By Anuja Mardikar
Indiabulls Group is an Indian conglomerate founded by its current Chairman, Sameer Gehlaut, in 1999. The group is spread across the real estate, housing finance and wealth management sectors. The combined revenue and market capitalisation of the group was around Rs. 15,279.4 crores and Rs. 48,847.2 crores respectively for the financial year 2016-17. The major listed companies of the group include Indiabulls Housing Finance Limited (IBHFL), Indiabulls Real Estate Limited (IBREL), and Indiabulls Ventures Limited (IBVL).
What the decision entails
On the 23rd of March 2018, Indiabulls Real Estate Limited informed the BSE of a divestment action it had agreed on. The company decided to sell 50 percent of its ownership stake in its subsidiaries, Indiabulls Properties Private Ltd and Indiabulls Real Estate Co. Private Ltd, to the global private equity investor Blackstone Group. The sale of these stakes is expected to net a value of $1.46 billion or Rs. 9500 crores.
The two subsidiaries hold premium offices assets, Indiabulls Finance Centre and One Indiabulls Centre, in central Mumbai. The divestment transaction is expected to conclude by the end of March. On completion of the transaction, Indiabulls will cease its sole control over the two subsidiaries. Blackstone Group’s real estate segment has entered into deals of around $4.1 billion, including 27 investments in India, making it possibly the largest owner of commercial office space in the country.
What led to the divestment?
One of the major reasons behind the divestment is the re-organisation of its commercial-lending business. Indiabulls Real Estate Limited had previously given hits that it would induct an institutional investor into its commercial leasing business by the end of the current financial year. It planned to hive off its commercial and leasing business into a separate entity called Indiabulls Commercial Assets Ltd.
According to Indiabulls, most of the proceeds from the divestment will be put towards the repayment of the company’s existing debt and for achieving sustainable long-term growth. The company is also planning to monetise its residential and commercial properties in Chennai, the latter being a non-core market for the Mumbai-based developer.
The purpose behind the move
Normally a company divests in order to improve its value and obtain higher efficiency. Divestment enables the management team of a company to focus on its core business. Funds obtained from a divestment are usually used to make capital expenditures, fund working capital shortfalls, pay off debt or pay dividends to company shareholders although a divestment may also precede a bankruptcy.
From the current development, it seems that Indiabulls is keener on concentrating on its core business and is, therefore, monetising its commercial assets in order to invest the funds obtained in a more methodical manner in its business. The strategy may help the group to perform better in its existing line of business thus helping it grow its market share and performance standards.
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