Indiabulls Finance Centre, developed by Indiabulls Real Estate Ltd., stands in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg) 

Indiabulls Group In Talks With Godrej Properties To Sell Part Of Realty Unit

Indiabulls Group is in early talks to sell at least part of its real estate business to Godrej Properties Ltd., according to two people aware of the matter, as it wants to ensure that the merger of its mortgage lending unit with Lakshmi Vilas Bank Ltd. doesn’t face any regulatory hurdle.

The group is looking to sell a stake in Indiabulls Real Estate Ltd. but a lot depends on the valuations of its Mumbai residential projects and rent-yielding offices, one of the people quoted earlier said on the condition of anonymity as the talks are private. Godrej Properties is also open to acquiring projects if the deal to buy the entire business doesn’t fructify, the person said.

Indiabulls Real Estate contributes less than 15 percent of the total sales of the group, according to its exchange filing. That’s lower than the Reserve Bank of India’s cap of 40 percent for an entity to own a bank. Still, the group is keen to avoid any potential irritant. Sameer Gehlaut, founder of Indiabulls Group, told Economic Times that he is willing to comply with whatever the central bank says to complete the deal.

Pirojsha Godrej, executive chairman at Godrej Properties, declined to comment. Indiabulls Real Estate is yet to respond to emailed queries but informed exchanges that it’s engaged in a business re-organisation for quite sometime and many informal discussions are taking place.

Indiabulls Housing Finance Ltd. was among the non-bank lenders finding it difficult to raise funds as defaults by Infrastructure Leasing & Financial Services Ltd. increased yields. Its disbursements fell 65 percent over the previous quarter in three months ended December. The merger of the mortgage lending unit with Lakshmi Vilas Bank will give it access to low-cost deposits. But that hinges on RBI’s approval, which explains the group’s willingness to sell its property arm.

Shares of Godrej Properties have surged over 38 percent and Indiabulls Real Estate stock has jumped 21 percent year-to-date.

There’s no clarity on how a deal will be structured or if Godrej Properties will buy the entire business, or a stake or some of the ongoing projects of Indiabulls Group company.

The second person quoted earlier said only a few players like Godrej Properties have the ability to acquire a large-sized company like Indiabulls Real Estate given the slowdown in the sector. More importantly, Godrej Group has the ability to raise funds in a short period in case a transaction materialises, the person said.

The Economic Times first reported that Godrej Properties may team up with private equity firms.

While the market cap of Indiabulls Real Estate is close to Rs 5,000 crore, it stands at nearly Rs 25,000 crore for Godrej Properties.

Godrej Properties generated Rs 788 crore cash from operations in nine months ended December. Its debt stood at Rs 1,795 crore, down from Rs 3,068 crore a year ago. It also brought down its net-debt-to-equity ratio to 0.69 times from 2.11 times during the period and net worth stood at nearly Rs 2,600 crore.

To be sure, Godrej Properties’ board plans to approve fresh fund-raising on April 30 along with its earnings for quarter ended December. The company hasn’t stated the objective.

The group, however, has said in the past that it’s open to acquisitions. “I think most of the M&A has been kind of project level and certainly there we are very active,” Pirojsha Godrej had said in a conference call with analysts after the third-quarter earnings. “We are very open to opportunities to do bigger platform kind of structures or even entity-level acquisitions, but I think we would be reasonably cautious about the other risks that might come along with it.”

Also read: How Brokerages View Indiabulls Housing Finance-Lakshmi Vilas Bank Merger