Essel Financial Advisors and Managers (EFAM), the private equity arm of Essel Finance, is raising two real estate-focused funds – a domestic fund of Rs 500 crore and a foreign fund of $200 million (Rs 1,200 crore). Both the funds will focus on investing in residential projects in top six cities in the country.
PE funds are a favoured source of finance for realty players as the latter are facing severe cash crunch with most banks staying away for the fear of delinquencies.
On an average, PE players look for a 20-25% returns, and the real estate sector offers abundant opportunities for them. Abhinav Bhushan, head of private equity, told dna that EFAM has already made investments of Rs 180 crore spread across three deals - two in National Capital Region (NCR) and one in Mumbai. "We are close to signing a couple of more deals," said Bhushan, adding that the deal size for domestic fund is typically around Rs 50-100 crore.
"We invest both in special purpose vehicles (SPVs) as well as at entity level, though we prefer SPVs as it offers better control and security. But there is no aversion to entity-level funding, especially when the projects are at an advanced stage of development," he said. The recent investments include a Rs 45 crore deal with Assotech Ltd in NCR, while it has successfully exited from Ariisto Realtors in Mumbai. Private equity players are typically targeting two sets of developers. One is developers who want to give an exit to already-existing PE investors towards the end of their tenure and replace their equity investment with less expensive options. The other one is a set of developers who are looking for good opportunities for growth and acquiring new projects at attractive discounts.
"EFAM, for instance, invested in projects in Gurgaon and Mumbai by buying out an existing PE investor as the project was close to completion."
Bhushan said EFAM is making a serious effort to set a benchmark for transparency in credit process. He said EFAM is the only real estate investment manager in India to be rated. India Ratings (Fitch Group) recently rated EFAM as "IND Good Standard".
"Rating for investment platform is a norm in developed economies like Europe and Americas. Such rating entails review of fund manager's team capability, independence in credit decision, due diligence process, monitoring process and security package." EFAM is currently evaluating deals in Bangalore, Chennai and Pune for investments.
"The fund has a focused approach of investing in approved residential projects in top six cities by way of secured debt structures. The target returns from the fund are upwards of 20%," said Bhushan. "We see a good opportunity in structured financing on account of banks not lending aggressively to the real estate sector and slowdown in the housing market coupled with uncertain political environment owing to impending general elections," he said.