India Bulls Real Estate (IBREL) and Embassy Group have announced the terms of their merger, amid the first signs of consolidation in the real estate sector. The deal could trigger a wave of consolidation efforts in the sector.
The industry, battered over the past three or four years, has largely stabilized at the project level, where some companies from a weak or debt-ridden developer have been acquired by a large developer. With the trajectory of Covid-19 still uncertain, industry watchers are now seeing consolidation spread and more deals are being made, even among the best developers.
Anuj Puri, chairman of Anarock Property Consultants, said developers are looking to strengthen their positions and don’t see the deals as a way for a big developer to bail out a weaker one. “If the pandemic continues, there could be more such consolidations underway,” Puri said.
In the largest consolidation exercise in the real estate industry between two Level I developers, IBREL and Embassy announced on Tuesday that they have entered final merger documentation to merge ongoing, completed and planned residential and commercial projects. The combined entity, IBREL, would become one of the leading real estate development platforms in India, with 80.8 million square feet of initiated and planned development potential.
Sanjay Dutt, managing director and CEO of Tata Realty, said the deal was “good news” for the industry. So far, consolidation has been in the form of large developers acquiring smaller ones, he said, adding that Level I consolidation was even better. “It just eliminates unwanted excessive competition, too much speculation and makes the industry more organized. In addition, the perception of the sector will become better with the takeover by organized actors, ”he said.
Dutt said the deal also shows a positive outlook for foreign institutional investors towards India.
Analysts said the merged entity will become the business and residential asset development branch. However, much of the focus will be on developing commercial assets, and once completed and leased, they will move to the Embassy REIT platform. The combined entity will have a debt of Rs 3,700 crore once the merger is completed.
The merger is expected to be finalized by the second quarter of fiscal 2022.
Amit Goenka, managing director and CEO of Nisus Finance Services Company, said the deal gives the embassy access to assets outside of Bengaluru, thus raising the profile of the developer. “It’s a win-win situation for all, Embassy is diversifying, IBREL’s shareholders will benefit from a better valuation in the future and Indiabulls will be able to pursue its ambition to become a bank!”, He declared . Goenka added that consolidation is gaining more ground in mid to small sized spaces, where the opportunities to acquire mid to small sized real estate companies are attractive.
However, Sharad Mittal, CEO of Motilal Oswal Real Estate Fund, said consolidations at the large entity level are difficult to achieve and believes there will be consolidation at the project level. “Some mid-sized developers might fall back on bigger ones, but two such big players are merging, I don’t think there will be too many instances like this,” he said.