L&T to launch Rs 4,500 crore PE fund

Larsen & Toubro, the diversified engineering to IT company, is entering the private equity space with a staggering Rs 4500 crore ($1 billion-plus) fund that will invest in real estate-related infrastructure projects.

L&T is the latest industrial house to set up a realty fund for investing in the country's booming real estate sector. 

GROUND ZERO Realty funds of top business houses
Company	Fund size (in $mn)
Reliance (RIL)	1,000
Tata Group	1,000
Future Group	1,200*
Nicholas Piramal	1,100
*Spread across four funds
Source: Real Estate Intelligence

Modeled on the lines of Kishore Biyani-promoted Future Capital's Kshitij, L&T's real estate fund has an anchor investment of about $200 million, through its subsidiary L&T IDPL (Infrastructure Development Projects), a source familiar with the plan said.

India's largest industrial house, the Tata group has also floated a realty fund with the Xander Group, a global private equity company.

L&T's head of mergers and acquisitions practice N Sivaraman is driving the initiative. The company has reportedly raised the money from US and European markets.

The fund which will be registered with the Securities and Exchange Board of India, is awaiting regulatory approvals. L&T has structured its private equity business in an interesting manner.

The fund will largely invest in SPVs (special purpose vehicles) of real estate companies that would give the construction contracts to L&T.

This is a win-win situation for the company as it would also earn revenues from executing those contracts.

According to industry estimates, private equity/hedge funds invested around $2 billion in the real estate sector last year.

A recent study by the Associated Chambers of Commerce and Industry of India (Assocham) predicted that the real estate sector would be the top beneficiary of PE investments in the country as investments by overseas private equity funds are expected to touch nearly $50 billion by 2010.

Industry players attribute the increasing interest in the Indian PE market to the high rate of returns (20-25 per cent), which are unmatched anywhere in the world.