INDIA BUSINESS WORLD - APRIL 1st - APRIL 15th - 2008
CITI VENTURE, AIG CALL OFF AKRUTI CITY DEAL
Adverse market conditions have affected another major real estate transaction in the country. Leading financial institutions Citi Venture Capital and AIG have called off their Rs 1,500-crore deal for a 16% stake in real estate developer Mumbai-based Akruti City.
Citi Venture Capital and AIG had proposed to pick equity in Akruti City through a preferential allotment in January. Akruti City had agreed to place up to 10.7 million equity shares to the investors. The company has cited uncertain market conditions and the delay in getting government approvals as reasons for aborting the deal. The BSE Realty index has crashed 46% from its peak of 13,647 recorded on January 14.
“In view of the inordinate delay in receiving approvals from the department of industrial promotion and policy, coupled with uncertain market conditions, we have decided not to proceed with the proposed issue,” Akruti City managing director Vimal Shah said.
But sources said after the market crash, differences had cropped up between the foreign funds and the real estate firm on valuations, which ultimately led to the deal being aborted.
Subsequent to the deal announcement on January 23, the company’s shares had touched a record high of Rs 1,399 in intra-day trading. Since then, there has been a sharp decline in the share price, which touched a low of Rs 682 on March 24, down 50% in two months.
The stock market turmoil has already taken a toll on the fundraising plans of quite a few companies, including Emaar MGF, Wockhardt Hospital and now Akruti City. The first two were forced to withdraw their IPOs from the primary market, after their respective offers evoked poor investor response in the extremely bearish market.
Investment bankers say the continuing dull phase in the stock market has prompted many other companies to defer their plans to raise funds through different routes like IPO, private equity placement and preferential allotment to institutional investors.
The trend will continue for some more time in the wake of uncertain market conditions triggered by negative global cues and rising inflation in the country, according to investment bankers.
Besides, a tightening of global liquidity markets has made private equity fundraising difficult for the real estate and infrastructure sectors, with many funds expected to extend their closures or reduce the target corpus. According to industry sources, the churn in the global equity markets has made investors wary of even private equity funds, although the two markets are in different categories with different quantum of risks.
“The situation has turned different and fundraising has tightened,” admits an executive with a UK-based private equity firm, with considerable exposure in India. “The targeted amount in many cases may have to be scaled down,” he added.
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