Executing a deal is difficult in India and takes considerable time: Sid Yog

Interview with Sid Yog, founder of Xander

Private equity fund Xander recently bought a special economic zone in Chennai for Rs 2,200 crore and a mall in Chandigarh for Rs 700 crore. Sid Yog, founder of Xander, which has committed about $2.3 billion in India, discusses recent acquisitions and strategy in an interview with Raghavendra Kamath. Edit excerpts:

How do you look at the valuations of the two deals you signed?

There are more investors looking at these asset types and so there is the risk of overbidding in a competitive situation and pricing is getting sharper. So, you have to very disciplined. But, executing a deal is difficult in India and it takes time. Often, potential investors do not have the patience to follow through or the resources on the ground to be able to spend the time required to get the deal done. Or, they are unwilling to work with the seller or joint venture partner to structure or clean up a transaction due to the cost and time that entails. That can be a sweet spot. As can be your reputation in a complex and opaque market. We have been in India for 12 years, people remember that and hopefully it counts for something.

Will you look at floating REITs in India or abroad for your commercial assets?

A Real Estate Investment Trust (REIT) in India or abroad is always an option to be considered. A lot depends on the state of the market, the arbitrage between public and private markets and the maturity of the portfolio. We are in no desperation to create liquidity beyond really working the asset to generate additional and increasing income, but if valuations are appropriate and the structures have been stress-tested from a regulatory perspective, we will of course look at them.

How do you look at demand for offices and malls and movements in rents?

You have to look at individual cities and within those cities at different office micro-markets to assess multiple factors like new supply coming on line, vacancy levels, vectors of growth, quality of location, availability of parking, quality of the built assets and market cycles. Net absorption should remain comparatively strong as the Indian economy seems to be finally preparing to enter a new capital expenditure cycle. However, credit offtake is still weak and the banking system still clogged with bad loans. So, we are circumspect at the macro level. 

We expect well built, well located and well operated retail centres to continue to command a premium. However, I don’t think rentals can increase beyond a point as retailers are still playing catch-up and they need to really create more depth and breadth, and consumers’ ability and desire to pay needs to increase.  Having said that, the top centres, because they trade well and retailers make money, will obviously see higher increases.

What is your outlook for residential property in India?

We are probably one of the biggest investors both in debt and in equity in the residential segment right now. Each deal needs to be evaluated, on the merit of the partner who is executing in the case of equity projects, and the quality of the credit of the borrower in the case of debt.  Residential markets are even more city and income segment driven.  

How much money will you invest through VRSA and Xander in India in the next two years?

Depends on what deals we see, the risk-return tradeoff, the comparative between India and other emerging markets, how the currency performs, the ability of the government to pursue its stated intent and agenda, the quality and approach of the state government (since land is a state subject). If one could answer all these questions, we could give you an exact dollar amount.

Suffice to say, we are looking for retail opportunities for VRSA and beyond, for income-generating office opportunities, for structured debt opportunities in real estate and non-real estate sectors, and for general opportunistic investments in warehousing, in mixed-use projects, in hotels, and in distressed assets. Basically, wherever we feel there is value to be had, given the state of the market and the city the investment is in.