DMI Finance, a non-banking finance company founded by former Citigroup employees Shivashish Chatterjee and Yuvraj C Singh, is in the process of raising 1,000 crore to invest in the real estate sector.
The company's second fund, which will tap high net worth domestic and foreign individuals and institutional investors over the next 12-18 months, will have an equity and debt corpus of 500 crore each and it will target over 20% internal rate of return.
"We have made significant headway in terms of raising capital and we are looking to ramp our business significantly. About 50-70% of the money will be invested in real estate," said Yuvraj C Singh, co-founder of DMI Finance.
The Delhi-based NBFC will invest mainly in residential assets across the National Capital region, Bangalore and smaller towns such as Jaipur, Chandigarh and Ludhiana. But the fund, which will be invested over a period of two years, will also look at select commercial properties.
"Most private equity funds are now looking at senior security structure with very few equity transactions being signed. We plan to lend money to mid-segment builders with adequate cash flow and collateral," said co-founder Shivashish Chatterjee.
DMI Finance, which raised 500 crore in 2008-09, has so far invested 90% of its portfolio, with a majority in the real estate sector.
"Our project finance business is doing extremely well as the builders are caught in a vicious cycle where bank lending and pre-sales of apartment have slowed down considerably. We will invest with builders who are rational in their expansion plans and prudent in borrowing," said Chatterjee.
Unable to service their existing bank loans, real estate companies are borrowing capital from private equity firms, NBFCs and even individual money lenders at exorbitant rates, which are often as high as 20-30%.
"NBFC money involves high risk and high return but there is a significant opportunity to scale. NBFCs are directly doing straight debt deals with developers at 18-22%. The return realisation is comparable to a private equity fund," said Ambar Maheshwari, managing director-corporate finance at Jones Lang LaSalle.
There are about two dozen NBFCs that are actively lending to real estate firms at present, compared with just six three years ago. Besides, there is a clutch of new NBFCs such as Indostar Capital Finance set up by Ashmore Group Plc, Ajay Piramal Group's Piramal Capital, Edelweiss Capital and Xander Finance that are looking to invest in the country's real estate market.
Source: Times of India
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