Real estate major Sobha Developers is exiting its majority interest in Sobha Global Mall, a joint venture with Davanam Constructions, for developing a large mixed-use project focused on retail in Rajajinagar, the western suburbs of Bangalore, said sources directly familiar with the situation.
Davanam, which bought a 17-acre land through an auction five years back, wants a new partner as Sobha Developers may be jettisoning some of the joint ventures where there is pressure to start development.
The over 1.7-million sq ft development, according to the original plan, would have marked Sobha's entry into retail and hospitality verticals. Sobha had over 51% stake in the proposed Rs 1,500-crore development which included a mall, hotel and the country's first ice-skating rink. Davanam is now holding discussions with other potential strategic partners, who can take the project forward infusing up to Rs 150 crore in equity.
While a few financial and private equity investors looked at the project, which is now being tweaked as a residential cum retail play, talks are veering towards inducting a strategic partner (read: another developer)
When contacted by VCCircle, Sobha Developers managing director J C Sharma said, “we will continue with the project. We are the principal investor in the project and Davanam continues to be our partner.”
Davanam, in which regional Congress leader D K Shivkumar is a shareholder, had acquired the land from National Textiles Coroporation for around Rs 66 crore.
Sobha Global Mall was projected as a precursor to the Bangalore-headquartered developer's plans to roll out a string of malls in Delhi, Mumbai, Hyderabad and Pune. But Sobha, which was severely impacted by last year's economic downturn, revisited its plans in this regard. "We believe many developers like Sobha will re-look at joint developments, as they want to stay focused on manageable independent projects. The idea is to work on fully-owned projects or joint developments where it is not under pressure to start execution," said a source who did not wish to be named.
This source added that developers, many of who are still swimming in debts, are re-thinking on the joint developments with large equity exposure to land owners, which in times of construction cost push, was seen negating the impact of not paying for the land.
Sobha Developers was one of the few real estate players that suffered a huge liquidity crunch in the aftermath of the global economic slowdown which threw consumer sentiment and sales offtake to a downward spiral. Analysts assert that Sobha may be tweaking its business model after coming out of its worst-ever realty crisis.
Because Sobha was predominately a residential segment player, that too operating in the mid-to-high-end apartment segment catering to the IT community, a strategy that worked in the good times, it suffered the most. With mounting job loss fears among its target buyer community, the company faced a situation of piled up inventory, tepid sales and consequently mounting debts. At one point last year, Sobha’s debts were in the region of Rs 1,800 crore.
In May-June period last year, Sobha raised Rs 526 crore through the QIP route and also mopped up Rs 225 crore from PE fund Purna Partners for investments to be made at the SPV level to tide over some of its financial woes.
Interestingly, Sobha promoter P N C Menon is also seen exiting some of his holdings both in the realty company and also other interests to focus on core areas. Recently, in a block deal, Sobha promoter sold 4% stake in the company to Temasek Holdings entity. And, barely months back, Dr Madhu Nambiar, founder and CEO of Sobha Renaissance IT (SRIT), teamed up with Bangalore-based IT entrepreneur Giri Devanur to buy out Sobha Developers Chairman PNC Menon’s entire personal stake in the IT entity.