With non-banking finance companies (NBFCs) and housing finance companies (HFCs) focusing on quality and liquidity of their assets, alternate investment funds (AIFs) are making the most of the current liquidity crunch in the real estate market. The sudden liquidity gap that has been created by NBFCs and HFCs going slow on investing in new assets has provided AIFs a robust pipeline of real estate project financing transactions.The organised real estate lending universe comprises banks, NBFCs, HFCs and AIFs. With banks taking a step back over the past five years, the void was largely filled by NBFCs and HFCs. But the IL&FS default sparked a confidence crisis in the credit market and the consequent liquidity stress forced NBFCs to cut down on their investments in new assets.This has given AIFs an opportunity to gain more market share in the real estate financing space. Financing proposals at AIFs of entities including Motilal Oswal Real Estate, Indiabulls AMC and ASK Investment Managers have shot up over the past few months. “The money collected by AIFs is more long-term in nature, typically between 7 and 9 years, compared with an average investment’s tenure that usually ranges between 3 and 5 years. As a result, AIFs neither face the asset liability management (ALM) mismatch nor are impacted by the credit squeeze,” said Sharad Mittal, CEO at Motilal Oswal Group’s real estate private equity arm Motilal Oswal Real Estate (MORE). “Hence, in the current scenario, where fresh disbursements have been tough for NBFCs, AIFs have not been impacted.”MORE has recently invested more than Rs 300 crore across three transactions with realty developers in Mumbai, Pune and Chennai through two of its funds. “Developers in the current environment are more open to discussing sale of their office properties. Their valuation expectations have also been toned down,” said Ambar Maheshwari, CEO, private equity, Indiabulls AMC.The current liquidity scenario has pushed realtors into a tight spot due to slower sales and absence of financing to roll over existing debt. Additionally, lower quantum of disbursement towards construction is putting further stress on ongoing projects. AIFs are turning out to be a saviour though.“AIFs have emerged as fresh source of capital for developers who have decent brand positioning and proven track record. Although AIFs would not have deep pockets like NBFCs, the flexibility that they bring to the table to use capital is unmatched, their expertise to structure a deal and the value they bring in as partner is much better,” said Subhash Udhwani, founder of real estate-focused boutique investment bank Elysium Capital.AIFs are privately pooled investment vehicles that are established or incorporated in India. These vehicles collect funds from sophisticated investors, whether Indian or foreign, for investing in accordance with a defined investment policy for the benefit of its investors.67377539
These private investment entities include private equities, venture capital funds, hedge funds, commodity funds, debt funds, infrastructure funds, etc. However, AIFs are also filtering their options well before making any financial commitments, given the rise in risk perspective.“While the liquidity scenario has increased our deal flow over the past few months, we are being cautious and selective in our investments,” said Mittal.Even as the liquidity scenario is expected to improve slowly, AIFs are likely to continue gaining market share over the next few quarters as smaller NBFCs may not be able to overcome funding obstacles.“We expect stronger entities collectively to sustain mid-to high-teens growth rates as they get a disproportionate share of the liquidity available to the group. The lesser-vintage entities will face sustained funding challenges (against a backdrop of higher global rates), causing a slowdown from the high growth rates of recent years,” said a recent Morgan Stanley India report.It has divided NBFCs and HFCs into those with strong parentage/long vintage and those with lesser vintage. According to Morgan Stanley, the strong ones account for two-thirds of NBFCs/HFCs overall and have posted a 15% loan CAGR during FY15 to FY18. The latter grew at 26%, buoyed by easy and cheap liquidity.
Read more: economictimes.indiatimes.com