Impact of Persistent Systems IPO on Pune real estate

The Persistent Systems IPO opens today and is intended to raise over 167 crores. I have known about Persistent Systems for a long time and know some people who work there. Dr Deshpande the CEO is different then the rest of the businessmen in India, most of whom are ready to scam the people and make a quick buck in the stock market. I remember visiting the Persistent office in the PCMC MTDC STP in Aundh in Jan 93 when Pune was a sleepy town and everything used to shutdown at 7:00 pm. It has since grown organically as they kept building on their core strengths of systems programming as their niche rather then become the jack of all trades.

My feeling is that quite a few employees in Pune will have excess of 10-20L post the IPO as their options become liquid. With 4400 employees on their payroll, I have a feeling atleast 70-80% of them will cash out their options and buy some real estate in Pune, but I am also guessing that the Mumbai style purchases by investors with 10-20% down is going to eat up supply as people start to get greedy.

I think Pune builders are going to benefit big time in the short run as this mania is induced by the builders thereby driving other fence sitters into taking the plunge. Remember Pune is still cheap as compared to Mumbai and a lottery of 20L is almost a once in a lifetime opportunity.

If this blog has ever given a bullish signal it is giving now, only for Pune real estate. The key would be to negotiate prices before the Persistent folks start cashing out. I don't know the lock-in period of the IPO but I presume that it will be atleast 3-6 months before they are eligible to cash out. In essence investing in Pune real estate is a proxy for investing in the Persistent IPO, where you can leverage the bank for 80% of the amount. I would only advise this only to serious buyers in Pune and not those who would like to flip in 6 months. Livable areas close to Persistent, Pashan, Baner , lesser degree Hinjewadi, Wakad should be good bets

If we have any readers of this blog from Persistent I would like to know what they are doing with their liquid stock options

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Barclays, Bank of America, JPMorgan Vie for India Stock Sales

Bloomberg reports on government run PSU's being put on the block. MBA students should look to India for jobs as these companies should keep hiring for a while. This stock sale is going to suck the liquidity from the system, similar to what the Reliance Power IPO did in Jan 2008. Now unless you are an institutional investor, chances on getting onto the IPO bandwagon are almost zero, unless you open gazilion demat accounts under ficticious names as done in Gujarat and Rajasthan. Soon we will see real estate shrills pumping the Mumbai market that I-Bankers have returned to claim their piece of the most expensive land in the India.

By Subramaniam Sharma

Nov. 10 (Bloomberg) -- Bank of America Merrill Lynch, Barclays Plc and JPMorgan Chase & Co. are competing to sell shares for state-run companies in India as the government plans the biggest sell-off in at least five years.

Robert Morrice, Barclays Capital’s Asia-Pacific chairman, plans to double the London-based firm’s investment banking team in India as it vies to sell stock. JPMorgan hopes for a “slew of disinvestment” by state-run companies, said Kalpana Morparia, the New York-based bank’s chief executive officer in India.

Prime Minister Manmohan Singh’s government pledged last week to reduce its holdings in profitable state-owned companies to 90 percent, accelerating a fund-raising program that languished for five years. While government offers present a “big opportunity,” they typically pay lower fees than private- sector sales, according to Bank of America.

“The competition for this business is always extremely fierce,” Kevan Watts, country head for Bank of America, said in an interview. “It is prestigious business. It is not a very profitable business because the government, understandably, is not prepared to pay very high fees.”

Indian share sales will add to an IPO rebound in Asia as record-low interest rates and economic stimulus packages fuel a revival in demand for new equities. China Minsheng Banking Corp., Sands China Ltd., Malaysia’s Maxis Bhd. and India’s Emaar MGF Land Ltd. will lead more than $14 billion of sales in the region.

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Realty funds bear the brunt of the ball

New Delhi: Shares of real estate firms were the worst hit on Friday after concerns of a liquidity crunch in the business drove the sectoral index, the Bombay Stock Exchange’s (BSE) realty index, down nearly one-fourth.

Shares of Unitech Ltd, India’s second largest developer by market value, fell by a record 51.29% to close at Rs30.10 each after intra-day trading took it down to an all-time low of Rs26.60.
Bangalore-based real estate developer Puravankara Projects Ltd, which saw its shares closing 44.32% lower, also touched a record low of Rs42.20 in day trade.

