Sobha close to private equity deal

Sobha Developers, the Bangalore-based developer that just pulled back from the brink of insolvency, expects to close a private equity deal for one of its properties very soon. Sources  said the firm is also looking to sell some of its other land parcels in an effort to pare its debt-equity ratio.

“The deal should happen very soon. The company has 38 acres of prime land at St Marks Road in Bangalore, which it wants to sell off. It will use the funds to try and push its debt to equity ratio to under 0.5. The ratio is currently at 0.85, after the recent qualified institutional placement (QIP).”

Sobha is lining up sale of its 100 acres at Hinjewadi (near Pune), around 45 acres in Bangalore, and 330 acres in Kochi (which includes two islands) and co development with other developers.

However, the valuation of the properties could not be verified. Sobha recently mopped up Rs 530 crore through its QIP and is looking to reduce its debt position by repaying Rs 410 crore.

Analysts are happy with the progress. “People had doubts whether Sobha would need to sell lands to pay its interest commitments. But today the situation is a lot better. The company wants to sell off some land and earn approximately Rs 300 crore to repay debt.”

Sobha is also planning to sell off its unsold inventory of approximately 1325 units in the next two years, says a research report by analyst trio Chirag Negandhi, Nitin Idnani and Gaurang Shah of Enam Securities.

Enam Securities and ICICI Securities have recently rated Sobha an outperformer and a buy, respectively. Enam was also the merchant banker for Sobha’s QIP.

In Bangalore, the residential market has seen a dip of 40-45% in prices, but the affordable housing segment is finally picking up.

“Prices would definitely not move up, but volume sales are happening,” said an analyst. “For example Brigade Enterprise was selling some 23 flats in 3QFY09; now they are selling 96 flats in this quarter. Even Sobha was selling 9 flats in 3QFY09 and in July they sold 68 flats.”

However a senior industry expert had a word of caution. “Private equity players are asking for better deals and they are getting back to the market. Capital across the world is scarce in the market so they are looking for more safer and lucrative deals and internal rate of returns are going up,” he said.