NBFC crisis impacts Birla AMC Realty Fund's ability to exit 8 of 13 deals

Several of its investments are in Mumbai property market; fund is currently valued below its NAV

The Aditya Birla Sun Life Asset Management Company’s Real Estate Fund — I has cited the liquidity crisis plaguing the non-banking financial companies (NBFCs) for its inability to exit from eight of its 13 real-estate investments.

“The recent NBFC crisis has resulted in reduced liquidity in the financial system, adding further stress on the real estate sector. As a result, potential real estate buyers have turned extremely cautious, further reducing demand,” the AMC said in an investor note.

The fund is currently valued below its net asset value (NAV). The note said valuation of investments done by an independent valuer pegged the fund at 0.89 times its NAV. Several of the fund’s investments have been made in Mumbai-based real estate. Some of the investments are located in Chennai and the National Capital Region.

The fund has so far secured complete exit from four investments and substantial exit from one investment (98 per cent of amount has been received). These exits have helped the fund to return ~601 crore to investors, which is approximately 57 per cent of the initial investment. In 2010, the fund raised Rs 1,056 crore.

The fund had a fixed life of six years. However, the fund’s life has been extended twice for a year each. The extended life of the fund expired on August 31, 2018. The fund is looking to now liquidate the entire investment portfolio on a best-effort basis by July 31, 2019 and if required extend the liquidation by another month (till August 31, 2019).

“To fully liquidate, the fund has been reaching out to market participants and prospective buyers to purchase all the remaining investments held by the fund. However, the responses from these prospective buyers have been tepid,” said the AMC.

Besides the NBFC-related issues, the AMC said demand correction has led to huge build-up of unsold inventory. It also pointed that although measures such as introduction of the goods and services tax and the Real Estate Regulatory Authority are beneficial in the long run, these have hampered demand and absorption level.