“People are concerned about cash provisions and where will real estate companies get money from,” said Sandeep Mathew, an analyst at BNP Paribas Securities in Mumbai.
An analyst with a domestic brokerage firm, who did not want his or his employer’s name to be used, said, “...people are exiting at any price because there are no buyers for realty stocks”.
There is an aversion towards real estate stocks among “investors (who) are now shifting from net asset value-based valuation to cash flows of the company”, he added.

Shares of DLF Ltd, the largest developer in the country, shed 23.96% to close at Rs203.90. Parsvnath Developers Ltd fell by 20.70% to close at Rs45.20.
BSE’s benchmark index, the Sensex, shrank 10.96% while BSE’s realty index, which consists of 14 real estate stocks, fell by 562.31 points or, 24.4%.

“Real estate stocks have been correcting mainly because developers have not reduced home prices despite a slowdown in sales,” said another analyst with a domestic brokerage firm. “In Unitech’s case, the stock has corrected because the company is heavily leveraged.”

mint reports on 30-50% drop in prices if you are willing to pay cash instead of staggered payments.

New Delhi: As the Indian economy faces a liquidity crisis, banks remain wary of lending money to the real estate sector. The developers, facing deadline pressures for delivery of projects, are forced to tap private money lending sources. Consequently, they have been forced to borrow money at steep rates.

According to Sanjay Khanna, managing director of Kailash Nath Associates, this rate could be as high as 5% per month. A rate of 5% interest per month translates to a whopping 60% per annum. It means that a developer will have to pay Rs6000 for every Rs10,000 it raises. Builders do not have the money to construct and have approaching delivery deadlines. Real estate experts fear that some builders may even default.

Santhosh Kumar, deputy CEO of property consultants and brokers Jones LaSalle Meghraj agrees with Khanna but says that players with better fundamentals may still find money at 15-20% rate of interest. “But others may have to pay upwards of 30% as well,” he says.

As demand slows, the price of residential and commercial real estate in the country has been sliding. It has fallen by 15-20% across metros over the past nine to twelve months and is expected to fall by another 30-40% over the next few months. In such a scenario, developers who went aggressive on land acquisitions, based on the presumption that prices will continue to rise, find themselves in a tight spot. They are now forced to borrow money from the market at unsustainable rates.

Ashish Mathur, Head-Business development and marketing for Mahindra World City says, that some small developers may have to exit the business all together if the market does not pick up soon.

The problem is worsened by a slowing economy and over supply of office space and it’s slow off take as reported by real estate consultants Cushman & Wakefield and CB Richard Ellis among others. Expensive home loans have turned away the residential buyers as well. Almost 90% buyers use bank finance for home purchases. Santhosh Kumar says that developers are expected to cut prices by 30-50% or more to boost offtake in the coming months. He warns, there may even be distress sales by developers.

The bad news for realtors extends to the stock markets as well. The BSE realty index fell 24% on Friday on worries that the real estate sector is heavily leveraged. As the economy slows down and money gets dearer, the pain is only expected to get worse for real estate developers.

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State of Denial

Mint has a couple of good articles on the denial of the Indian builders to accept the reality of a slowdown. The Sensex has crashed 50%, midcaps 60%, small caps 70% but India real estate developers think that the word correction applies to everyone but them. Like Marie Antonette said "If you don't have bread, eat cake" the Raheja's are pricing villas for 6crores. God save the ostriches. The articles are below

Mumbai: Bhav gira kya (Has the price fallen)?” the prospective buyer asked.
“Bhav chada hi nahin girne ke liye (It needs to rise before it can fall),” came the stoic response from across the counter from the Housing Development and Infrastructure Ltd, or HDIL, representative.

