Lucrative Landscape

Global private equity funds are aggressively pursuing Indian special economic zones.
 Sarika Malhotra        Print Edition: Nov 10, 2013
Cash rich: A Chennai SEZ housing a BMW plant
Cash rich: A Chennai SEZ housing a BMW plant. PHOTO: G. KESHAV RAJ

Reports of global investment firm Xander's acquisition of an IT special economic zone (SEZ) in Chennai from Shriram Properties and SUN-Apollo underscore how SEZs are becoming a viable option for foreign funds looking to invest in Indian real estate. The $112-million deal to buy Shriram The Gateway SEZ is the latest in a string of investments by private equity (PE) funds in SEZs this year.

According to private equity research firm VCCEdge data, PE funds have invested $910.6 million in SEZs this year, the biggest PE investment in these zones since 2007. The previous best was $550.35 million in 2011.

The year's biggest deal in the beleaguered real estate sector was US-based private equity fund Blackstone's $414.78-million investment in a Gurgaon-based infotech SEZ project by Unitech Corporate Parks in September. Blackstone also teamed up with a clutch of investors to put in $368 million in Vrindavan Tech Village, Bangalore, early this year. In 2012 and 2011, it invested $200 million each in two SEZs promoted by Pune Dynasty Projects and Manyata Promoters.

SEZs are a perfect fit for large global funds with low risk appetites looking to invest in ready assets that can generate steady returns from the beginning because of assured rentals from blue-chip companies. Interestingly, most Indian private equity and real estate-focused funds are not vying hard for such assets because they involve megabucks and their investment mandate is to go for higher returns in the quickest time. "While this is the first wave of institutional investors investing in such core assets, the market will witness more such transactions as inventory for such ready-to-move-in assets is getting completed for consumption since 2012." says Shobhit Agarwal, Managing Director, Capital Markets, Jones Lang LaSalle.

The growing PE interest in SEZs is good news for real estate developers who have been grappling with unsold inventory and mounting debts. Sanjeev Krishan, Executive Director and Private Equity Leader, PWC, says selling an asset to a fund is the best way for a developer to monetise its investment. He adds that big sales are particularly helpful for developers saddled with high debts. "Such sales will also encourage developers who had stalled their SEZ projects or were working on them slowly due to policy uncertainty over tax exemptions for new zones," says Krishan.

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