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Mantri Developers Tweaks Business Model; On Course To Raise PE Funds

15 April, 2010

Big is no longer beautiful for Bangalore-based real estate major Mantri Developers, which is known by its signature upscale development in the city’s downtown area called Altius.

The realty developer, which has just thrown open the city’s largest mall Mantri Square, is working on a future strategy that centres around “multiple but smaller projects” where the visibility of completion and exits are very high.

This strategic shift is also a precursor to the company’s plans of roping in big-ticket private equity funding to fuel its future expansion. Talking to VCCircle, Mantri Developers chairman and managing director Sushil Mantri said, “we are in serious discussions with four or five PE majors for investments at the SPV level. Nothing is finalized yet. We are looking at raising ‘line of equity’ of Rs 400-500 crore from the PE route.” 

Mantri, which has so far delivered 11 million sq ft of space across the realty spectrum, has another 10 million sq ft under development and 30 million sq ft in the planning stage. The company is now looking at land bank acquisition and 10-12 new projects.

“In our new business model, we will look at developing five projects, in say 50 acres, as opposed to the earlier thinking of one large project across that area. If we finish these projects in three years against six years earlier, the IRR will be better and the risk is spread over multiple projects.”

The move could also prove attractive to the PE community, which likes a clear visibility of the exit horizon. Incidentally, the real estate private equity arm of Morgan Stanley invested $68 million at the entity level in early 2006 and this was one of the first FDI deals in real estate in India.

Coinciding with the PE fund-raising plans, the company has, in a significant deal, also armed itself with a healthy dose of liquidity by securitizing the rentals from its new mall, which sits on a built area of 9.2 lakh sq ft and a saleable are of 6.4 lakh sq ft. Mantri has raised Rs 550 crore from a four-bank consortium by discounting the rental receivables for a period of 10 years. This fund will be used for all new projects including land banking and acquisition of new properties.

The State Bank of India (SBI)-led consortium, which participated in the arrangement, includes Punjab National Bank and Laxmi Vilas Bank.

With this move, the company has enough liquidity to pursue growth plans in any direction as opposed to project finance or debt which are typically linked to a particular project.

“Today liquidity is of much larger value. We preferred to hold on this asset on our balancesheet and, chose to go for rental securitization,” Mantri said.

This has become a preferred route of refinancing for developers with revenue generating assets in commercial and retail segments. Mantri Square, which marked Mantri’s foray into retail segment, has available retail space of around 6.5 lakh sqft with average rentals of Rs 114 per sqft, sources said. This translates to Rs 87.55 crore in annulised rentals, according to a source, close to the transaction.

Many large developers like DLF and Pheonix Mills have raised debt in the nature of lease rental discounting in recent times. The trend has gathered momentum in the retail segment as the developers now desist from outright sale of quality space, which provides them with better leverage over a period. Private sector banks like ICICI had entered this debt financing channel for commercial and office space several years ago.


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1 Comment
Ajay Punjabi . 6 years ago

Securitization of assets and raising capital is going to be the next wave in the real estate sector, if not immediately then may be in a couple of years. Alternatively REIT’s should be introduced immediately in the Indian market, specially for the general population to be a part of the real estate investment story!

If not then the big players like DLF, Unitech, HDIL might list their prime properties as REIT’s abroad and the local investors will miss out on such opportunities. A case in point is the Indiabulls REIT listed in Singapore with two prime projects in Lower Parel (Mumbai). If this trend follows I think India will miss out big time on creating a superior REIT market, which essentially is the need of the hour. Hence the industry participants and regulators need to act fast in order to stop prime assets from moving out the country and creating wealth nationally!

Mantri Developers Tweaks Business Model; On Course To Raise PE Funds

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