Private equity giant TPG Capital is taking an exposure of around $100 million in Shriram Properties, the realty arm of South India’s diversified financial services Shriram Group, two separate sources directly familiar with the development said. The transaction, which is in closing stages, will give TPG between 22-24% stake in Shriram Properties valuing the developer at over $400 million.
Shriram Properties will use the proceeds to foray into retail, hospitality and IT Parks, besides expanding its base in the residential space. Shriram will be venturing into development of malls, as part of its entry into retail, said a source who did not wish to be identified ahead of the deal completion.
Interestingly, TPG could also explore possible synergies between its impending investment in Shriram Properties and the ongoing bid to get controlling interest in the troubled Vishal Retail. Shriram could develop and control the new real estate assets of Vishal Retail if plans fall in place, said one banking source who is not part of the deal making.
However, a source, close to the Chennai-headquartered group, said “the only thing common between Vishal and Shriram Properties would be TPG as the investor. We are not looking at direct retail.” The source further added that the TPG deal (in the vicinity of $100 million) is still a fortnight away and that discussions were on at a very advanced stage.
When contacted, Shriram Properties MD M Murali declined to comment, while an email to TPG spokesperson remained unanswered at the time of posting the report.
VCCircle was the first to report on the possibility of TPG Capital investing in Shriram Properties. TPG had earlier backed another group company when it picked up a 49% stake in Shriram Retail Holdings, the holding firm of Shriram City Union Finance, for Rs 530 crore in 2008. This was followed by an open offer for another 20% stake.
Recent media reports had said TPG could be pumping in $250 million, or about Rs 1,000 crore, fresh into Shriram Group. At the point, one source directly involved with the discussions, told VCCircle that Shriram could use a part of this capital to create or expand new growth stories.
The deal with TPG comes at a time when Shriram Properties has deferred its IPO plans, which was scheduled for this year. The long pipeline of real estate public issues and edgy investors have prompted many developers to postpone their offering to 2011. Shriram Properties has also bared its intentions of picking up real estate assets and was, at one point last year, in talks with Bangalore-based Sobha Developers for acquiring a few SPVs.
“Acquisition of realty assets will happen only at the right price. Valuation expectations are still very high in the market,” said the group source, on the company’s consolidation moves.
Shriram Properties — which has raised funding from Walton Street Capital, Starwood Capital and Sun Apollo at project levels in the past — has projects under development in Bangalore, Chennai, Vishakhapatnam and Kolkata. It will continue to focus on its south India presence post TPG funding. Shriram has completed 4.23 million sq. ft of residential space and 1.03 million sq. ft. of commercial space in addition to 67 million Sq. ft. of built-up area currently under various stages of development.
Shriram’s move to diversify its asset portfolio comes at a time when developers are beginning to push commercial assets such as retail, hotels and IT parks, riding on the back of economic recovery, to generate steady returns in the next couple of years.
The firm recently forayed into mid-income housing and also raised Rs 40 crore from ICICI Prudential Asset Management Company Limited and India Opportunities Real Estate Fund (Mauritius) for its 16-acre residential project in Yelahanka, the northern suburb of Bangalore, at the SPV level.