There is an increasing trend where private equity investors in India rely on debt deals to pursue projects, given that home sales are slowing down in the Chennai property market.
Mumbai-based real estate private equity firm Milestone Capital has invested in an Rs 80-crore deal (approximately $12.5 million) with Chennai developer Landmark Housing Projects, for a four-acre residential project on Chennai's growth corridor Old Mahabalipuram Road, reports India's the Economic Times Realty (ET Realty). Earlier this year, the Chennai based company also made a deal with Edelweiss's NBFC unit for a 14-acre project off Perambur. The deal reportedly costs Rs 500 crore (around $78.6 million).
G Venkatasubramanian, Director of Trans Corporate Advisory Services who handled the two private equity transactions for the company said, "Today, these deals are veering towards structured financing than pure equity. The investors are happy with a fixed 18-20% internal rate of return than angling for higher returns promised by equity."
ET Realty further reports that the debt financing does not involve stake dilution by the developer. The agreement requires the developer to pay an interest of about 18 percent, over the principal repayment. It also includes an upside sharing clause, which is aimed to help the investor get a share of higher earnings should the property appreciate in valuations. Sanjeev Rastogi, executive vice-president for ECL Finance, states that this "brings in discipline and mitigates the risks in execution and selling to a great extent."
Meanwhile, aside from the deal with Landmark Housing, Milestone Capital also invested Rs 33 crores ($5.18 million) with an NCR based developer, ATS, for its residential project "Dolce", reports the Economic Times India. It seems the real estate firm has been making real estate investments over the past years, and consistently distributing the returns of those investments to investors. Rubi Arya, Executive Vice Chairman for Milestone Capital Advisors said that the firm is also in the process of closing deals with realty developers in Mumbai and Bangalore. Arya added, "We will look to invest Rs 100-120 crores ($15-18 million) in residential real estate across metro cities, through our new fund Milestone Opportunities Fund 10, a structured debt investment opportunity for high networth individuals seeking high yield returns over shorter investment tenures."
