After the meltdown, comes the flight of capital. Large institutions such as AIG, Morgan Stanley, Wachovia and others are planning to liquidate some of the Indian assets in which they had invested their proprietary capital.
Investment banking sources and PE funds have confirmed that a number of such deals have been available in the market for the last few weeks. While there are only a few income-yielding and advance stage assets, which would be easier to sell, a majority of the assets will be at an early stage which would find very few takers or see a loss. “Around 15-20% of the deals in the market today are of this kind,” says the investment banker.
Some of these institutions are highly leveraged and their mortgage related assets in the US are getting marked down. There is a need to liquidate some of the assets they bought with their proprietary capital to get cash and strengthen their balance sheet,” says a source at an India-focused real estate fund. In the last one week, the fund has already received a few calls for large deals where some of the large institutions have invested from their proprietary books.
“The pressure to sell is also because many PE deals might have been sold down by these institutions as structured products and now those buyers want an exit given these buyers' potential exposure to sub-prime assets,” says Jagdeep Pahwa, managing director, Infinite India Investment Management. “We have reviewed a few structured deals with proprietary investments of large institutions in the past three weeks,” says Sunil Agarwal, chief development and acquisition officer at South Asian Real Estate.
A Mumbai-based investment-banking firm confirmed that they are working on a few deals that involve investments from the proprietary books, but declined to reveal the names of the deals. The firm is working on such deals with a large Indian institutional investor which is fairly active in the market. “With a rupee fund, an Indian institutional investor can structure the deal more effectively,” says the investment banker.
“At the moment, such deals will be looked at by the opportunistic and value funds. However, I expect that in six months, as valuations go down another 15-20%, these deals will also be attractive to vulture and buyout funds who are keeping a keen eye on this space,” says real estate expert Anckur Srivasttava.
Most of these large institutions have been investing in real estate in India through both managed and proprietary capital. Wachovia does not have a fund and has been investing from its proprietary books for the last two years, though at the moment they are looking at investing selectively from their proprietary books in India, confirmed Sandeep Kundu, director for real estate capital markets at Wachovia. “We are long-term investors in India and that is why we are investing from our proprietary books. We don't have an exit strategy as yet,” adds Kundu.
Market sources though confirm that there are a few of Wachovia's real estate deals that are being looked at closely. Interestingly, Merrill Lynch had merged its proprietary book with its third-party fund early this year so they are safe on that front after the recent events. DSP Merrill Lynch has made proprietary investments of $500 million in the real estate segment.
Source: Economic Times