Godrej Properties will need to raise equity capital to meet growth plans, says company’s chairman Adi Godrej. “"The board resolution is to raise up to Rs 750 crore. The quantum of funds raised will depend on market conditions. We are waiting for conditions to improve,” he adds.
Meanwhile, the real estate developer has entered into private equity agreement with SUN-Apollo India Real Estate Fund to sell 49% stake in its subsidiary, Godrej Premium Builders. The company may continue to take further private equity in some of the ongoing projects, says Adi Godrej, in an interview to CNBC-TV18.
Below is the edited transcript of his interview with CNBC-TV18's Mitali Mukherjee and Sonia Shenoy. Also watch the accompanying videos.
Q: You have sold 49% stake in Godrej Premium Builders. What exactly Godrej Properties accrues from it?
A: Our business model in Godrej Properties is to do joint ventures with land owners. We also take in private equity at the SPV, at the project level. This is one such case.
In this new project in Gurgaon, the NCR region, we have taken in private equity from SUN-Apollo in this project. This means a fair amount of capital will be available from the project, from this joint venture partner. Also, Godrej Properties will be able to book some of its profits from this project upfront.
Q: How much by way of funds do you think will come in and any more such project that are in the pipeline?
A: Godrej Properties is currently doing several projects, about 30 projects in 12 cities. In some of them, we have already taken private equity. We may continue to take further private equity in some of the ongoing projects. Obviously, we cannot announce it until the deal is done.
Q: You have indicated the company’s plans to raise close to Rs 750 crore. How soon you would want to do it? What kind of dilution it will involve? Would you do the entire amount in one tranche?
A: The SEBI and stock exchanges have announced that all companies where promoter holding is above 75% will be required to bring this holding down to 75%. I think the time limit is somewhere around the June of 2013. So, we are planning towards that.
The promoter holding in Godrej Properties is 83%. Now, there are many ways it can be done. One, the promoters could sell some of the shares. The other is there are various means by which you could bring in capital into the company so that the promoter holding is diluted. We prefer the second route because that will enable the company to grow faster. The growth opportunities in Godrej Properties are very strong. We will need more equity capital to be able to continue with these growth plans.
When will it be done? That will depend on two things. One, SEBI is already working on what are the means by which the company could raise funds— the several opportunities. QIP, as of now, is not allowed for such companies. But they may liberalise the regime. We are waiting for SEBI’s action. Once that happens and if the market conditions are conducive, we will raise the funds.
Now, the board resolution is to raise up to Rs 750 crore, whether we raise Rs 750 crore or little less than that will again depend on market conditions.
Q: What is the target with respect to scaling down of debt at Godrej Properties? You are sitting on a sum of about Rs 1,150 crore by way of debt. What is the plan to scale it down to?
A: We may scale down debt or we may not. But the important thing in a company like Godrej Properties is to ensure that the debt/equity ratio is reasonable. So, if we raise further equity, some of that equity raise could go towards debt repayments. Also, the equity base would go up very considerably. So, the debt equity ratio could be quite comfortable. We will work it out depending upon our cash flow needs and the market conditions at that point of time.
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