Indian Billionaire Kotak’s Property Fund to Raise $200 Million

Kotak Investment Advisors Ltd., which manages $1 billion in real estate assets, plans to raise $200 million for a private equity fund that will invest in residential properties in India’s biggest cities.

The company, owned by billionaire Uday Kotak, raised $200 million from overseas investors last year for the fund and will complete raising a similar amount by May this year, said V. Hari Krishna, a director at Kotak Investment. The fund will invest in residential markets in cities including Mumbai, Delhi, Bangalore and Pune, he said.

“There is some level of capital shortage in the residential space and we will look to provide funds with a focus on top cities,” Hari Krishna said in an interview in Mumbai yesterday. The fund will target a 20 percent return by providing debt and structured financing to large developers, he said, declining to name the companies.

Private equity property funds made 45 investments last year in India, of which 37 had an announced value of $1.4 billion, according to data from Venture Intelligence, a research company that tracks private equity and mergers and acquisitions. That number of transactions was 8.2 percent lower than the 49 investments with 39 disclosed deals valued at $1.2 billion in 2012, the data showed.

Such funds made 24 exits in 2013 compared with 18 in 2012. All of the exits, barring one, were through buy-back of the stake by developers, the data showed.

Affordability Hit

Home sales have slid by as much as 50 percent since 2010 in India’s largest cities, Hari said. In some areas, such as Gurgaon, the area neighboring the national capital New Delhi, volumes have plunged as much as 80 percent, he said. The decline in sales has been the steepest in Delhi and Mumbai, India’s most expensive real estate market, he said..

“Affordability has been hit,” Hari Krishna said. “Developers raised prices by as much as 70 percent since 2010 and that has come at the cost of volumes.”

Sales in Mumbai have dropped to 9.87 million square feet in the quarter ended Dec. 31 from a peak of 20.28 million square feet in September 2009, according to data from research firm Liases Foras Real Estate Rating & Research Pvt.

Economy Derailed

Gross domestic product will rise 4.9 percent in the 12 months through March 2014, compared with 4.5 percent last year, the slowest pace in a decade, the Statistics Ministry said this month. The nation’s central bank unexpectedly raised the policy rate last month to 8 percent to fight the fastest consumer-price gains in Asia.

“The economy has got derailed, which has hurt both demand and purchasing power,” Hari Krishna said. “Confidence needs to return, which is a function of the economy and job outlook and some turnaround in interest rates.”

Uday Kotak has a net worth of about $3.8 billion, according to the Bloomberg Billionaires Index. Kotak set up Kotak Capital Management Finance using 3 million rupees ($48,400) he borrowed from friends and family members who ran a cotton-trading business. He formed a partnership with Goldman Sachs Group Inc. in 1995. In 2006, Kotak paid 3.3 billion rupees to buy out the 25 percent stakes that the New York-based firm held in the investment banking and securities businesses.

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