K Raheja Corp Group, which is buying 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 around £70.3 million ($107.3 million), has amended the agreement to allow for withholding tax on the transaction. 

The deal, a precursor to winding up the London-listed entity, was subject to shareholders’ approval with a deadline of March 28, 2013. But on March 26, two days ahead of the deadline, Ishaan Real Estate announced that while progress had been made towards obtaining the nil withholding tax certificate, its board was advised that this process was now expected to be completed by April 30, 2013. 

In a fresh disclosure, the firm says the Indian tax authorities have confirmed that K Raheja Corp will have to pay the withholding tax of around £1.1 million ($1.7 million) for the acquisition. The terms of the share purchase agreement have been amended and this tax amount will be deducted at source by the purchasers from the consideration payable to Ishaan. This means the payout to Ishaan will be $105.6 million. 

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. 

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. 

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. 

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. 

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

(Edited by Sanghamitra Mandal)

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