India

Passage to India

Indian real estate has been one of the key sectors to benefit from the country’s economic growth. There has been huge demand all over the country for modern office premises to accommodate India’s new generation of businesses, improved retail and leisure facilities such as shopping malls and, in particular, new homes for India’s expanding and increasingly wealthy population.

Toby Greenbury: New Director of International Strategy and Co-Head of India Desk
Toby Greenbury has joined Mishcon de Reya as Director of International Strategy and Co-Head of the Firm’s India Desk. He is a corporate lawyer with expertise in corporate finance both within the United Kingdom and internationally. Prior to joining Mishcon de Reya, Toby was a consultant with Olswang, where he spearheaded their India practice. He had previously been Senior Partner at DJ Freeman. His work in the real estate sector includes advising Trinity Capital PLC on its AIM flotation in 2006.Trinity (which raised £250 million), was the first real estate fund focusing on India to come to AIM.Toby was the Founder and also sits on Trinity’s board of advisers.

Until 2005, direct investment in real estate in India was not possible for foreign investors due to regulatory controls. In March 2005, as part of its liberalisation programme, the Indian Government introduced new guidelines permitting foreign investment in large scale real estate development subject to certain minimum criteria. It is still not possible for foreign investors to invest in developed real estate.

These changes triggered a flood of foreign investment into the Indian real estate sector, with an estimated US$7-9 billion invested in 2006 alone.A large number of foreign real estate funds were launched with a specific focus on India, and many existing developers and landowners undertook private or public fundraisings.A number of funds and companies were listed on the AIM market of the London Stock Exchange, as well as other markets internationally.

We acted for two of these funds, one private and one public. The public fund,Yatra Capital Limited, was floated on the Euronext market in the Netherlands in December 2006, raising €100 million from investors.

Demand for property in India, combined with the influx of foreign investment, has led to price rises throughout the country’s real estate sector. Recently, against a backdrop of concerns over inflation and the economy overheating generally, mortgage rates have risen from 8% at the end of 2006 to 12½% in early 2007. Rising prices, rising interest rates and in some cases oversupply by developers have now started to produce a slowdown, with real estate prices seeing a correction in some areas.At the same time, it appears that lending banks have tightened the availability of credit to developers following new guidelines from the Reserve Bank of India.

Listed companies both abroad and in India have seen falling share prices as market confidence in the Indian real estate sector has settled. Many of the companies listed on AIM last year are now trading well below issue price. Happily,Yatra Capital has not suffered from this change in sentiment, and in fact Mishcon de Reya has recently helped the fund complete an acquisition of an Indian property portfolio held by another AIM-listed fund, thus pointing towards market consolidation.

Christopher Jones
Head of Investment Funds
christopher.jones@mishcon.com

Deal Highlights from India

Property Matters! 09