IL&FS Investment Managers fund exits phase 1 of Wadhwa Project

MUMBAI: The realty fund of financial services major IL&FS Investment Managers has exited the phase 1 of developer Wadhwa Group's residential project, The Address, in the Ghatkopar suburb of Mumbai for Rs 225 crore, according to two people familiar with the development.

In 2011, IL&FS India Realty Fund had invested Rs 300 crore in the project's two phases, aggregating nearly 2.6 million sq ft.

The fund had invested Rs 175 crore in the first phase through a mezzanine structure, including compulsory convertible debentures (CCDs) worth Rs 165 crore, carrying an annual coupon of 20%. The fund's partial exit from the Wadhwa project, including annual returns on debentures, works out to around 23.5% returns for IL&FS.

The partial exit for the fund is financed through the cash flow from the project's phase 1, which is almost complete now, while construction of phase 2 is in ad vanced stage. The phase 1 comprises 1.95 million sq ft of saleable space. Nearly all of 900 apartments have been sold out.

E-mail queries to IL&FS and Wadhwa Group remained unanswered until the time of going to press. The tenure of IL&FS India Realty Fund's investment worth . 125 crore in phase 2 of the pro` ject is scheduled to end in December 2015. Both the tranches of investment included debentures with 20% annual coupon and a small portion of equity.

Earlier this year, US private equity firm Kohlberg Kravis Roberts had entered into an agreement to invest in this 18-acre high-end residential project.

In October, a consortium led by ICICI Bank entered into a milestone debt funding agreement with the Wadhwa Group and its joint venture partner for around Rs 450 crore. The construction finance, carrying a borrowing cost of nearly 14%, was for a 12-acre residential project in Mulund, a suburb of Mumbai. The consortium has already disbursed Rs 150 crore to the developer under this agreement.

Several offshore real estate private equity funds are struggling with their planned exits in the backdrop of currency volatility and sluggish property market.

However, few domestic funds have been managing their timely exits, which have fetched good returns in the last 12-15 months.

According to investment bankers, most of the investments made through pure equity transaction are finding it tough to make superlative returns, while the ones that are exiting with good returns are structured equity and mezzanine debt combinations.