There are speculative talks that Bangalore-based real estate major Prestige Estates may be "re-thinking" on its proposed plan to raise up to Rs 1,200 crore through an initial public offer (IPO). Prestige had filed its draft red herring prospectus with Securities Exchange Board of India in November last year for the public issue for divesting up to 15%-20% stake.
Sources directly familiar with the development said, the promoter family was in the midst of a re-think, which might see it deferring the plan or even dropping it. The firm is yet to receive a final clearance from the market regulator nearly four months after filing the prospectus. It has appointed Enam Securities, UBS, J.P. Morgan and Kotak Mahindra Capital as its book running lead managers for the issue.
An email sent to Prestige Group chairman Irfan Razack, seeking a confirmation on IPO deferment, did not elicit a response at the time of posting this article. However, Razack replied through a text message, saying, “just to set the record straight, we have not deferred our plans for IPO. We are just awaiting the final nod from SEBI and are fully geared up.”
The three co-promoters are Irfan Razack, Rezwan Razack and Noaman Razack and their family members own 33% each in the company. One source, who did not wish to be quoted, said, the family was still debating whether remaining private was in the best interest of the company's growth ambitions and for the future roadmap being readied by the promoters. In doing this, the promoters have looked at the experience of some city-based realty peers who went public.
"While the work on IPO may be still on, there exists a possibility of them not going ahead with the public issue for the time being at least," said a second source familiar with the situation. "I don not see the issue going through before June this year even if the momentum is stepped up," he added.
Further, the market appetite for real estate issues seems to be evaporating with the last few issues performing badly on debut. The last two listing in this space, DB Realty Ltd and Vascon Engineers, are currently trading below the lower band of their issue prices.
DB Realty, which had slipped by 10% on its debut, is currently trading Rs 456 against the issue price of Rs 468-486. Vascon, which is involved in EPC and realty business, is currently trading at Rs 141.5, a 14% discount to its issue price of Rs 165.
And there is still a long list of realty firms working towards an IPO. And the pipeline for issues includes over half a dozen players like Emaar MGF, Lodha Developers, Sahara Prime, Prestige Estates, Nitesh Estates, BPTP and Oberoi Realty. While BPTP has said it plans to raise Rs 1,500 crore in the early next fiscal, Emaar MGF and Lodha also have SEBI approval for a Rs 3,850-crore and Rs 2790-crore offerings, respectively, but have not decided on a timeframe for the issues.
"Valuation challenges are significant and the possibility of having to divest more shares than anticipated is real," explained a top honcho at real estate firm, which may be eyeing the public markets in the short run.
Prestige promoters have been running very closely-held operations and have shied away from private placements at the holding entity level several times in the past. The company has attracted private equity funds from CapitaLand of Singapore and Redfort Capital at the SPV level. In context, it is left to be seen if the promoter family would walk the extra mile to convince the market, which is growing skeptical about more realty issues.
One of the reasons behind a possible IPO from Prestige was the fact that the next-generation promoters wanted to run a professional operation, and not being hands-on managers. And a listed entity was seen as better suited to attract professional managers. So a possible rethink and deferring of IPO plans could be dictated by the market conditions as well as a closer scrutiny of the business roadmap for the future.
A large part of its saleable area is in the residential space besides exposure in retail, commercial buildings and hospitality. For the year ended March’09, the company had a total income of Rs 914 crore with net profit of around Rs 77 crore. The realty sector, which suffered a severe slowdown on account of the global crisis, is now slowly recovering with sales picking up and the demand for quality office space now resurfacing.