India's realty firms plan to raise over $5 bn

On the heels of huge success of Parsvnath Developers' public issue, which was over subscribed 62 times, domestic real estate firms are planning to raise nearly Rs 22,500 crore  (Rs 225 billion) through their public offerings.

The presence of Indian property sector has been negligible on the Dalal Street so far with a handful of listed realty firms accounting for less than one per cent of the country's overall stock market capitalisation.

However, it could be a different scenario altogether with more than a dozen companies finalising their plans to hit the capital market.

Out of these, at least five companies are likely to hit the market with their IPOs on the domestic or international stock exchanges before the end of this fiscal year, which could generate a collective amount of Rs 18,000 crore (over $4 billion).

Besides, two already listed real estate firms - Unitech and Ansal Properties are believed to be mulling over plans to raise further capital from the international markets or through the follow-on public offerings.

Investment bankers close to the developments said that the two companies could collectively generate over $1 billion (Rs 4,500 crore) from the domestic or international markets -- which would take the combined total proceeds for the sector to Rs 22,500 crore (over $5 billion).

DLF Ltd, one of the largest players in the space, is currently reviving its IPO plans after failing in its first attempt earlier this year. The total proceeds from the much-hyped IPO, which was shelved in August this year, was pegged at above Rs 15,000 crore (Rs 150 billion) and could have been the largest ever public issue in the country.

DLF is expected to restart the process by filing a new draft red herring prospectus by this year-end after resolving the minority share issue recently, which was termed as a major roadblock in its IPO plans.

Besides, Ishaan Real Estate PLC, a Raheja Group company, is aiming to list on the London's Alternative Investment Market with an estimated IPO size of over Rs 1,500 crore (Rs 15 billion). The IPO has already been oversubscribed, the merchant bankers said and the company could list on the London Stock Exchange before the end of this month.

Companies like Akruti Nirman, Sobha Developers and Omaxe are also in the process of launching their public offers with plans to raise over Rs 3,200 crore (Rs 32 billion) collectively.

Sobha Developers bidding is scheduled for November 23 and the company may raise as much as Rs 570 crore (Rs 5.7 billion) based on the top end of its estimated price band.

The impressive response to the recently ended Parsvnath IPO has further bolstered the IPO plans of real estate companies. The issue, with an estimated size of over Rs 1,000

Crore (Rs 10 billion), was subscribed by over 61 times of the total shares with foreign institutional investors showing particularly strong interest in the stock.

London-based emerging markets fund manager Charlemagne Capital said in a report that India's overlooked property sector is providing some of the most attractive investment opportunities in the country.

Charlemagne has recently shifted 15 per cent of its Indian portfolio into the real estate sector, which is well above its market cap of less than 1 per cent, while anticipating a broad-based buying in this space driven by a surge of anticipated property IPOs next year, the analysts said.

There is a remarkable value in the Indian property space and a wave of IPOs in the next few months would focus investor attention on the huge undervaluation of Indian property companies, Charlemagne said.

Continuing urban migration and a booming service sector are combining to push property values and rental rates higher, it added.

Swiss financial services giant UBS noted in a separate research report: "We believe the Indian real estate sector market capitalisation will rise significantly because of primary issuance from unlisted companies and capital raising by listed ones."

Though real estate accounts for five to six per cent of India's GDP, its share in India's stock market capitalisation is a minuscule one per cent as most of the large companies are not listed and those listed have very low free floats, UBS said.

The recent boom in the real estate sector is mainly driven by residential, commercial (primarily office space) and organised retail markets, which has spawned the development of new townships and malls across the country. Besides the growth in the IT sector is also driving investments in office buildings, the analysts believe.