It will take a few more months before Indiareit Fund Advisors, Ajay Piramal group's realty fund manager, will be able to launch its $300-million (Rs 1,800 crore) offshore fund, according to private equity (PE) industry sources.
When contacted, an Ajay Piramal Group executive said: "We are not in a rush to launch the offshore fund. We are taking more time in building relations abroad. We want to do an initial closure first and then launch the fund."
Indiareit had initially planned to raise $500 million from its offshore fund and launch it in May this year from investors in Europe, Asia and Australia, but later scaled down to $300 million and also postpone the launch due to challenging market conditions. Similarly, ASK Property Investment Advisors, the property fund arm of Mumbai-based ASK Group, had planned to launch a $200-million (Rs 1,200 crore) international real estate fund in October 2012. ASK was to float the fund in Singapore but just as it was planning to launch, the Monetary Authority of Singapore (MAS) came out with new guidelines, asking fund houses to register with MAS, said sources in the know. Earlier, funds up to certain limits were exempt from registering with the authority.
It took about six months for ASK to comply with all paperwork for registering with MAS. Amit Bhagat, CEO and managing director of ASK Property Investment Advisors, said the company would launch the fund this month. He added the firm was working towards initial closure of the fund.
Pointing to the challenging market conditions, industry sources said even HDFC Property Fund had taken one-and-a-half years to raise money from international investors for its new offshore fund. According to a Reuters report, HDFC Property Fund has raised $200 million from the Government of Singapore Investment Corp (GIC), investment firm Temasek and Oman's State General Reserve Fund.
An email questionnaire sent to HDFC Property Fund did not elicit a response.
Kotak Realty Fund, another realty fund manager, has also been in talks with international investors for quite some time and was expected to announce closure of its property fund soon, said an executive in the know. According to fund managers and consultants, challenging macro environment, tough regulations, depreciating rupee, negative perception of the market, etc. are posing challenges to the realty fund managers who are planning to float offshore property funds.
"The environment is tough for fund-raising now. When you talk to pension funds and sovereign funds, they are worried about the macro environment in India. If macro conditions are bad, investors tend to avoid those markets," said a director from a fund manager, who declined to be quoted as they are in the process of raising funds.
The gross domestic product (GDP) of India grew at just 4.8 per cent in the fourth quarter of FY13, which is a decade-low growth. In FY13, India's external debt rose by 13 per cent to $390 billion. The lower exits and poor returns from India in the past have also played a spoilsport.
"Out of the $8 billion that has come into the country since 2005, only $2 billion has seen exits and the rest is still stuck. That's why investors are cautious about investing in India," said Amit Goenka, managing director and CEO of Essel Financial Services, the financial services arm of Essel group, which is looking to launch $200-million offshore fund soon. Essel's fund would have short tenure and give "deal by deal entry" to investors to make it attractive, added Goenka.
Ambar Maheshwari, managing director (corporate finance) at Jones Lang LaSalle, said: "Whatever money came in during 2005 and 2008 did not see any meaningful returns as they were not invested properly. So, new funds are reeling under legacy issues," he added.
The depreciating rupee has also become a headache for fund managers, who are raising fresh funds as the rupee breached the Rs 60-mark recently.
"Investors think that if currency depreciates, why should they invest money in a fund? Whatever additional gains they make will be erased by the depreciating rupee," said a fund manager.
Added Essel's Goenka: "Currency is a big risk. Anybody coming at low dollar and exiting at low dollar will not make many returns." According to Goenka, investors fear some of the new laws such as the General Anti Avoidance Rule are implemented in India, entities based in tax havens may end up paying higher tax in India.
