Real estate major Sobha Developers is in talks with private equity players such as JP Morgan, Actis and IL&FS for selling stakes in some of its projects to raise much-needed fund for the development. The Bangalore-based firm is also planning a qualified institutional placement (QIP) to reduce debt burden by almost Rs 800 crore this fiscal, said sources.
The capital raised through QIP is aimed at paying off its debt while roping in financial investors at special purpose vehicle (SPV) level is about kick-starting certain projects with near-term development horizon.
Sobha Developers carries a debt of Rs 1,850 crore and the promoters, who hold a 87% stake, may be open to diluting their holding by 26% to raise cash. Sobha is looking to raise up to Rs 1,500 crore via the QIP route in the coming weeks. The exact quantum of the mop-up would be announced soon.
The developer has been looking at a three-pronged approach – QIP at entity level, SPV deals and divesting some of its land bank assets – in its capital raising plans. Sources said the first two options looked brighter at this point in time. Monetising land banks, mostly bought at the peak of realty valuations, may not be an easy option currently.
Sobha is tapping capital through the SPV route to diversify its risk. It is planning to identify strategic land banks with near-term development horizon – saleable over the next two years – to be developed through joint venture partners. Currently, Sobha has 25 ongoing projects in the residential space with a saleable area of 8.9 million sq ft, expected to be completed in the next two to three years. When contacted, Sobha Developers MD JC Sharma confirmed talks with private equity investors, but declined to identify them.
Sources said private equity arms of JP Morgan, IL&FS and Actis have explored SPV transaction with Sobha even though these discussions were not at any conclusive stage. This has come at a time when Sobha’s talks with another southern developer Shriram Properties for joint development or outright sale of some projects appears to have hit a snag, sources added.
Recently, Sobha closed a private equity partnership deal with Purna Partners, which is floated by Infosys founding member NS Raghavan’s son for Rs 225 crore, for joint development of a few projects. Similarly, it had signed a Rs 88-crore PE deal at the project level with Pan Atlantic in 2008-09.
Sobha has land bank of around 3,000 acres and it has actively identified parcels for sale across various locations. A year ago, valuations of realty companies soared based on their land bank assets. Today, with falling realty prices and negative buying sentiments, realtors are looking at various options to reduce debt overhang and meet capital requirements.
Source: Economic Times