PEs seek a slice of stake in SEZs

After IT and telecom sectors, special economic zones (SEZ) have caught the fancy of private equity (PE) companies, with most firms looking at acquiring a minimum 10 per cent stake in SEZs.

Global PE firms such as Goldman Sachs, Deutsche Bank, Blackstone Group, Lehman Brothers and others have already initiated talks with domestic real estate companies that are setting up these zones. Not to be left behind, Indian PE companies such as Kshitij Real Estate Funds (a Pantaloon Group company) and HDFC Realty are also scouting for opportunities in this sector.

Even though no deals have been signed so far, the industry expects some to come through in the next two to three months.

"Real estate developers setting up SEZs are getting a lot of queries from investment companies. This sector being a booming one, companies are looking at making an investment that could yield returns at a later point in time," said Ashutosh Pathare, vice-president (commercial sales and business development) of the real estate company, Shapoorji Pallonji.

Shapoorji Pallonji, which is currently developing SEZs in Pune, Mysore, Nagpur and Kolkata, is in talks with many PE firms. One of the reasons for the interest in SEZs is that these projects are 100 per cent foreign direct investment-compliant (FDI), according to Pathare.

Corporate giants such as Tata Consultancy Services, Reliance Industries (Mukesh Ambani group), Reliance Anil Ambani Group, DLF, Unitech Group, Parsvnath Developers and Videocon Group are setting up SEZs.

Sanjay Dutt, deputy managing director, Cushman & Wakefield India, said, "The PEs are being lured by the 15-year tax holidays that resulted in an increased return compared with any other sector in the country."

The tax holidays were also extended to rentals, while income-tax exemption for the first five years and 50 per cent for the next five years made this an investment-friendly sector, he added.

According to the data posted on the Federation of Indian Chambers of Commerce and Industry (Ficci) website, the government has formally approved setting up of 234 SEZs, of which 100 have already been notified. These include ITeS, manufacturing, agriculture and textile SEZs and a total of 1,750 sq km of area would be allocated for setting up of these SEZs.

There would be an investment of Rs 53,561 crore in SEZs, while these are expected to generate an additional employment of 15.75 lakh by December 2009.

This would also result in exports of around Rs 34,787 crore in this financial year. However, if the 234 SEZs were to become operational, it would result in a total investment of Rs 3,00,000 crore by the end of 2009, the Ficci website said.

Niranjan Hiranandani, managing director of Hiranandani Constructions, said, "This is a booming sector and valuations are slated to rise multi-fold, which is another reason for the increased interest in SEZs."