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Realtors look abroad for cash

Mumbai, April 9: Real estate players are scrambling to raise money abroad as an RBI diktat on banks to clamp down on real estate exposures starts to hurt.

The latest to join the fray is Indiabulls Real Estate (IREL), which is seeking shareholders’ approval to raise $1.2 billion from overseas investors and qualified institutional investors. But that’s not all: it also plans to raise Rs 450 crore through a preferential allotment of 1.5 crore warrants to the promoters.

Indiabulls isn’t the only one raising funds: others like JM Financial Group and Dewan Housing have floated domestic venture capital funds which will offer units to overseas investors.

Innovation is the name of the game and Dewan’s Dream II fund is offering four classes of units to investors — both domestic and foreign.

JM Financial is floating a feeder fund in Mauritius that will offer units to overseas investors and the funds so raised will be channelled to companies operating in the real estate sector here.

But not all have been able to pass muster. The Reserve Bank has scuttled Hypo Bank of Europe’s plan to establish an NBFC solely to finance real estate ventures.

The reason' It would undermine the RBI’s plan to restrain such flows “as such entities could leverage on their parents’ strengths to raise resources domestically to fund such projects for which banks are precluded.”

According to RBI, the rigours of tough provisioning norms would not apply to such companies and they would enjoy a competitive edge over domestic banks, undermining the objectives of the monetary policy. It is true that in recent times the real estate sector is witnessing a lot of action as loans from banks are not coming easily.

While domestic real estate companies are looking at other means to fund their ambitious projects, there are many investors who are more than willing to put their money into such projects directly or indirectly.

Private equity funds, dedicated real estate funds and foreign investors, including non-resident Indians, are now emerging as the main options for local developers. It is estimated that funds in excess of $2 billion have been raised from London’s Alternative Investment Market (AIM) alone. Some of the key names that have raised funds from this market include Unitech, K Raheja Corp, the Hiranandani group and Indiabulls Real Estate.

However, it is not the AIM alone from where funds had been mopped up. Over the past one year, foreign players such as JP Morgan, Morgan Stanley, Merrill Lynch and Deutsche Bank have invested huge money in India’s real estate.

Having raised over $310 million from AIM, Indiabulls is now planning to raise in excess of $1.20 billion through a combination of preferential issue to promoters, an overseas issue and a qualified institutional placement (QIP).

The company today informed stock exchanges that its promoters — Sameer Gehlaut, Saurabh Mittal and Rajiv Rattan — would infuse Rs 450 crore by subscribing to around 1.5 crore warrants that would be convertible into equal number of shares.

IREL, which was recently demerged from India Bulls Financial Services, also plans to raise up to $600 million from domestic or international markets through GDRs/ ADRs/FCCBs or other instruments linked to equity shares.

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