Merrill makes big play in India

Merrill Lynch has launched its biggest foray into India’s real estate market, joining a growing number of foreign financial institutions seeking to tap into the fast-growing but volatile sector.

The US bank is paying about $377m for a 49 per cent share in a portfolio of residential projects managed by DLF, the country’s largest listed developer, in one of the biggest deals of its type in India.
Timothy Grady, head of global commercial real estate Asia Pacific for Merrill Lynch, said: “This partnership and these projects reflect our continued belief in and support for India”.

Wall Street investment banks have descended on India’s real-estate sector looking for opportunities since the government relaxed rules governing foreign investment in 2005.

Participants range from the proprietary arms of investment banks, such as Whitehall, Goldman Sachs’s real estate fund, to specially established Indian real estate funds.

Indian developers have also raised more than $7bn on India’s stock market and London’s Alternative Investment Market since August last year, according to estimates by Ernst & Young and the Federation of Indian Chambers of Commerce and Industry.

DLF said Merrill Lynch was buying the stake in seven “mid-income” residential projects spread across Chennai, Bangalore and Kochi in southern India and Indore in the north. The projects would take seven to eight years to complete.

The transaction, Merrill Lynch’s sixth in Indian real estate, brings its investment in the sector to about $550m.

The preferred mode for most foreign institutions had been to invest alongside the major developers, said Sri Rajan, head of Bain & Company’s private equity consulting practice in India.

Greenfield investments remain challenging for foreign investors in India because of the problems of acquiring blocks of land large enough for big projects.

Late last year, JPMorgan announced its first investment on its own balance sheet in Indian property, paying $60m for a stake in a residential project being developed by Mumbai group, Lodha Builders.

Analysts believe there will be an increasing number of such equity tie-ups as Indian developers hunt for capital.

The Reserve Bank of India, the central bank, has clamped down on foreign lending to the sector to help contain inflation and to ease pressure on the rupee, which has been appreciating against the dollar.

DLF said of the deal: “DLF continues to remain focused on keeping its net economic interest in homes business to a 10-year horizon.”