India's largest real estate firm DLF is now all set to raise another $400 million through private equity route to fund its long-term investment plans.
As per the deal, financial services major Merrill Lynch will get 20 per cent assured return and the debt will later get converted into equity.
Merrill Lynch could pick up 49 per cent in 3-5 townships. The decision on the deal will be taken in mid-January after DLF’s real estate investment trust (REIT) listing is complete.
Though the management continues to remain very tight lipped about the deal they are not denying it either.
“DLF has a large number of residential, integrated townships and commercial projects in the pipeline. While the company is looking to list its commercial properties in a REIT these PE deals in residential projects are not only about raising funds,” said Ramesh Sanka, CFO, DLF.
Experts say, a PE infusion at this stage for residential projects under construction give real estate companies a higher return on equity boosting their market cap significantly.
Earlier this year RBI had put a ban on lending for land and most of these companies need huge cash reserves to buy land. In fact, PE funds help in reducing the turnaround time of these projects while bringing in the much desired credibility.
DLF is not the only one which is looking at such deals, Morgan Stanley picked up stake in Oberoi Constructions this year and Shapporji Pallonji too plans to raise funds for its realty arm.
So even as real estate companies lose out on the profits from these projects the long term benefits from such deals are lucrative enough to forego short term small gains.