MUMBAI: Adverse market conditions have affected another major real estate transaction. Leading financial institutions — Citi Venture Capital and AIG — have called off their Rs 1,500-crore deal with real estate developer Akruti City which would have seen the foreign funds picking up 16% equity in the Mumbai-based realty player.
In January, Citi and AIG had proposed to pick up equity in Akruti through a preferential allotment, where Akruti would place up to 10.7 million shares. The firm has now cited market conditions and delay in getting government approval as reasons for aborting the deal. The BSE Realty index has crashed 46% from its peak of 13,647 recorded on January 14.
“In view of the inordinate delay in receiving necessary approvals from the Department of Industrial Promotion and Policy (DIPP), coupled with uncertain market conditions, we have decided not to proceed further with the proposed issue with the foreign funds,” Akruti City managing director Vimal Shah said.
However, sources said that after the market fall, differences of opinion had cropped up between the foreign funds and the real estate firm on valuations which ultimately led to a deal abortion.
After the deal was announced on January 23, shares of the company had touched a record high of Rs 1,399 during intra-day trading. Since then, there has been a sharp decline, which touched a low of Rs 682 on March 24, or down 50% in two months. The scrip, however, has recovered smartly in the past two weeks, ending with a 5% gain at Rs 1,021 on Friday.
The market turmoil has already taken a toll on fund-raising plans of some companies, including Emaar MGF and Wockhardt Hospitals. Both were forced to withdraw their initial public offering (IPO) plan, after the offers evoked poor investor response in the extremely bearish market.
According to investment bankers, the continuing dull phase has prompted others to defer their plans to raise funds through private equity placements and preferential allotments to institutional investors. The trend will continue for some more time in the wake of uncertain market conditions, which have been triggered by negative global cues and rising inflation in the country, investment bankers said.
Besides, a tightening of liquidity in global markets has made private equity fund raising for real estate and infrastructure sectors difficult, with many funds expected to extend closures or reduce the target corpus. According to industry sources, the churn in global equity markets has made investors wary of even private equity funds, although the two markets are in different categories with different levels of risks.
“The situation has changed and fund-raising has tightened,” admitted the senior executive of a UK-based private equity firm, with considerable exposure in India. “In many cases, the targeted amount may have to be scaled down,” he added.
Indian real estate companies have been attracting investments from foreign funds, which were apparently bullish about the sector. Among the few major deals in the past, a group of private equity and financial firms led by Deutsche Bank invested $425 million in the Lodha Group in September last year. Early 2007, Oberoi Constructions received $152-million funding from Morgan Stanley
In January, Citi and AIG had proposed to pick up equity in Akruti through a preferential allotment, where Akruti would place up to 10.7 million shares. The firm has now cited market conditions and delay in getting government approval as reasons for aborting the deal. The BSE Realty index has crashed 46% from its peak of 13,647 recorded on January 14.
“In view of the inordinate delay in receiving necessary approvals from the Department of Industrial Promotion and Policy (DIPP), coupled with uncertain market conditions, we have decided not to proceed further with the proposed issue with the foreign funds,” Akruti City managing director Vimal Shah said.
However, sources said that after the market fall, differences of opinion had cropped up between the foreign funds and the real estate firm on valuations which ultimately led to a deal abortion.
After the deal was announced on January 23, shares of the company had touched a record high of Rs 1,399 during intra-day trading. Since then, there has been a sharp decline, which touched a low of Rs 682 on March 24, or down 50% in two months. The scrip, however, has recovered smartly in the past two weeks, ending with a 5% gain at Rs 1,021 on Friday.
The market turmoil has already taken a toll on fund-raising plans of some companies, including Emaar MGF and Wockhardt Hospitals. Both were forced to withdraw their initial public offering (IPO) plan, after the offers evoked poor investor response in the extremely bearish market.
According to investment bankers, the continuing dull phase has prompted others to defer their plans to raise funds through private equity placements and preferential allotments to institutional investors. The trend will continue for some more time in the wake of uncertain market conditions, which have been triggered by negative global cues and rising inflation in the country, investment bankers said.
Besides, a tightening of liquidity in global markets has made private equity fund raising for real estate and infrastructure sectors difficult, with many funds expected to extend closures or reduce the target corpus. According to industry sources, the churn in global equity markets has made investors wary of even private equity funds, although the two markets are in different categories with different levels of risks.
“The situation has changed and fund-raising has tightened,” admitted the senior executive of a UK-based private equity firm, with considerable exposure in India. “In many cases, the targeted amount may have to be scaled down,” he added.
Indian real estate companies have been attracting investments from foreign funds, which were apparently bullish about the sector. Among the few major deals in the past, a group of private equity and financial firms led by Deutsche Bank invested $425 million in the Lodha Group in September last year. Early 2007, Oberoi Constructions received $152-million funding from Morgan Stanley
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