raising avenues from equity markets have tightened considerably.

In this report we analyze close to 90 key private deals (US$7.6B total) that have happened in Indian property space over the last one year. The aim is to map out trends in investment flows and reconcile the difference in investment view between primary and secondary investors. We also cross checked our findings with various meetings with PE funds to assess their outlook for the physical market.

Cautious but not overly bearish
- While most private equity investors remain circumspect of the sector fundamentals (especially residential) , the level of bearishness is probably not as high as it is in the secondary market. Though funds remain selective of their investments, incrementally they do seem to see value at current valuations (project/entity level).

Even though deal flow has increased substantially over the last three months, the number of transactions achieving closure might slowdown considerably in 2H on increasing macro concerns. With even top tier developers in the fray for raising capital, a flight of funds to quality might play out in the near term.

Where is the money going?

Our analyses of fund deployment indicates (a) Locational preference for Metro/Tier 1 cities given perceived ongoing, sustainable economic activity in these locations (b) Asset level preference for Mid income / Office (c) Historical preference for project level investment however pace of entity level investment is now expected to pickup and (d) Preference for top tier developers given lower perceived execution risk.

How much money might be waiting on the sidelines?

US$15-20B in capital raising announcements- An end to short term liquidity concerns and India's BOP issues.

There have been significant fund raising announcements of >US20B made over the
last two years for investing in Indian real estate (source JLL, media reports). Even
thought the overall amount is huge, note that a big proportion of funds have yet been
deployed as yet.

As a word of caution, in the current market, it is not inconceivable that the draw down facility many PE players use for funding new projects could be dry up or be materially reduced as their investors can back out of their capital commitments. According to news reports, there are over 15 private equity deals across sectors that have been called off since December. Some of the key ones include Citi Venture’s investment in Akruti City and ICICI Ventures’ investment in Jaypee Infratech.

Fund Raising Announcement in US $/Millions

Pacific Star (Asia Fund Select Concept)- 2000
ICICI Ventures - 2000
IDFC Private Equity - 2000
Donald Trump Jr - 1000
Deutsche Bank (RREEF Alternate Investments) 1000
Millennium Spire 2 - 1000

Kotak India Realty Fund - overseas- 1000
Credit Suisse- 1000
Blackstone group -1000
Goldman Sachs - 1000
HDFC International Fund (HIREF International LLC.)- 800

IL&FS Investment Managers Ltd -750
Sun Appolo Real Estate Fund - 630
Triangle India Real Estate Fund (co-promoted by Old Mutual Investment Group Property Investments (OMIGPI) and ICS)- 500
Baer Capital (Dubai based PE fund)- 500
HSBC Real estate fund -500
Khaleeji Com Bank (Global Logistix Navi Mumbai Investment Company)- 430

JM Financial Infinite India -400
Trikona Capital -375
Singapore Ascendas -325
Mumbai-based Primary Real Estate Advisors -300-500
Unitech (Unitech International Real estate fund) -300
Rutley Capital Partners -300
US Based Hines -300
Societe Generale Asset Management -296
Milestone Capital Advisors (Milestone Domestic Scheme–II)- 250

Red Fort Capital - domestic fund- 250
Knight Frank -250
Yatra Capital (Netherland) - 212
Mauritius based Pragnya Fund II- 150
Yatra Capital (Euronext) -136

LIC Housing Finance -125
JM Financial Property Fund II -125
Citigroup property investors -125
Morgan Stanley -70
GE Commercial Real estate - 63
Millennium Spire I- 50

Total Proposed Investments 21,812 ($ 21.8 Bn)
Source: www.vccircle. com