Luxury builder for Bollywood stars keen to buy distressed assets

[SINGAPORE] A developer of luxury condominiums in one of Mumbai's popular business districts is seeking private equity funds to buy distressed assets from rivals reeling under record debt.

Sunteck Realty Ltd, whose clients include Bollywood stars such as Aishwarya Rai and Sonam Kapoor, is in talks with investors as it sees acquisition opportunities similar to those that followed the 2008 collapse of Lehman Brothers Holdings Inc, Chairman Kamal Khetan said in an interview.

"Developers with huge debt are in pain with high interest rates and servicing debt is a struggle for many," he said in an interview in his Mumbai office. "We can use this to our advantage, we will use our strong balance sheet to grow the company double or triple from here."

Many Indian real-estate companies, grappling with a funding squeeze, are turning to private equity as lenders struggling to pare bad loans shun more risk. Sunteck is among those that emerged relatively unscathed from the global meltdown and a domestic slowdown, even as bigger rivals found themselves holding excess inventory amid dwindling sales.

Home sales in India's top six property markets fell 8 per cent in the quarter through March from a year earlier, according to research firm Liases Foras, which estimates it will take at least 46 months to find buyers for unsold homes in Mumbai alone.

Surging Debt Some of India's largest developers have seen debt surge more than 60 per cent as mortgage rates around 10 per cent deter buyers. Debt at Godrej Properties Ltd climbed 63 per cent to 27.64 billion rupees (US$431 million) in the quarter through March 31 from a year earlier, while DLF Ltd, India's biggest, saw a 7.7 per cent increase in its net debt to 209.7 billion rupees.

Stressed assets accounted for 11.1 per cent of loans in the country's banking system as of March 31, the highest since 2002, official data show.

Sunteck, with a net debt at 9.6 billion rupees as of March 31, said it will take advantage of its relatively better balance sheet to acquire assets, Mr Khetan said.

The Mumbai-based company plans to build condominiums and offices after purchasing the assets, and may lend its brand to help complete projects that are stuck, he said. It may even develop property jointly with the existing builder, he said.

Funds are chasing commercial properties more for better returns, and Sunteck may look to double the share of its office and retail assets to about 40 per cent and cut residential assets from 80 per cent if there is increased demand, Mr Khetan said.

His aim is to boost rental income from yield generating commercial assets 10-fold to 2 billion rupees in the next three to four years.

Even as Mr Khetan expects higher prices for his condominium projects, Pankaj Kapoor at consulting firm Liases Foras Real Estate Rating & Research Pvt says high-end home sales will remain subdued over the next few years and prices will stagnate.

"The luxury residential market will remain slow for the next two to three years," said Mr Kapoor, founder of Liases Foras. "We will see a time correction even as sales start to pick up."

Private-equity property funds disclosed 64 investments last year in India, of which 54 had a combined value of US$2 billion, according to data from Venture Intelligence. The number of transactions was 14 per cent higher than the 56 investments, with 52 disclosed deals valued at US$1.86 billion in 2013.

Warburg Pincus LLC said last month it will invest 18 billion rupees in Piramal Realty Ltd. Sunteck has private equity investments from Kotak Alternate Opportunities (India) Fund.

Sunteck, whose cost of borrowing is about 12 per cent, will look for strategic partners to grow without raising its debt levels, Mr Khetan said.

Shares of the company dropped 6.2 per cent Tuesday, extending this year's loss to 8.6 per cent versus an 11 per cent drop in the S&P BSE India Realty Index comprising 13 stocks.

"We now feel there are lot of distressed assets in the market so we can grow the company to a different level, but we will require capital," Mr Khetan said. "We will look to cut our debt levels further and still do acquisitions with our strong cash flows."

BLOOMBERG