That exchange more or less sums up the current dynamic between discount-seeking buyers and reduction-resistant sellers in India’s real estate market, a chasm that was apparent at Property 2008, the 13th real estate and housing finance exhibition, a four-day event held last fortnight at the Bandra-Kurla complex in Mumbai.
A dozen signboards outside the site of the expo screamed, “Take the right decision. Buy now”, but buyers seemed indifferent to that message, even though they flocked to the exhibition in droves on Saturday.
Even as analysts caution that the days to come will be critical for developers as their inventory of unsold houses increases, real estate firms put on their bravest faces at the exhibition and said they wouldn’t consider reducing prices.
Under pressure: Real estate development in the country, including housing projects such as this one in Ghaziabad, is heavily dependent on population migration due to rapid urban growth. Harikrishna Katragadda / Mint
Everyone has got it wrong, they insist. “Make up your mind, this is the right time. The economic cycle is maturing and, by January next year, apartment prices will go up,” said Vinod Manwani, marketing head at the Nahar group, which is developing more than 100 acres in the heart of Mumbai, near Powai lake.
Analysts say real estate firms aren’t helping themselves with this attitude.
“The current slowdown in demand for realty, coupled with declining internal accruals and reduced funding options, exposes them (real estate firms) to the downside of this aggressive strategy; there are large amounts of debt already on their balance sheets and, (with) external funds increasingly hard to come by, we foresee delays on their many ongoing and planned real estate projects, thereby leading to the possibility of sale of projects or even enterprises,” said Akash Deep Jyoti, head of corporate and government ratings at Crisil Ltd, a Standard and Poor’s company.
A report in Monday’s The Economic Times said banks and finance companies have begun pushing developers to sell cheap.
To make matters worse, many companies have borrowed from outside the banking system at much higher rates.
The best way out is for them to sell assets and offload completed projects, said Jyoti.
Builders also need to get realistic on pricing, as a significant correction is yet to happen, added Jyoti.

Bangalore: Real estate entrepreneur Vijay Raheja has lined up a raft of projects in Mumbai and Bangalore for the next six months to a year—braving a slump in the property market after splitting the family business with his brother in July—and started with a development targeted at the rich. His company, V Raheja Design Construction launched its first project post the split on Dussehra—the Verena luxury villas spread over five acres in east Bangalore’s Whitefield neighbourhood where each unit has been priced at Rs6 crore. Exclusive: V Raheja Design took over construction of the new JW Marriott hotel at UB City in Bangalore in July. Hemant Mishra / Mint“There are 40 villas, and all will be sold by invitation. Other residential and commercial projects will be launched gradually,” said a senior official at the company who manages the Bangalore operations, but did not want to be identified. Raheja is working on projects including an IT park, Gigaplex, a residential project, Buena Vista, and a commercial property, Raheja Chambers, in the city. In Mumbai, an information technology park is under construction. Raheja and his younger brother, Deepak, split the 56-year-old B Raheja Builders between themselves and founded their own companies, ‘Mint’ reported on 7 July. The properties and projects of B Raheja Builders were divided between the brothers, with V Raheja Design taking over the construction of the new JW Marriott hotel at UB City in Bangalore. “A Rs6 crore villa is overpriced where builders are unable to sell Rs3 crore houses in the same area,” Naresh Dandapat, regional director (south) at property consultancy Knight Frank India, said of the Verena villa project. But the official defended the pricing, saying, “They are exclusive and contemporary, and have been priced accordingly.” Analysts say builders need to get realistic about pricing, sell assets and offload finished projects

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What goes up comes down doubly fast

This is not a time to gloat about being right which we are but its time to reflect on how to asses the pitfalls which could encounter if we ever were to step into buying a house at some point in our lives. As the story will unfold we will see small builders being wiped out, projects delayed indefinitely, legal problems between landowners and developers magnified, large mega projects by tier-2 builders getting stalled due to cancellation in bookings, outskirt prices dropping like a rock. redevelopment deals shelved and many more black swan events out of scope of the human mind. The key to a good property is location so the good ones as always the case will suffer the least damage. The sun has stopped shining and most of the bulls have gone to the cow-sheds or tabela's they are called in Hinglish. The occasional bull who is still roaming the fields is going to be dinner for some big bad bear out there.

By CNBC-TV18s research analyst, Niraj Shah

Well, the biggie said it on Friday and it may well set the tone for what could be a full-blown cyclical downturn for the real-estate space.

DLF, in a press conference, mentioned about a possibility of volumes getting impacted due to a hike in interest costs (No wonder Dr Y V Reddy's actions have seemed like a sharp wedge in the hearts of Indian realtors). At the time of its IPO, DLF has mentioned that while residential prices may start to stagnate, the commercial customers will be strong and keep the company in good stead. The company has stated today that it believes that the upside in the rentals is capped and they, at DLF, do not expect rental incomes to go up here on.

Secondly - in an interview earlier, V Hari Krishna, CIO of Kotak Realty Fund came up with an interesting observation. He said that since January 2007, most of the consumers have withdrawn from the market and this is reflected in the fact that when one looks at home loan disbursements, they have declined by 22% on a YoY basis from 2006-07 to 2007-08.

