India-dedicated real estate funds, listed on London Stock Exchange’s (LSE) Alternative Investment Market (AIM), have lost over 75 per cent of the sum they have raised in initial public offerings (IPOs), a study by Financial Chronicle shows.
Six AIM-listed India-dedicated funds had raised over 1.29 billion pounds in the last two years. Their current market capitalisation, however, is lower by an aggregate of 975.66 million pounds as on Wednesday (October 29, 2008). Put another way, companies such as Unitech Corporate Parks, K Raheja promoted Ishaan Real Estate and Niranjan Hiranandani promoted Hirco Plc, among others, have lost almost $1.48 billion of the over $2 billion they had managed to raise from international investors who reposed their faith in these listed funds.
“The value of these AIM funds reflect liquidity concerns in the market and the distress sale value in the short term. The problem is that there are enough sellers but not enough buyers of these traded shares,” says the managing partner of a large Indian real estate fund. What’s worse for investors in these funds is that the average India dedicated, real estate fund trades at a massive 70 per cent discount to the stated net asset value (NAV).
The only consolation that investors in these funds can derive is that as compared to the 84.8 per cent fall in the BSE Realty Index in 2008, the fall in the average NAV of the listed India property funds tracked by LCF Edmond de Rothschild Securities, has fallen by a much lower 24 per cent.
The biggest fall amongst the AIM-listed funds was recorded by Unitech Corporate Parks, which lost almost 89 per cent of the 360 million pounds raised in its IPO in December, 2006. The second largest loser has been Hirco that fell 83.66 per cent as compared to its 370 million pound IPO also in December, 2006. The K Raheja Corp sponsored Ishaan lost 62.34 per cent of its 180 million pounds raised in November, 2006, in marketcap terms. The fourth largest loser was Alpha Tiger Property Trust that lost 65.74 per cent of the 75 million pounds raised in December, 2006. Aashish Kalra promoted Trikona Trinity Capital too lost 61.24 per cent of the 250 million pounds it raised in April, 2006.
“Everybody wants money so they are selling anything at any price. As a result, the cash available on hand for many of these companies is more than their market valuation,” says Akshaya Kumar, founder and CEO of the Mumbai-based Park Lane Property Advisors.
According to data from the LSE, the cash on hand for Unitech Corporate Parks Plc as on March 31, 2008, stood at 78.18 million pounds or almost twice its market capitalisation of 39.6 million pounds. The company’s stock has fallen 90.31 per cent in calendar 2008 so far, according to Bloomberg.
The firm has invested in six infotech dedicated special economic zone projects. Five of these SEZs are located in the National Capital Region while one of the SEZ’s is in Kolkata. According to the LSE, the current consensus broker recommendation on the company is a ‘buy’. “I was speaking to Unitech and they told me that just one project of their's is valued more than the entire marketcap of the company on AIM, if they manage to sell the project through at what they think, it should realise. This is also the case with a lot of Indian developers listed on the local stock exchanges. The trouble is who’s got the money to invest,” says Anuj Puri, chairman, Jones Lang LaSalle India.
The Alpha Tiger Property Trust promoted by British property developer John Beckwith has cash of 68.3 million pounds as on September 2008 or 2.66 times its market cap. The fund that primarily invests in business parks, also has on its board Phillip Rose ex-head real estate ABN Amro Bank. The fund has fallen 61.74 per cent in the current calendar year. “Investors are not saying fundamentals are going down so sell. People are simply picking what they can sell and selling not based on the price,” says Nipun Sahni, head, India global commercial real estate, DSP Merrill Lynch Capital.
On October 29, 2008, Alpha Tiger announced it was assessing strategies to “further enhance shareholder returns and diversify risk through more active rotation of capital.” The company also announced its plan to buy back up to 10 per cent of its issued equity capital that would be held as treasury shares. According to LSE, the current consensus broker recommendation on the stock is a ‘buy’. “The market has oversold some of these stocks which are very good buys now as their prices have been battered. There would be a huge upside from here for long term investors,” says Kumar.