Indiabulls to sell $1bn realty co to Bengaluru’s Embassy

Boby Kurian & Partha Sinha | TNN

Mumbai: Billionaire developer Jitu Virwani-led

Embassy Group

is close to acquiring

Indiabulls Real Estate

in a deal valued at around $1 billion. Bengaluru-based Embassy, one of the country’s largest office space developers, will buy

Indiabulls

promoter

Sameer Gehlaut

and family’s 39% stake in a two-stage transaction followed by an open offer to public shareholders, people directly aware of the matter said.

Indiabulls is divesting the publicly traded

real estate

company to win the RBI approval for a proposed merger of its financial services arm, Indiabulls Housing Finance, with

Lakshmi Vilas Bank

. Global investor

Blackstone

, which has a partnership with Embassy, could join the transaction once it is completed.

Canadian investor

Brookfield Asset Management

and Australia’s

Macquarie Group

were the other bidders in the fray before Embassy pulled ahead. A formal deal announcement could happen as early as Friday.

The potential acquisition of Indiabulls Real Estate is a rare M&A deal of scale in India’s sluggish real estate market, which is grappling with a prolonged slump in home sales. The company owns commercial and residential projects in Mumbai and in the National Capital Region (NCR), besides land assets in multiple cities.

When contacted, Embassy, Blackstone and Indiabulls declined to comment.

Initially, Embassy will buy 14-15% of the real estate company from its promoters at Rs 151 per share, valuing Indiabulls Real Estate at around Rs 7,000 crore, or $1 billion. The deal is at a premium of about 15% to Indiabulls Real Estate’s closing stock price of Rs 132 on the BSE on Thursday.

Embassy and Blackstone will further acquire between 15-24% holding in the second leg of the transaction five-eight weeks later, scooping up the promoter stake for as much as Rs 2,700 crore. Embassy is scheduled to make a mandatory open offer (under Sebi takeover regulations) for an additional 26%. Though the Gehlaut family would cease to be promoters, they may retain a small minority shareholding in the company, sources added.

“As of now, 90% of Indiabulls group’s assets and revenues come from financial services businesses while only 10% comes from the non-financial part. After the deal, 100% of the assets and revenue will come from the financial services businesses,” one of the sources cited earlier said. The RBI allows promoters of banks the leeway to have up to 40% of their revenues and assets from non-financial services businesses.

Embassy and Blackstone operate a joint venture to own and operate office spaces, Embassy Office Parks, which became the first real estate investment trust (REIT) to be listed on Indian bourses. Incidentally, Blackstone owns 50% interest in some of the rent-yielding office space assets of Indiabulls.

Sources said the acquisition is likely to be routed through Embassy, but some of the rent-yielding office parks in Mumbai and Gurgaon may be transferred to the listed REIT at a later date. Acquisition of a listed company provides Virwani opportunities to reverse-merge his real estate empire with Indiabulls at a later date, if not now.

The $1-billion deal also signals the coming of age for big Bengaluru developers — like Embassy, RMZ and Prestige, among others — who built a massive portfolio of rental income-generating office parks. India’s tech and startup capital Bengaluru is also Asia’s biggest office space market (by annual absorption) and has sustained the pricing power, bucking the broader industry trends. Last year, Bengaluru absorbed 11.6 million sqft, compared to Tokyo’s 7 million and Shanghai’s 6 million, according to property consultancy firm CBRE.