India Bulls-Embassy Group pact ups realty consolidation hopes

The merger is expected to be completed by the second quarter of 2022 financial year.

India Bulls Real Estate (IBREL) and Embassy Group have announced their merger terms, in early signs of consolidation in the real estate sector. The deal could trigger a spate of such consolidating efforts in the sector.

The sector, bruised over the last three-four years, has largely stabilised at project level, where some ventures of a weak or debt-ridden developer have been acquired by a large developer. With the trajectory of Covid-19 still uncertain, industry watchers now see consolidation getting broad based and more deals getting struck, even among the top developers.

Anuj Puri, chairman of Anarock Property Consultants, said the developers were looking to strengthen their positions and were not viewing the deals as a means of a large developer bailing out a weaker one. “If the pandemic continues, there might be more such consolidations in the works,” Puri said.

In the largest consolidation exercise in real estate sector between two Tier-I developers, IBREL and Embassy announced on Tuesday that they had entered definitive merger documentation to amalgamate ongoing, completed and planned residential and commercial projects. The combined entity, IBREL, would become one of India’s leading real estate development platforms, with 80.8 million square feet of launched and planned development potential.

Sanjay Dutt, MD and CEO of Tata Realty, said the deal was “good news” for the sector. So far consolidation was in the form of large developers acquiring smaller ones, he said, adding, Tier-I consolidation was even better. “It just eliminates unwanted excessive competition, too much speculation and makes the sector more organised. Also, the perception of the sector will become better with organised players taking control,” he said.

Dutt said the deal also showed positive outlook of foreign institutional investors towards India.

According to analysts, the merged entity will become the development arm for both commercial and residential assets. However, the focus will be, largely, on developing commercial assets, and once completed and leased, to be transferred to the Embassy REIT platform. The combined entity will have a debt of Rs 3,700 crore once the merger is complete.

The merger is expected to be completed by the second quarter of 2022 financial year.

Amit Goenka, managing director and CEO of Nisus Finance Services Company, said the deal gave Embassy access to assets outside Bengaluru, thus improving the developer’s profile. “It is a win-win situation for all, Embassy gets to diversify, shareholders of IBREL will get better valuation going forward and Indiabulls can pursue its ambition of becoming a bank!,” he said. Goenka added that consolidation is gaining more grounds in the medium to smaller space, where opportunities to acquire mid-small sized realty firms is attractive.

However, Sharad Mittal, CEO, Motilal Oswal Real Estate Fund said large entity level consolidations are difficult to happen and believes there will be consolidation at the project level. “There may be some of the mid-sized developers folding into larger ones but such large two players getting merged I don’t think there will be too many such cases happening,” he said.