IndiaREIT, a real estate venture capital fund promoted by the Piramal Group, is looking at selling some of its stake in Mumbai-based real estate company Neptune Developers Limited, which has filed a draft red herring prospectus with SEBI for a Rs 495-crore initial public offering.

Neptune Developers is looking at raising the sum through the issue of fresh shares and offer for sale of 3.17 million shares by IndiaREIT Fund- Scheme III.

As per the current shareholding structure, promoters hold 75.6% shares in the company while IndiaREIT (through IndiaREIT Enterprise Holdings Limited and IndiaREIT Fund- Scheme III) hold 15.8%.

VCCircle estimates that IndiaREIT is already sitting on gains of Rs 84 crore on its Rs 212-crore investment in the company.

Workings suggest that the cost of acquisition for IndiaREIT Enterprise Holdings Limited (12.7 million shares) and IndiaREIT Fund- Scheme III (5.5 million shares) is Rs. 100 per share and Rs. 155 per share, respectively. Though the number of shares offered via IPO and pricing have not been announced, according to our calculations, the bare minimum price per share of Neptune could be Rs 163. (This is based on share allotment made to an entity named Alpex International Limited on December 3, 2009.)

Neptune Developers Ltd is engaged in the development of real estate properties (commercial and residential) mainly in and around Mumbai Metropolitan Region. The company is also targeting affordable housing projects in the sub-Rs 10 lakh per unit segment. As per the DRHP, Neptune Developers will use the IPO proceeds for construction and development expenses of ongoing and new projects (Rs 276 crore), for buying 10% stake in Neptune Realtors Private Ltd (Rs 65 crore) and to prepay loans worth Rs 37.5 crore.

Neptune Realtors Private Ltd (NRPL), in which Neptune Developers Limited (NDL) would be buying a 10% stake for Rs 65 crore, is actually an associate company which is developing "Evolution" (a commercial project located on 708,056 sq. ft. of land in Kurla, Mumbai). Interestingly, IndiaREIT Offshore Fund invested in NRPL in February 2007 and owns 24,000 Class A shares (30% stake) in the company. NRPL has a complex shareholding structure – with Class A, Class B, Class C, Class D shares – and remains silent on the issue price of shares to IndiaREIT. However, based on market information, IndiaREIT is believed to have picked up the stake for Rs 145 crore. If NDL is paying Rs 65 crore for 10% stake, then the 30% stake is worth Rs. 195 crores. This is another gain for IndiaREIT.

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