Trusts owning engineering colleges in Andhra Pradesh, Karnataka, Kerala and Tamil Nadu are putting these institutions up for sale due to a shrinking demand for the degree.
At least half a dozen colleges are on the lookout for buyers in Andhra Pradesh, which alone produces the largest number of engineers in the country. These four states have more than 1,500 engineering colleges, with 500,000 seats. Andhra alone has 700 colleges.
“Since 2005 there has been a spurt in engineering colleges in Andhra and Karnataka. But due to shrinking demand, many trusts are now looking for buyers,” said Sandeep Aneja, managing director of Kaizen Private Equity, a firm focused on the education sector.
“The problem with many of these institutions is they have no brand name; they manage to meet the most basic requirements set forth by AICTE (All India Council for Technical Education). They have the licences, but bare infrastructure development and zero brand name. They produce engineers who do not find jobs,” Aneja said.
The Kollam-based Travancore Engineering College, for example, has been on sale for six months, according to a broker, who is incharge of the sale. Established in 2002, the college spreads over 25 acres and has 1,350 seats. Its promoters denied they had put the college on sale, but sources said they wanted to set up a school, which they believed might be a more profitable proposition. The promoters are believed to be demanding Rs 100 crore.
Another college affiliated to the Anna University is also up for sale with an asking price of Rs 120 crore, according to an advertisement on a classifieds website. The college, spread over 54.5 acres, has 1,850 seats.
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Vocational education, including engineering and management, is regulated by AICTE which allots each educational institution the number of seats it can allot in a given course. A sale would entail the transfer of the AICTE licence.
“Broadly, there should be no problem in the transfer of seat permits because they will come under the Property Act and would fall in the category assets being transferred by one owner to another owner,” said a human resources development ministry official.
In 2010, the National Association of Software and Services Companies had said 75 per cent of engineers were unemployable.
The problem of vacant seats came to the limelight earlier this year, when fears surfaced that over 150,000 seats might remain vacant in Andhra Pradesh and Karnataka alone.
Several private equity (PE) players, along with trusts and non-educational buyers, are in the fray. But PE players will not be able to make any headway because of hurdles in exit.
“While many engineering college trusts in Andhra and Karnataka have put up assets, including land and licence, on sale, most of them are non-profit institutions. Under the existing law, assets from these trusts cannot be used for profit making,” said Jacob Kurian, partner, New Silk Route. Kurian’s New Silk Route is a PE fund with assets worth $1.4 billion under management.
“The advantage for the buyer would be to re-brand existing infrastructure and work through present licences,” Kurian said.
The buyer will gain land which is increasingly becoming difficult to acquire. Also, there is the lure of existing seat allocations that bigger private universities believe can be filled with their own brand name.
A player involved in a deal said there was no problem in PE players getting into the space. “I do not see the not-for-profit issue a hurdle because we can put up the money and our experts in charge of operations, and exit at a later date. As long as we do not take money out of the college itself, there should be no problem,” the investor said.
Buyers, who have been approached, told Business Standard a typical deal could range between Rs 30 crore and Rs 200 crore, depending on the kind of assets and infrastructure.