Piramal Fund Management has sought an extension of one year from investors in its domestic real estate fund, called Indiareit Fund Scheme V, as it is finding hard to exit some of the investments it has made in developments in Tier I cities. The Indiareit Fund Scheme V was launched in 2013 with a primary tenure of six years, extendable by up to two additional one-year periods. The primary tenure of the fund ends on July 31, 2019. The fund had made 10 investments and has till date fully exited from four of them — with partial exit from one. The total distribution made by the fund is around 55% of the fund corpus, which includes 35% towards return of capital and 20% towards return on capital.
The amount raised was Rs 1,000 crore and from that the fund has so far managed to return only 35% of the capital to investors and investors have generated a return of 20% on this investment. In response to a query, Piramal Fund Management said, “Piramal Fund Management remains committed to deliver improved performance and consistently create long-term value for its stakeholders.”
The real estate market has been facing a sharp slowdown in demand, coupled with a large build-up of inventory. The current inventory is nearly three years of stock across markets. The liquidity crisis has clearly hit the developments in which the Indiareit Fund Scheme V has invested. The fund has invested Rs 200 crore in Mumbai’s Siesta & Sommet, Ariisto Group in 2014 for two of its developments in Mulund and Goregaon. Due to weak financial condition of the company, both the projects are on hold currently, awaiting fresh financial closure. In the interim, a non-secured creditor has undertaken proceedings against the company under the Insolvency and Bankruptcy Code.
In some of its other projects, either rules have changed or there is pending litigation over environmental concerns. From Bengaluru to Gurgaon, projects are mired in problems, making an exit rather difficult for the fund.
Commenting on the extension, the company told FE, “Indiareit Fund Scheme V was launched in 2013 with a primary tenure of 6 years, extendable by up to 2 (two) additional one-year periods, by the Trustee, on the advice of the Investment Advisor. This is a standard practice with respect to most close ended fund vehicles with a fixed tenure. The primary tenure of the Fund ends on 31st July 2019 and the investment advisor as per provision under the SEBI guidelines has recommended an annual extension to the Trustees. As per standard corporate policy and as governed by SEBI and in the spirit of transparency, Indiareit Fund V has shared the current status of residual investments with all its investors. The Investment Advisor will continue to manage the residual investments towards their ultimate monetization during the remainder of the extended Fund term.”