Realty IPOs face fresh market heat

The deterioration in the market mood has directly impacted fund-raising plans of real estate developers, many of whom have either delayed their initial public offers or have decided to go slow.

While Lodha Developers and Emaar MGF have pressed the pause button on their IPOs, firms such as Oberoi, Neptune and Sahara have reduced their fund raising ambitions, investment bankers and developers said.

The market is abuzz with reports that Emaar MGF plans to hit the market with 20 per cent lower issue size than the previously-stated Rs 3,850 crore in mid-June, a company spokesperson said: "We have not finalised anything. We have a one-year window and we will hit the markets at the opportune time."

Emaar MGF had obtained the permission from the capital markets regulator, Securities and Exchange Board of India (Sebi), for its IPO in February this year. The company had to postpone its IPO due to adverse market conditions.

"Obviously, there will be a difference between the earlier and current valuations, but there are still takers for good issues," said Nayan Bheda, managing director of Neptune Developers.

At least a dozen real estate IPOs worth over Rs 12,000 crore are in the pipeline, with developers having received Sebi nod. They were, however, waiting for the market conditions to improve further before starting the sale process.

"Developer confidence is very low, given the kind of response they are getting from global investors. I do not think anyone would like to float an IPO in the next one or two months. All we are doing is waiting and watching in the wings for things to improve,'' said a senior executive with a Mumbai-based developer.

Abhisheck Lodha, managing director of Lodha Developers, said: "We are in no hurry to enter the market. We are not looking for an IPO in the next two months.'' On Tuesday, Lodha's firm picked up a six-acre plot in central Mumbai for Rs 4,050 crore, making it the largest-ever land deal in the country.

Reflecting the investor fatigue in realty stocks, the BSE Realty Index has fallen over 15 per cent since April this year, making it the second largest fall among sectoral indices after metals. The benchmark BSE Sensex had fallen by 7 per cent during the period.

The timing and relevance of IPOs is crucial, as most of the aspirants are banking on public issues to repay their debt. During the current financial year, developers, both listed and unlisted, need to pay around Rs 25,000 crore towards debt repayments.

For instance, Emaar MGF, which had a debt of Rs 5,807 crore (as per its prospectus), plans to use 33 per cent of the IPO proceeds to repay debt.

Another Delhi-based developer, BPTP, plans to use a fourth of its funds to repay and pre-pay debt.

"The volatility in the markets is so much that developers can decide on valuations and dates only when the uncertainty ends," said Ambar Maheshwari, director of investments at international property consultant DTZ.

However, some investment bankers are confident of investors returning to the markets in the near future.

"Investors want a slice of India's growth story. Deals will happen but it will take few more weeks than the normal and may be smaller in size. Instead of one real estate IPO every month, we can expect once in two months now onwards,'' said an investment banker with a large banking group.

Added Bheda of Neptune: "Though the markets are volatile, one week of good market will change things for IPOs.''

"Once the perceived risk is out of the market, the ability to absorb should be higher," said Aditya Narain, managing director and head (India research), Citigroup Global Markets India. "It has (been) absorbed in the past," he added.

Bankers agree the current volatility makes it difficult for companies to time the market and that the large daily swings are keeping companies and the issuing companies guessing.

"In such markets, you will see a slowdown until the dust settles," said Sanjay Sakhuja, CEO, Ambit Corporate Finance Pte. "There is no directional clarity with pretty large movements every day and no one is quite sure when volatility would come down. Another factor that needs to be borne in mind is that July traditionally has been a lean period, since most of the global funds tend to slow down a bit," said Sakhuja.