Mumbai-based Oberoi Realty Ltd (unrelated to the Oberoi hospitality group) has joined the IPO queue with plans to raise Rs 1,000-1,200 crore by diluting 12.1% of the post issue paid up equity capital.
This roughly means that the firm is seeking a market capitalisation of up to Rs 10,000 crore ($2.2 billion at the upper end of estimated fund raising plan). This would make it the fourth largest pure realty firm by market cap behind DLF, Unitech and HDIL. It would be ahead of Indiabulls Real Estate. Kotak, Enam, JP Morgan and Morgan Stanley are the book running lead managers for the IPO.
Promoted by Vikas Oberoi, a second generation entrepreneur, who took over the reins of the company started by his father Ranvir Oberoi way back in 1980, the company shot to fame in early 2000, when it bought a large chunk of land in Goregaon, Mumbai from two chemical majors – Novartis and Ciba. The company followed this up by buying large tracts of lands in Mumbai.
In January 2007, Morgan Stanley bought into the construction company by paying Rs 675 crore. Subsequently, SSIII (Special Situations Fund III), a company owned by Morgan Stanley Real Estate Fund, was issued 279,777 equity shares for Rs 596.7 crore and another 783 preference shares for Rs 78.30 crore. Morgan Stanley did not invest any further and continues to hold onto its 10.8% stake in Oberoi Realty. This gave the company a valuation of around Rs 6,250 crore.
Although the exact valuation the company is seeking will become clear when it declares the offer price, an estimated Rs 10,000 crore in valuation would mean Morgan Stanley could be sitting on ‘net’ returns of around 0.4x on its three-year-old investment with unrealised gains of around 270 crore without counting the dividend earnings.
As per the DRHP, Oberoi Realty needs around Rs 777 crore for construction of ongoing and planned projects, Rs 225 crore for land acquisitions and the balance for general corporate purposes.
This is somewhat unusual, since most of the real estate public offerings have had an objective of paying off debt. The fund-raising objective could be an indication of improving market scenario for realty sector as well as an aggressive growth pitch by the company.
This is also linked to stronger balance sheet profile of Oberoi Realty which is low on debt and has ample cash. As of September 2009, the company had loan worth just Rs 11 crore that too from the promoter, Vikas Oberoi. Its cash and bank balance stood at Rs 312 crore on the same date.
The company earned a net profit of Rs 252 crore on revenues of Rs 455 crore in FY2009 and has been a regular dividend payer. This could help it see through the public issue despite investors still being cautious of putting too much money on real estate play.
As of September 30, 2009, Oberoi Realty owned 976,674 square feet of saleable area in completed office space and retail projects. It has eight ongoing and 19 planned projects, which should provide a total saleable area of approximately 21,316,528 square feet.