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Realty sits still as others fast-track IPOs

Only Paranjape Schemes Construction has filed its draft offer document

Ashley Coutinho & Raghavendra Kamath  |  Mumbai 

Realty firms shy away from primary market

While 18 companies — from as diverse areas as infrastructure to media — have come to the primary market to raise money through initial public offers (IPOs) this year, real estate has stayed away.

Only Paranjape Schemes Construction has filed its draft offer document with the stock markets regulator, Securities and Exchange Board of India.

In fact, it was as far away as early 2012 when a real estate company had a successful IPO, central government-owned National Buildings Construction Corporation.

“Property sales have been sluggish and the sector has been facing headwinds for some time. So, firms are adopting a wait-and-watch approach,” said V Jayasankar, head, equity capital markets, Kotak Investment Banking.

Adds Prithvi Haldea, chairman, Prime Database: “There are issues on corporate governance and transparency. It's not that realty firms do not want to tap money from the market, but it will take time to re-build investor confidence.”

According to Sharad Mittal, head and director, real estate funds, at Motilal Oswal, the primary market is not ready for a real estate IPO. “There are actual and perceived issues about these companies, which has impacted investor sentiment. The under-performance of market leaders has also made it unsuitable for new players to come and raise funds through IPOs,” he said.

The sector has been grappling with weak sales for two years. For instance, the housing market in the Mumbai Metropolitan Region has had its worst half-yearly performance since the financial crisis of 2008, with sales weakening even as 200,000 units remain unsold, according to property consultancy Knight Frank. New project launches fell 47 per cent in the first half of the year.

Realty sits still as others fast-track IPOs
“Capital markets expect steady growth but real estate companies are not able to deliver that every quarter. What's more, investors have not made money in previous IPOs,” said Balaji Raghavan, head, real estate practice, IIFL.

Between 2005 and this year, about 30 realty companies either withdrew offer document or let these lapse. Emaar MGF Land withdraw its document twice in 2010.

And, of the 40 realty companies that hit the market between 2005 and 2015, as many as 28 are in the red. Of these, as many as 20 have seen share prices erode by more than 75 per cent. DLF, HDIL and DB Realty managed to raise more than Rs 1,000 crore each; yet, even they have seen their prices erode by 75 per cent, 80 per cent and 85 per cent, respectively.

First Published: Wed, October 28 2015. 22:50 IST