The Godrej group is putting on hold the plan by Godrej Properties to raise Rs 600 crore through an initial public offering. The plan, to offload a 13.5 per cent stake in the real estate company, is being postponed till the IPO market shows signs of revival. Instead, funds for immediate need are being raised through banks or private equity funds.
A top company official told Financial Chronicle that conditions in the market were too volatile to raise money despite the formal go ahead from the Securities & Exchange Board of India. “Fortunately, Sebi has extended the validity period for coming out with an IPO via the book building process. The additional time gives us a larger window to monitor the market situation before we launch the IPO,” said Pirojsha Godrej executive director of Godrej Properties. The period of approval has been extended from three months to 12 months.
A pre-IPO placement of around 2.44 crore shares too has been put off. The placement would have been almost a quarter of the size of the proposed IPO. “The placement was basically to get in some reputed investors which would increase investor interest in the offering. But with the IPO itself on hold, the placement too is on the back burner,” said a company official familiar with the development.
The company had proposed to use Rs 355 crore from the IPO proceeds for acquisition of development rights for its forthcoming projects in Ahmedabad and Greater Noida, Rs 75 crore for construction of proposed projects in Chandigarh and Rs 150 crore for repaying loans, according to the draft red herring prospectus filed by the company with the capital markets regulator.
To enable it to grow, the group is arranging loans from banks and financial institutions and is also speaking to private equity funds to dilute stake in project level special purpose vehicles (SPVs). In July last year, the company had roped in Red Fort Capital, an international real estate private equity fund, to purchase a 49 per cent stake in an IT park in Salt Lake Sector V in Kolkata. The project is being implemented by an SPV, Godrej Developers.
“We have a very good relationship with bankers hence raising debt is not a problem. Also, our finance team is currently speaking to a number of real estate focused PE funds to dilute equity in some of our projects,” said the top Godrej official.
The move to seek PE funds comes after the company completed a review of all its new projects. The review was undertaken to determine whether the assumptions on demand and expected returns still held good or the project required modification in the light of changed conditions.
With transaction volumes for residential properties declining, Godrej Properties has instituted a renewed focus on cash management and risk mitigation. Homebuyers, who expect prices to fall, have been deferring purchases in the light of uncertainty regarding their career and benefits package. The company is therefore monitoring its cash flow situation very closely and risks are being curtailed.
“At this point of time we are quite hesitant to enter new cities, for example. But we are still interested in attractive land parcels in places such as Mumbai where we feel long term potential for development is quite strong,” said Godrej.
The company has also decided to cut prices for the projects it expects to launch over the next six months or so. “In the next three months we will announce big projects that will be primarily focused on affordable housing in the cities such as Ahmedabad and Kolkata. We are also researching low cost housing as a concept,” Godrej added. So far the company was focused on developing premium apartments such as its landmark 48 storey residential tower project in central Mumbai.
Source: My Digital FC