Real estate houses most PE investments in 2011, attracts $1,700 million

Ahmedabad: Real estate emerged as the popular parking place for private equity funds who invested $1,700 million in the sector during 2011. Power sector that topped the PE charts during the first six months of the year finished third with $892-million investments behind automotive sector that could attract $1006 million private equity funding.

Overall PE investments during the year rose to $7.7 billion through 347 deals, up from $6.2 billion and 253 deals in 2010. However, the country's total investment in the private sector was a tad lower than last year.

In 2011, PE players signed 29 deals in real estate at a time when the sector found it tough to receive bank funding, a report by consulting firm Grant Thornton says. "Banks have become too cautious to lend to the sector and PE players found a new opportunity. They expect high returns within a year or so," says Raja Lahiri, partner, transaction advisory services, Grant Thornton India. Of the 100 transactions handled by the firm, more than half are into real estate.

Private equity in real estate projects will fetch considerable returns by next year-end or early 2013, says Vikram Hosangady, partner, KPMG. "Limited partners (who write cheque for funds) expect 15-25% returns from real estate deals. Foreign investors are optimistic about India. All they want is prompt action and friendly policies," he says.

Automotive, power & energy, banking & financial services and IT & ITes received PE investments of $1006 mn, $892 mn, $816 mn and $783 mn respectively. The sectors were ahead of telecom, metals & mining, pharma & healthcare, hospitality who saw a declining interest from private equity firms.

Bain Capital and Govt of Singapore clinched the top deal of the year of $849 million when they together took 30% stake in Hero Investment.

Macquarie SBI Infrastructure Investments, Blackstone and a consortium of Standard Chartered PE (Mauritius), JM Financial and NYLIM Jacob Ballas have invested $200 mn each in separate deals. "Though the outbound deals have seen lesser activity due to weak global conditions, PE firms continue to attract better deals," adds Lahiri.

The year saw $50.9 billion invested through various forms of private investments like mergers & acquisitions, PE deals and qualified institutional placement (QIP). The invested amount in 2011 was however, lower than $62.2 billion investments in 2010 and so were the number of deals that fell to 961 deals from 971 deals last year.