IPO funding a strategic mistake for real estate

Track2Realty Roundtable-II

Venue—Hotel Kohinoor Continental

Moderator—Pranay Vakil, Chairman, Knight Frank India

Panelists—Kruti Jain, Director, Kumar Urban Developers

                        Sunil Dahiya, MD, Vigneshwara Developers

                        Atul Modak, Head, Kohinoor City

                        Ravi Sinha, CEO & Managing Editor, Track2Realty

Sunil Dahiya: Pranay, the most important thing is the background of the investor from the developer’s perspective. My understanding may be a little limited because I come form the Delhi NCR market and as you know, it is a very localized subject. But being in the governing council of NAREDCO at the national level, where Knight Frank is knowledge partner, one of the presentations that we had in 2008 with the idea that where the industry has lost its bearing and funding was the main agenda. Real estate in particular has seen quite a few vulture funding, mind you those were not venture but vulture funds.

Pranay Vakil: Well, that is an interesting take…vulture funding.

Sunil Dahiya: What I feel is that if we look at things in 2000, the industry was just starting to emerge. There was either DLF-Unitech in Delhi NCR and the rest were just like property dealers. Then we saw some emerging brands and people started understanding real estate is more than just profit making. There was a pent up emotion within the demography to pick up residential needs and invest. When we started emerging as an industry, the banking could not synchronize itself with us. So banking did not see real estate as a lucrative investment. But around 2000-05, they realized that the consumption of loans was the maximum in the housing industry. So we saw a lot of exposure from the bankers in the housing sector between 2000-05. All the private bankers started taking exposure in the projects at the customer level.

It was at this time that the developers probably made the mistake of raising too much money through the IPO route. Why I say it was a mistake was because that exposed the developers’ balance sheet to say-I am in need of money to take the business forward to the next level.

Ravi Sinha: Is the sector ready to admit that raising money through IPO was a strategic mistake? Of course, there are many grey areas within the purview of capital market funding as well, but moot point is do you all agree it was a mistake?

Kruti Jain: I don’t agree that raising money through IPO was a strategic mistake. See, I am a third generation developer and my understanding is that at that point of time it was the most convenient way of raising money and the developers, like any other sector, raised money through this route.

Pranay Vakil: Even I don’t subscribe this view that IPO was a mistake.

Atul Modak: I disagree with Sunil. Let me put it this way-at any given point of time when the real estate or any other market is looking for funds, there are certain avenues which are more in vogue, and developers go more and more for what is convenient funding solution available.

…..to be continued