16 May 2018

1. Blackstone acquires One Indiabulls Park in Chennai for INR 900 crore

After forming a commercial properties platform with Indiabulls Real Estate, US-based private equity major Blackstone Group has acquired the realty developer’s Chennai commercial asset One Indiabulls Park for around Rs 900 crore on outright basis, said two persons with direct information of the development.

(Source: ETRealty, 05 May, 2018)

Research View

The global alternative asset management firm, Blackstone LP has acquired Indianbulls Chennai commercial asset - One Indiabulls Parks for nearly INR 900 crores (USD 134 million). Located in Ambattur, north-west Chennai on a 10 acres plot, the asset has a total development area of 2.4 million sq ft ( 0.22 sq m) with a leasable area of about 2 million sq ft (0.19 sq m). The transaction seems to be in line with the strategic decision of Indiabulls to exit from its non-core real estate market to offload increasing debt. This is the second transaction that the developer concluded following the sale of 50% stake in its two office properties namely One Indiabulls and Indiabulls Finance Center in central Mumbai to Blackstone Group for approximately INR 4,750 crore (USD 730 million). Also, Indiabulls had sold its stakes in residential township project to the Bengaluru-based Ozone group recently. In our opinion, Indiabulls may reduce its net debt significantly, if it utilizes the entire sale proceedings for debt reduction. Blackstone group is already the largest office space portfolio owner in India with over 100 million sq ft (9.2 million sq m) of Grade A developments under its management. According to Colliers Research, other investors such as CPPIB, GIC of Singapore, and Brookfield are also seeking to expand their India portfolio with sound rent-yielding assets before the launch of Real Estate Investment Trusts (REITs) in the Indian markets. As per media sources, the first quarter of 2018 has already witnessed about USD 1.7 billion (INR 1.1 lakh crores) worth of cash inflow in the real estate industry, which is a healthy sign for the real estate sector. We expect the quantum of investments to remain buoyant in the commercial real estate sector.

2. Pay 2% of capital investment for green clearance: Environment Ministry to Corporates

The environment ministry has firmed up guidelines that will require every corporate seeking green clearance to set aside up to 2% of its capital investment for Corporate Environment Responsibility (CER).

(Source: ETRealty, 05 May, 2018)

Research View

The environment ministry has come up with stiffened regulations for corporate houses looking to get green tribunal approval for their projects. As per the new conditions, an enterprise has to pay an additional 2% of its capital Investments to be incurred for the project under the Corporate Environment Responsibility (CER) program. This fund is envisaged to be utilized for the environmental upheaval of the impacted area, compensatory measures like pollution control, wildlife and forest conservation. As per the guidelines, a company embarking on a brownfield project will have to allocate between 0.1255 to 1%, whereas the greenfield projects need to allocate between 0.25% to 2% of the total capital expenditure depending upon the amount of investment. The funds can be used for creating infrastructure, sanitation, health, education and skill development, etc. In our opinion, it is a very good initiative as it will set aside some specific fund for environmental protection, however, it will require a strict compliance environment to ensure proper utilization of funds.

3. Infrastructure Growth Hits Three-Year Low In Fiscal 2018

Infrastructure growth slowed to a three-year low of 4.2 per cent in the fiscal year ending in March, indicating Prime Minister Narendra Modi faces a tough challenge to boost investment ahead of general elections due early next year.

(Source: NDTV, 01 May, 2018)

Research View

Infrastructure growth in India is measured by the output of the eight core industries namely coal, crude oil, natural gas, steel, cement, electricity and refinery products, which accounts to 40% of the country’s industrial output. As per the report released by the Ministry of Commerce and Industry, the annual output witnessed a slowdown in the fiscal year 2017-18 at 4.2% as compared to 4.8% of the previous fiscal year. An increase in cement production was highlighted at 6.3%, thus indicating an increase in the construction activity, which could be attributed to the extensive infrastructure outlay by the central government and the affordable housing program. We expect the infrastructure growth to further pick up pace due to the massive outlay of INR 5.97 lakh crores (USD 91.8 billion) in FY 2018/19 and the constant initiatives by both the central and the state governments in developing roads, rails, ports and airports. These efforts are expected to slowly improve the infrastructure conditions in the country, however, the key lies in the timely approval, implementation and completion of these projects to avoid unnecessary cost overruns.


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