The drop, in fact, would have been more had HDFC and ICICI Bank not increased their disbursement rate in this period. Ex-HDFC and ICICI Bank, the disbursements would have fallen by 50%, which is obviously a worrying factor as it indicates that end users have withdrawn from the real estate market.

Thus, one would be inclined to believe that the meteoric rise that one saw in property prices in regions such as NCR and some Tier-II and tier-III areas was more of investor and/or speculator demand rather than end-user demand. And thus, these prices tapering off have lead to a switching-off in that trade and thus a moderation in demand and prices.

Sure - in select pockets such as Mumbai, Delhi CBD, etc, you would still see the odd expensive land deal, rental increase, etc. But make no mistake about it-the property market is looking south. And the biggest property developer, both in terms of size and repute, coming out and sort of affirming it does speak a lot.

CNBC TV 18's MF team did some digging and figured out that while the number of PE deals, both outbound and inbound, have declined by 60% for Q1 on a YoY basis, there is increased traction in the PE deals in the real-estate space. With the Primary market route closed and the debt becoming expensive, it would either lead to a PE deal at a much lower valuation - or a faster tick of sales leading to increasing cash-flows, which would sustain the highly geared realty companies.

For the faster tick in sales to happen - which essentially means wooing the buyer in a high interest-rate scenario - the prices will have to drop significantly - and that is the way the real-estate space is poised to go, never mind the odd-exception here and there. How soon we get there? Anybody's guess - but from the looks of it, sooner rather than later.

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Indian Real Estate May Witness Weeding Out, Fitch Ratings Says

Bloomberg.com article on slowdown. Now the SBI chariman and the HDFC Vice-chairman are calling for lower prices. Will the dodo bulls go extinct ??

By Sumit Sharma

July 10 (Bloomberg) -- India's real estate industry may witness the exit of weaker developers as a rise in interest rates and property prices deter buyers and crimp sales, Fitch Ratings said in a report.

Mumbai recorded a 16 percent drop in registrations in the year to March 31, and sales may fall further across India's major markets if developers hold on to prices, Fitch said. Fitch has rated its short-term outlook on the industry as negative.

``The slowdown will also aid the process of weeding out some of the weaker entities within the sector, and increasing the relative strength of some of the larger, more established developers,'' Sandeep Mulik and Roopa Raman, analysts at Fitch Ratings, said in the report in Mumbai today.

Some developers face fund shortages and may tap buyout firms as investors sell real estate stocks on falling sales. Still, a prolonged slowdown may damp the appetite of private equity funds, forcing smaller developers to either borrow at higher rates or default on their obligations, Fitch said.

The central bank on June 24 raised interest rates to the highest in six years to contain inflation that accelerated to 11.63 percent in the week ended June 21, the fastest in 13 years.

Bankers including Om Prakash Bhatt, chairman of State Bank of India, the nation's biggest, and Keki Mistry, vice-chairman of Housing Development Finance Corp., predict an end to the five-year rise in property prices.

Shares Drop

Real estate shares have led a drop in Indian stocks this year. The 14-stock Realty Index has fallen 62 percent since Jan. 1, compared with a 31 percent drop in the benchmark Sensitive Index. A dozen of the 14 property index stocks including DLF Ltd., Unitech Ltd. and Indiabulls Real Estate Ltd. have more than halved this year.

A decline in demand prompted DLF and Unitech, the largest developers, to delay selling shares in investment trusts in Singapore. Indiabulls Properties Investment Trust, which raised $258 million in Singapore last month, traded 22 percent lower at S$0.82 a share.

``The sharp increase in construction costs, driven by increased steel and cement costs, could also impact margins and hence liquidity,'' the Fitch analysts said. ``The risk would be higher for real estate companies with a limited track record and limited cushion for debt financing.''

Fitch also expressed concern at the high prices paid by some developers for acquiring land.

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Ajit Dayal writes on EquityMaster.com.

In July 2006, at an Equitymaster conference, I made a prediction: Indian property prices will decline by 30% over the next 6 to 12 months.

Boy was I wrong! Property prices in most Indian cities increased by 50% or so between July 2006 and December 2007.
My "prediction" was a bust!
If property prices were 100 in July 2006, they had reached probably 150 in most cities. And my expectation was for a "70". Ouch!

But look around you today and the only place where Indian property is still booming is in the headlines of some newspapers and lead articles on some websites.

