Saffron Asset to raise Rs 840 crore via property fund

Realty fund to launch Shariah-compliant, India-specific corpus in 6-9 months.

In a significant move towards tapping funds for the cash-starved Indian realty market, Saffron Asset Advisors, a Mumbai-based realty fund manager, is planning to raise a $ 200-million (nearly Rs 840 crore), Shariah-compliant and India-specific property fund from international markets in the next 6 to 9 months.

According to realty investment experts, this could be one of the first India-focused Shariah-compliant property funds. Shariah-compliant ventures follow Islamic principles and accordingly, abstain from investing in businesses such as alcohol, tobacco, pork products, conventional financial services (banking, insurance), weapons, defence, and entertainment. They do not invest in interest-paying instruments and instead may hold cash on a temporary basis.

Saffron, which manages the real estate investments of NYSE Euronext-listed Yatra Capital, is planning to raise these funds from Middle-East, Malaysia, Indonesia, where Shariah funds are available for investment. The company is planning to invest the funds in residential projects in the country, where sales have gone down by 30 per cent in the last six months, tightening funds for property developers.

‘’We will be looking at raising such a fund soon. There is a lot of Shariah funds available and India is well positioned to take advantage of that,’’ said Ajoy Veer Kapoor, managing director of Saffron Asset Advisors, which has raised and invested $ 425 million in the country, so far.

Investment advisors also believe that it is the right opportunity for tapping Shariah funds abroad when Indian realtors are reeling under cash crunch due to higher interest rates, drastic fall in property sales, crash in stock markets, among others.

“Shariah funding is suitable for India when stock markets are falling and debt market is drying up in the country. In the coming years, we can see a significant Shariah funding in the country,’’ said Ambar Maheshwari of global investment advisory DTZ.

In one of the first Shariah-compliant transactions in the Indian property market, TAIB Bank, a Bahrain-based bank, picked up a 26 per cent stake in Anant Raj Projects, a subsidiary of New Delhi-based realtor Anant Raj Industries (ARIL), for Rs 216 crore.

A clutch of Shariah-compliant mutual funds have applied with capital markets regulator Sebi to set up their operations. Taurus Parsoli Ethical Fund is expected to launch a Shariah fund by the end of this month after Sebi approval and a host of other shariah-compliant funds are expected to be launched soon.

Saffron is also planning to launch a bouquet of funds focusing on India, with a total mop-up of Rs 4,000 crore in the next couple of years. Starting from real estate, the company will launch sector-specific funds such as healthcare, logistics, infrastructure, hospitality and so on.

The company has already launched Saffron India Real Estate Fund-1 and done its first closure of Rs 300 crore with Standard Life of United Kingdom. Yatra and Saffron Real Estate Fund I (SIREF I), Saffron’s two investment funds, picked up 30 per cent in a realty project of Parsvnath Developers in Mumbai for Rs 186 crore.

Saffron has plans to close the Rs 2,000-crore offshore fund by September this year, which will invest in hotels, warehouses, residential apartments and commercial offices across the country.

Kapoor said once the property fund is invested fully, the company would launch sector-specific funds in late 2009. Saffron is planning to launch Rs 300 crore domestic real estate fund, which will be invested in non-FDI-compliant projects in the country.

“Given the current global economic situation, fund raising is slightly challenging. However, if the fund manager can withstand the due diligence of investors, then there is substantial money available for India,’’ Kapoor said.