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Investor apathy trips real estate PE funds from Indiareit, others

The Financial Express, Shubhra Tandon, Mumbai

June 01, 2012

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Indiareit Fund Advisors, the private equity arm of the Ajay Piramal-promoted Piramal Healthcare, has put its recently announced $500-million offshore fund on hold. Indiareit MD & CEO Ramesh Jogani said the fund "did not see good response from investors".

Indiareit, which has three domestic funds managing R1,950 crore and an offshore fund of $200 million, had said in February it would begin roadshows for the latest fund in June.

The move to hold back the launch underscores the caution exercised by foreign investors in the Indian real estate market on economic uncertainties, policy paralysis and a weakening rupee that devalues investments.

Kotak Realty Fund, which started raising money for a $300-million offshore fund a month back, has had a similar experience. "The issue right now is not who is interested in India but how many want to invest here. The list of investors has shrunk," V Hari Krishna, director (investments), Kotak Realty Fund, said. The fund has $811 million in assets under management.

"Raising money offshore was not easy because of the dollar-rupee fluctuation and investors preferring fixed deposits, which they feel are a safer investment," Jogani said, adding that foreign investor interest in India is currently weak.

Other realty funds too are finding the environment tough. ASK Property Investment Advisors, another India-focused PE currently raising $250-300 million in an offshore fund, has an uphill task convincing investors.

"There is a lot of negativity towards India due to policy inaction and the weakening currency," Sunil Rohokale, CEO and managing director, ASK Investment Holdings, said. ASK, which plans to raise money starting July, will do so in two tranches — $100 million by March 2013, and the remaining $150-$200 million by the end of 2013 or early 2014.

However, the company is optimistic: "The fund-raising environment is challenging but not impossible," adds Rohokale.

According to industry sources, construction and real estate major Shapoorji Pallonji Group is trying to raise $500 million through a private equity fund for over a year now. HDFC Property Fund, part of Housing Development Finance Corporation, has also not announced an offshore fund for long, say sources. The fund-raising environment, consultants say, has been challenging for some time. The time taken by funds to reach financial closure is longer than what it was three years back. Fund sizes have also shrunk and convincing investors has become difficult.

"In 2006-2007, it took about nine months to maximum a year to reach financial closure on funds which were over $500 million," says Berinder Sahni, associate director (investment services), Colliers International. "Now, most funds have reduced their sizes to about $250-300 million and the process is far slower."

Apart from the policy paralysis and a falling rupee, new regulations like the general anti-avoidance rules (GAAR) to tax investments from safe havens have alarmed foreign investors. Foreign investors are concerned that GAAR may not be investor-friendly, since they propose to discourage investors from routing money through Mauritius or other tax havens. Meanwhile, the rupee has depreciated by around 10% between mid-March and now.

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