Embassy may call off stake-purchase deal with Indiabulls Real Estate

Indiabulls now mulling partnership with Blackstone for its commercial real estate assets

The proposed stake-purchase deal between Embassy Property Developments and Indiabulls Real Estate (IBREL) may be called off, it is learnt.

According to the earlier agreement, Embassy was supposed to buy an additional 14 per cent stake in IBREL from its promoter Sameer Gehlaut and his group companies, following the first tranche of 14 per cent it acquired in June.

The second tranche was expected to conclude in six-eight weeks. Sources in the know said this transaction was unlikely to go through. 

“Talks haven’t progressed in the right direction between Embassy and IBREL. The deal was called off a few days ago,” said a person aware of the development. However, an Embassy spokesperson said the deal was still under consideration.

While the reasons for this could not be ascertained, sources said it was Embassy’s hesitation in loading up too many commercial real-estate assets on its books that led to the deal being abruptly called off. 

While the Bengaluru-based Embassy Group is a specialist in commercial real estate, the deal fell through because the environment and valuations were not conducive to it. It is learnt that promoters of IBREL weren’t very happy with the valuations offered in the second tranche that should have concluded a week ago.

“IBREL’s market price has significantly fallen since the first deal leading to differences on valuations between Embassy and IBREL,” said a highly placed source. IBREL shares traded at Rs 80.8 apiece on August 2, while the transaction in June concluded at at a weighted average price of  Rs 150.45 a share. 

It also needs to be seen if Embassy will continue to hold the 14 per cent in IBREL. After this transaction, Gehlaut and his group companies’ stake in IBREL fell to 23 per cent.

Meanwhile, IBREL, after selling 50 per cent in its two commercial projects in Mumbai for an enterprise value of Rs 9,500 crore to Blackstone in March last year, has resumed talks with the private equity major to sell the remaining 50 per cent. 
 

Embassy Out, Blackstone In
 

• Embassy may not acquire more share in IBREL, as planned
• The deal is believed to have been called off last week
• Embassy to have concluded second round of stake acquisition in 6–8 weeks from June
• IBREL now in talks with Blackstone to offload 50% stake in commercial properties
• Deal likely to fetch valuation of Rs 4,800 crore, may conclude by Sept

“As talks with Embassy fell through, IBREL has resumed negotiations with Blackstone to offload the remaining 50 per cent stake in the joint venture (JV),” said a person aware of the development. 

According to the source, the deal is expected to conclude by September and may be valued at about Rs 4,800 crore. If this transaction materialises, IBREL’s debt — at Rs 4,590 crore on March 31 this year — may significantly reduce.

In December last year, IBREL also sold 50 per cent in two Gurugram office assets to Blackstone for Rs 464 crore. Sources also said Blackstone might acquire the assets of IBREL, including residential properties, in 2019-20. “If this happens, the Indiabulls group could exit the real-estate business,” said the source.

Blackstone and IBREL did not comment on the developments.

An equal JV between Indiabulls and Blackstone has completed assets of 3.3 million square feet, with an annuity income of Rs 670 crore, while 800,000 square feet is under construction as of June this year.

Indiabull Housing Finance is looking to merge itself with Lakshmi Vilas Bank and exiting real estate will be critical for the merger to secure regulatory approval.