The 140 year-old Shapoorji Pallonji Group, a homegrown construction giant, is setting up a real estate fund that may participate in developments worth over $2 billion in the next few years, said multiple sources familiar with the development.
As part of the move, Rajesh Agarwal, who spearheaded AIG Global Real Estate in India as its Managing Director, is boarding Shapoorji Pallonji Group (SP), sources added. Agarwal is set to formally join SP from tomorrow, April 1. SP, one of India's most tightly-held corporate houses, is also the largest shareholder in Tata Sons, which controls India's diversified private conglomerate Tata Group.
It is believed that SP has been working on a real estate fund for a while given the group's interests in construction. The real estate fund is most likely to pursue investments where it will have control over the development rights. While more details on the fund were not available, sources did not rule out the possibility of it being a propriety play, akin to Wipro Chairman Azim Premji's private equity fund vehicle called PremjiInvests.
"The fund could look at developments worth about $2 billion," said one source but he did not clarify on the exact size of the fund. Shapoorji Pallonji Group is believed to be sitting on large land banks across the country, which will be primed for development as the economic recovery gathers momentum. "Such a fund can come up with a good asset base considering that it will leverage on the group's execution skills," added a second source. A top private equity honcho confirmed that he was aware of SP working on a real estate, but did not have details at present.
SP Group did not respond to VCCircle's email query at the time of posting this report, while calls and messages to Rajesh Agarwal also failed to elicit any reply. AIG Global raised $282 million for AIG Real Estate Opportunity - India in June 2008.
While construction firms turning developers is not new in India - in fact, some of them have innovated further to pick up 'construction equity' in real estate developments - one of them planning a large real estate fund could be precedent setting.
The latest development comes at a time when activity in the real estate market is beginning to pick up, and real estate funds, which were dormant for well over a year, return to prospecting potential investments once again. While the real estate asset prices have recovered from the lows of 2008-09, it is still playing below the 2006-07 peak.
With valuations improving, some of the debt laden real estate developers are hitting the market to sell-off revenue generating assets. This has thrown up opportunities for "opportunistic acquisitions" of real estate assets, which some of the less-leveraged Indian corporates are pursuing currently.
Last year Tata Realty & Infrastructure Limited (TRIL), a wholly-owned subsidiary of Tata Sons, had announced raising of a $700 million offshore fund to invest in propriety real estate projects.
Meanwhile, some observers claimed that SP might look at allying with a global marquee investor in setting up the fund. Several global funds had approached the group in the past to work on a large investment platform in the real estate sector, they added.