K Raheja to buy out AIM-listed associate firm Ishaan’s stake in Indian realty assets for $107M

K Raheja Corp Group is planning to buy out the entire stake held by London’s AIM-listed group associate firm Ishaan Real Estate Plc in various real estate properties in India, for an aggregate consideration of approximately £70.3 million ($107.3 million) in cash.

The deal, a precursor to the winding-up of the London-listed entity, is subject to shareholders’ approval with a deadline of March 28, 2013.

Ishaan is a property investment company, incorporated in the Isle of Man. It invests in real estate development projects located in southern and western India and mostly focuses on IT parks and SEZ projects besides other realty assets including commercial, hospitality, retail and residential development projects – eligible for foreign direct investment.

The company has invested in commercial, residential, hospitality and retail real estate projects, primarily located in or around Mumbai, Hyderabad, Bangalore and Pune.

K Raheja Corp entities have a majority stake in the Indian investment vehicles developing the portfolio and while led by an independent board, Ishaan’s top management also includes Neel Raheja, director of the group firm Shoppers Stop. K Raheja entities held 7,493,811 ordinary shares, representing approximately 5.14 per cent of Ishaan.

Ishaan, which raised around $390 million through a public float on AIM exchange six years ago, will be wound up after the sale of business interests in India.

Deutsche Bank is acting as the nominated advisor and broker to Ishaan Real Estate in relation to the disposal of interests in Indian ventures. Rothschild is acting as the financial advisor to Chalet Hotels Pvt Ltd (part of K Raheja) for the deal.

On Dec 11, 2012, Ishaan’s board had reiterated its focus on the disposal of assets and the return of cash to shareholders.

Mumbai-based K Raheja group will acquire 40 per cent of equity stake (and 100 per cent of the entire issued preference share capital, where applicable) in each of these – Trion Properties Pvt Ltd, Serene Properties Pvt Ltd, Magna Warehousing & Distribution Pvt Ltd, Genext Hardware and Parks Pvt Ltd and Newfound Properties and Leasing Pvt Ltd.

It will also acquire 38.98 per cent of equity stake (and 100 per cent of the entire issued preference share capital, where applicable) in both Sundew Properties Ltd and Intime Properties Ltd.

These represent a string of IT park/SEZ projects besides a few residential and mixed-use retail-commercial projects. The property interests were held at a value of £94.4 million as of Sept 30, 2012.

According to the disclosure, Ishaan has received indications from certain shareholders (including shareholder directors and K Raheja entities) that they intend to vote in favour of the buyout. These shareholders hold around 54.63 per cent stake in Ishaan.

In the 12-month period ended March 31, 2012, Ishaan generated a loss of £10.1 million.

The Ishaan-K Raheja proposed deal comes after a number of similar transactions in the past. Indian property developers had floated firms in London Stock Exchange’s junior market over the past 6-7 years to raise capital for projects in India. Some companies like Indiabulls bought out the AIM-listed entity soon after going public with it while others such as the Hiranandanis are looking at a similar proposal after facing shareholder activism over various issues with their AIM-listed entity Hirco.

(Edited by Sanghamitra Mandal)

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