DLF to invest a third of IPO proceeds in land

Mumbai, India: DLF Ltd has said it would invest Rs 3,500 crore - roughly a third of its planned initial public offering (IPO) - in building up its land reserves. This is significantly lower than its earlier plan of investing Rs 6,500 crore for the purpose.

Announcing its plans here today, DLF said it hoped to raise Rs 9,625 crore through a public issue of 1.75 crore shares in the price band of Rs 500-550 between June 11 and 14.

The new shares on offer will constitute 10.27 per cent of DLF’s post-sale capital. The share sale will give DLF a market value of as much as $24 billion, more than double Unitech’s, India’s biggest property developer.

The real estate major added that it can develop up to 575 million sq ft of real estate space on 10,255 acres (4,150 hectares) of land that it owns or has rights to in 31 cities. The company currently has 44 million sq feet of land under development.

Over half of its land (nearly 5,269 acres) is located in the National Capital Region, 2,708 acres in other major cities and 2,278 acres in the rest of the country.

The company said its current land reserves are sufficient for its planned developments over the next 10 years and provide it with a major competitive advantage, as well as protection against land price inflation.

“We aim to build up land reserves at competitive prices at strategic locations in the country, to gain from them during the upside in the economy,” said DLF Vice-Chairman Rajiv Singh.

While DLF and its subsidiaries own 11.3 per cent of the land reserves, they have sole development rights for 44.6 per cent of the total.

They have agreements to purchase or letters of acceptance for 35.9 per cent of the land, while the rest are joint developments with partners, the company said.

DLF filed its first prospectus in May 2006, which it had to withdraw on account of regulatory objections in August, following complaints by minority shareholders. The company filed a renewed prospectus in January this year. The Delhi High Court recently cleared the issue.

DLF will foray into newer areas in the future, including airport management, financial services, asset management, leisure entertainment and hospital properties, among others.

“We may foray into newer areas if good opportunities are available at any point of time. We can also tie up with foreign partners for the ventures,” Singh said.

DLF is promoted by billionaire Kushal Pal Singh, whose wealth doubled last year to $10 billion, according to Forbes. Singh, 75, a former Indian Army officer, bought land in Gurgaon, 17 miles (27 km) south of central New Delhi, in the early 1980s.

He developed Gurgaon as a significant suburb of the national capital, carving out residential plots and condominiums and commercial buildings that house offices and retail outlets.

Merrill Lynch and Kotak Mahindra Capital will manage the IPO, and Citigroup Inc, ICICI Securities, Lehman Brothers Securities, UBS AG, Deutsche Equities India and SBI Capital Markets will also be the sale arrangers.

Source: BS Reporter.

Fresh dollars heading for Indian realty

New Delhi, India: Nearly two dozen US funds are raising $3.5 billion for investments in Indian realty. This is over and above the $2.5 billion invested by overseas realty funds in India to date. Those raising the money include Wall Street powerhouses such as Blackstone Group ( $1 billion) Goldman Sachs ($1 billion), Citigroup Property Investors ($125 million), Morgan Stanley ($70 million) and GE Commercial Finance Real Estate ($63 million). Others raising the money are: JP Morgan, Warburg Pincus, Merrill Lynch, Lehman Brothers, Warren Buffett’s Berkshire Hathaway, Colony Capital and Starwood Capital.

Considering that most US funds had showed no interest in investing in realty in India, their bullish outlook now has surprised many. The answer lay in the policy changes of February 2005 that allowed 100% foreign investments in construction projects with fast-track approvals. But the real attraction is potential investment returns of 25% and more in Indian projects that might be hard to come by in the US and Western Europe today.

One such determined big player is Goldman Sachs. Today there is a sea change in perceptions. For about a year now, Goldman Sachs’s Whitehall Street Real Estate Funds have been exploring the Indian market and checking out potential investment partners. Some time back, the firm announced its plans to invest up to $1 billion over the next two years in Indian private equity, real estate, private wealth management, and other businesses in the country for its institutional clients. A month later, California Public Employees’ Retirement System invested $100 million in a $400-million real estate fund promoted by IL&FS.

What is attracting investors in particular is India’s urban office space market, which is at 60 million sq ft, compared with New York City’s 400 million sq ft or New Jersey’s 175 million sq ft.

Bangalore has 25 million sq ft of office and high-tech space, of which 9 million sq ft was built last year. For investors, this is a glass half-full or half-empty.

Tishman Speyer is among the first US developers to invest in India. Last year, the New York City-based firm formed a joint development company with ICICI Venture Funds of Mumbai that will have a war chest of $2.5 billion. Tishman Speyer and ICICI Venture Funds are bringing in $300 million each in equity and will invest equally in projects. So far, the Tishman Speyer-ICICI Venture Funds combine has signed memoranda of understanding for two ventures in India. One is a $200-million project for residential and commercial development on 42 acres in Bangalore’s prime Whitefield suburb. The second one is in Karnataka’s Devanahalli , where Tishman Speyer and ICICI Venture Funds are buying a 25-acre plot whose final use has not yet been decided.

Similarly, New York-based developer Vornado Realty Trust has teamed up with The Chatterjee Group, a venture capital firm also located in New York. The Chatterjee Group has more than $1.5 billion in investments, including some in Indian real estate development projects and business process outsourcing operations. Vornado’s investments through this partnership are primarily in the booming market for information technology parks in cities like Bangalore, Hyderabad and Navi Mumbai.

Source: The Financial Express.