Developers and financiers of property projects are desperate to make us believe that property prices are still increasing. They want to hold the "price line". If potential buyers know that the supply of property is large - and sales of apartments are slow - they will wait. They will buy later - or ask for a better price now.
Any reduction in the selling price is a loss of expected profit for the developers and their financiers. Not a good thing.

News or Olds?
We get much of our information from newspapers.
Note the "new" in the word "newspapers".
And what we read shapes our opinions and, eventually, our actions.
But, sometimes, the "newspaper" may be carrying "oldspaper" information that, at one level, creates a false impression in our minds.
And could makes us act in an incorrect manner.

So, contrast these headlines.
Business Standard, in their online version, June 23rd, 2008: writes: "Booming Indian property mkt beckons UK investors".
In this article, there are a few statements of "fact".
Indian property prices, we read, are up some 70% in 2 years. "Merrill Lynch consultants", according to this article, "have predicted a 700 per cent increase in the Indian property market by 2015". Quite a clever statement - its vagueness leaves room for varied interpretation. The article does not say whether this 700 per cent increase is an increase in the amount of square feet being built, or in the prices of real estate. But something to do with real estate is increasing by 700%. The mind takes that "700%" and imagines a bull market in property.

"Realty promoters pledging shares to raise funds" warns an article in the print version of the Business Standard, dated June 19th, 2008. The article lists 10 listed real estate companies whose share prices had collapsed from their 52-week high by between and -58.2% and -78.1% as of June 18th, 2008.

SHAKY FOUNDATIONS
Company	June 18 price	52-wk high	52-wk high date	% change
Ansal Infras	102.85	469	13-Dec-07	-78.1
Parsvnath Dev	168.3	598	7-Jan-08	-71.9
Omaxe	176.95	613	13-Dec-07	-71.1
Jaiprakash Asso	182.1	510	4-Jan-08	-64.3
Unitech	200.25	546.8	2-Jan-08	-63.4
Brigade Enterp	168.5	428	1-Jan-08	-60.6
Gammon India	337.45	845	4-Jan-08	-60
DLF	492.35	1225	15-Jan-08	-59.8
HDIL	590.5	1432	10-Jan-08	-58.8
HCC	116.5	278.9	2-Jan-08	-58.2

The large shareholder-owners of some of these listed real estate developers have apparently been pledging shares they own to financiers in exchange for loans. With sales not as brisk as in the years 2006 and 2007, cash flows are not as per expectations. And, to add to the woes of the real estate industry, many developers had already committed to larger projects. They now need to pay for this new land and the initial cost of development to get the land into some sort of "build-able" shape.

And another screaming headline, "Cash Crunch" in the Economic Times, June 15th, 2008 states that property developers are borrowing money at interest rates ranging from 35% to 50% per annum. Their "normal" interest rates range from 18% to 24% per annum. The higher borrowing, says the article, is due to the slowdown in sales and larger commitments.

A boom is a bust.
So, what happened between the "old" news of June 18th (the date of the "Realty promoters pledging shares to raise funds" article) and the "new" news of June 23rd (the date of the Booming Indian property mkt beckons UK investors" article)?

The share prices of these realtors, I assume, have declined even further - for what that is worth. The fundamentals of the industry - slow sales and large commitments for new projects - could not have changed. As these share prices decline, the "promoters" of these companies that pledged some shares will need to give more of their shares as a pledge. Additionally, if any loan is not repaid, lenders will sell the pledged shares into the stock market - probably at any price. This could result in a decline in the share prices of the real estate companies - and create a potential downward spiral of wealth destruction for investors in shares of real estate companies.

From a "buying-power" perspective, the news on inflation is worse than expected, so interest rates are likely to increase. And, under that higher interest rate scenario, the cost of borrowing money for buying a home will only increase. Not good for demand. And if demand slows down still further, sales of property will get worse and prices will decline even more.
Uh, oh - does not sound like a "boom".
Sounds more like a "thud".

Demand stalls, supply surges.
For all the bravado of the "news" headline in the June 23rd article in Business Standard, it is more of a rear view mirror event: of what happened yesterday.

But, in a strange way, it gives a hint of what is likely to happen in the future.

