Unitech, the country's second-largest property developer, is planning to raise nearly $1 billion (Rs 4,200 crore) in the current financial year from private equity players for its hotel, commercial and retail projects across the country.

The company will raise funds by floating special purpose vehicles in different projects, a top company official said.

Money power

• The company raises $700 million through Unitech Corporate Parks on AIM in 2006
• Unitech Realty Investors manages nearly Rs 2,000 crore worth of funds
• Global investor Lehman Brothers pumps in Rs 740 crore in Unitech's Mumbai project
• Unitech's global fund raises $300 million; to raise $300 million soon

Out of the total amount, $300 million will be spent on hotel projects and $700 million on commercial and retail projects, the official said. The projects will be implemented in cities such as the National Capital Region and Mumbai among others.

Early this year, Unitech had plans to raise $700 million through the listing of a real estate investment trust on the Singapore Stock Exchange, and a qualified institutional placement of $1.5 billion in India. But, due to poor stock market conditions, the company postponed its plans.

The company also raised $300 million from international investors to invest in its residential projects. Real estate developers are now tapping PE players as property transactions have dipped 15-20 per cent in many parts of the country and their sources of funding such as bank debt, external commercial borrowings, public issues and QIPs have dried up.

When asked why would PEs invest in realty projects given the slowdown in the sector, R Nagaraju, general manager of corporate planning, Unitech, said, "PE investors are actively looking at opportunities in the sector. They have good amount of money, which is already raised and approved projects get funds readily."

Unitech said it was in talks with Lehman Brothers - from whom it recently raised Rs 740 crore (Rs 7.4 billion) for its Mumbai project - and other PE players.

"Today public equity is not giving fair value for the projects, while private equity is willing to do so. This deal is an indication that enough liquidity is available for quality players. We are also in talks with Lehman for similar deals," Unitech managing director Sanjay Chandra said after announcing Mumbai deal.

Currently, the company is developing 55 million sq ft of real estate in the country of which 30 million is residential, 10 million hospitality and the rest is commercial and retail projects. The company is also developing 26 hotels and 15 malls with an investment of Rs 20,000 crore (Rs 200 billion) in the next couple of years.

International PE investors said they are still upbeat about investing in the Indian real estate though they admit that fund raising has become difficult and expectations have gone up due to higher risk perception about the Indian property.

"It all depends on the project. PEs are quite open to invest if the valuations are right, the developer has a good track record and the project has good potential. However, our return expectations have gone up as the risk perception about the Indian real estate has also gone up," said Balaji Rao, managing director of Starwood Capital, a US-based PE fund, which has invested in a couple of projects in the country.

Apart from raising funds at the project level, Unitech has also launched it own realty funds to raise money. Unitech Realty Investors, the group's asset management company, currently manages nearly Rs 2,000 crore worth of funds, which the company has raised through domestic funds called CIG Realty Fund I, II, III and IV. The company has deployed these funds in buying lands in Gurgaon, Chennai, Kolkata, Hyderabad and Kochi among other places.