Infinite India Investment Management, an equal joint venture between JM Financial and US-based SRS Investments, managing real estate assets worth $500 million, has been called off. JM has acquired SRS stake in the four-year-old JV, which ceased to exist from April 1 this year.
SRS plans to start its independent private equity operations in India, while limiting its exposure to real estate. JM Financial will continue investing in realty and is expected to raise a new $100-million fund next year.
Infinite has been an active investor in the Indian real estate even though one of its portfolio firms Maytas Properties, promoted by the disgraced B Ramalinga Raju family of Satyam Computer, turned a risky asset.
"We have bought the stake of SRS in Infinite India Investment Management. They have decided that they want to set up a fund that does private equity in India. This would have been a conflict of interest for us since we already have a $225-million private equity fund. The separation was done in a very cooperative manner," Vishal Kampani, Managing Director, JM Financial Group, told VCCircle.
Without disclosing the amount, Kampani said, JM bought SRS' stake at a nominal value "since we were doing all the work on the ground in India". Infinite India Investment Chairman Karthik Sarma, who represented SRS, could not be contacted immediately for comments.
JM Financial will assist SRS in managing its real estate portfolio and work towards unlocking value from co-investments in the sector.
Infinite India was set up as a 50:50 JV between JM Financial and SRS Private Investment Management LLC in late 2006. It was initially managing India-focused real estate assets worth around $380 million, of which JM Financial raised around $170 million. The rest was contributed by SRS, which managed $260 million for real estate investments in India.
In 2008, it roped in third party investors for $150 million investment in Maytas Properties, which took the funds under management to $520-$530 million.
JM currently has an investible surplus of $50 million from its allocation towards the JV. SRS, on its part, may utilize the surplus for the PE play, though this could not be confirmed independently.
Besides Maytas, Infinite had invested in a host of projects across tier-I and tier-II cities, including $50 million infusion into the Kolkata-based Srachi Developers and almost a similar tranche into Heera Group in Thiruvanathapuram. Some of its other investments were into a 32-acre mixed-use development in Mumbai, a 1.8 million IT park in Chennai, a large retail space in Vishakapatnam and a few other entity level investments in real estate hospitality firms in Bangalore and Delhi.
The JV was one of the largest India-focused real estate funds behind HDFC Property Fund and IL&FS Realty Fund, both of which are in excess of $800 million, and Sun Apollo's $630-million operations. "We now believe that India's real estate market is very localised and there is no scope for international expertise there. If you look at most of large India-focused realty funds, they are all managed by local expertise," Kampani added.
This will not be the first time when JV partners in a real estate PE play have parted ways. ICICI Venture had a joint venture for real estate investments with US-based real estate developer and investor Tishman Speyer. In 2008, the JV fell apart with ICICI Venture exiting TSI Venture India Pvt Ltd, which has investments of $700 million.
Meanwhile, Kampani added that Infinite was trying to recover value from its investments in Maytas Properties. "We have won a stay order from the High Court in Andhra Pradesh directing Maytas not to sell assets. The arbitration proceedings have also gone in our favour till now," Kampani said.
Infinite India roped in third party investors to pump in $150 million into the company, which were routed into specfic projects across cities. The largest investor in that consortium was one of JM's realtions in the US, Kampani added. Months later, the promoter family at Satyam Computer, which also managed Maytas, was rocked by a Rs 7,000-crore financial scam.