In 2006 and 2007, real estate buyers were in a fix. Property they wished to buy was only available at high prices.
Supply was limited.
And demand for property increased due to higher incomes and the ability to borrow more from banks. The desire of many private banks and many government-owned banks to gain market share and build their retail, home loan portfolio saw this dramatic run-up in the borrowing capacity of buyers.
Sometimes these buyers were genuine buyers, and sometimes they were speculators - in for the "free" ride.
After all it was a guarantee that property prices would increase every day.
Just like the prices of shares increased every day when the stock markets opened.
There was no need to go on a "road show" to UK to sell all the property being built.

But that was in 2006 and 2007.
Today, supply of property is more. The demand for property is lower.
Demand has declined because property prices are no longer affordable. Salaries have increased - but not as much as in the recent past.
Demand has also been hit by the fact that banks are closing down their home loan lending departments. Or raising interest rates for these home loans.
The wealth effect from stock markets - which fuels the buying of second homes and dream homes - has evaporated.

But the supply juggernaut keeps on rolling. And building.
Whenever I ask my colleagues (who advise a real estate fund) their views on how much new construction is planned, they shake their head in disbelief. There are 50 to 70 million square feet of new construction coming up in Bangalore, Calcutta, Hyderabad, and Pune to name a few cities.

Developers who have built maybe a total of 5 million square feet in the past decade have plans to build 50 million square feet in the next 3 years.

India was rising. India was shining.
And a rising and shining India needed a place to live, a place to work, and a place to shop.
Real estate zindabad!
Stock price of real estate companies double zindabad!!

Yes, 700% correct!
All correct, and all true: India needs more property.
A lot of more property. Maybe more than the 700% increase referred to in the Merrill Lynch report.

But, at what price?
And at what profit margin to the developer and their financiers?
And will people buy any junk in any location at any price?

Our view on property has been wrong in timing.
We called the "sell" on property too early.
We did not take into account the stupidity of many banks in lending money so leniently and so cheaply. Or the complete mis-pricing of risk-return by so many come-and-join-the-party property funds.

But we knew the greed of the developers. We had seen them in action in 1993 to 1995. As property prices increased in 1994, they bought more land at higher prices and thought they would sell their end product at even higher profits. Discipline was out of the door. Greed was in.

That property cycle went bust in 1995 - and stayed in bust mode till 2003.
For 8 years it was a buyer’s market. Or a renter’s market.
Supply was far more than demand. No one speculated on property. The actual user’s actions determined the prices.
Not some bank’s desire to gain "market share". Nor the availability of money from international sources due to the desire of a foreign fund to invest in an exotic location for an erotic return.

But demand and supply determine the price of everything.
Though, they don’t tell you the value of anything.
And people confuse the two and use "price" and "value" as inter-changeable words.
They confuse the high price of real estate with the value of that real estate.
Prices have only one way to go, I reiterate: and that is down.
And if real estate declines, so should the share prices of many of the property companies that build, and build, and build. We may shake our heads at the housing bubble in USA. But we built one right here in our own back yard.

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Citi Venture, AIG scrap Akruti investment plan

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

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IPO market deflates as 2 major IPO's withdraw

New Delhi: Real estate major Emaar MGF on Friday decided to withdraw its initial public offering as the issue could not get fully subscribed.
“The decision has been taken due to prevailing adverse market condition...although the QIB and HNI portions of the IPO were fully subscribed and the overall book was closed to 90%,” the company said in a statement.
Emaar MGF, the joint venture between Dubai-based Emaar and India’s MGF Development, has said that it would consider IPO at an appropriate time.
“Given the prevailing sentiments in the capital markets, it was unclear how well the stock would trade post-listing. It has been considered wiser to revisit the market only when the demand and sentiment are stable and better providing greater value to investors”, it said.
Delhi-based Emaar MGF said that the company remains committed to executing its projects on hand and is well funded to ensure that the delay in IPO would not hamper its growth plans.
The company expects to return to the market at a later date when sentiment and liquidity conditions are better.
Emaar MGF entered the capital market on February one with an IPO of 10.25 crore equity shares of Rs10 each to be determined through a 100% book building.
The issue was scheduled to close on February six. The company had initially fixed the price band at Rs610-690, which later on was brought down to Rs540-630.
The company further slashed its lower band to Rs530 per share and extended the period of public offer till 11 February. The issue was originally scheduled to close on 6 February.
Emaar MGF is present in 26 cities in India and has 13,000 acre of land bank. The company plans to develop 566 million sq ft during the next nine years, of which 455 million sq ft is residential, 90 million sq ft commercial and 18 million sq ft for retail.

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