Shriram in talks to buy Sobha assets

In what could perhaps be the first sign of consolidation in the slowdown-hit realty sector, Shriram Properties — part of the $5.5-billion Chennai-based Shriram group of companies — is believed to be in talks with Bangalore-based residential market leader Sobha Developers.

It is understood that Shriram may be looking to buy some of Sobha’s asset portfolio — up to seven of them. These assets could be land with development rights or projects under development, a source close to the process said. The deal is likely to be worth Rs 200-300 crore. “Sobha is in discussions with us. But we have not taken any in-principle decision.

Sobha is evaluating to hive off assets/projects and merger options with Shriram,” a top Shriram group official told ET. Talks between both companies are going on for the past four weeks, another source said. ET learnt that Sun Apollo, an equity partner in some of Shriram’s properties, may help Shriram by putting in some of the money, even though this could not be confirmed.

When contacted, Shriram Properties MD M Murali denied any deal with Sobha. He, however, said the company was actively pursuing its expansion plans. Sobha’s JC Sharma, too, denied the development, although he maintained the company was pursuing various options to raise capital.

Sobha MD JC Sharma had earlier told ET that the company was looking at dilution of stake in the company at the entity level by up to 26% and was also open to divest stakes in its SPVs. Sobha, which is facing a liquidity crunch like many other realty players, is looking at a variety of options to raise up to Rs 600 crore in the coming months.

It was also looking to sell some of its land holdings in Chennai, Bangalore and Pune. Sobha holds about 400 acres in these cities.

The deal, if and when happens, will help the Rs 480-crore Shriram Properties — a pure-play fund manager and development company — scale up its size in the residential market. It is not known how Shriram will raise funds for the purchase.
The deal will also generate much-needed cash for Sobha. The Bangalore-based developer has debt of about Rs 1,850 crore on its books. Sobha also needs cash to develop its various projects. It is developing about 1,400 apartments in Bangalore and other parts of the south. Promoters hold 87% stake in Sobha Developers. Some of these land parcels in Bangalore are in Minerva Mill, Bangalore East and Thanisandra. Sobha’s total land bank assets are in the region of 3,000 acres.

The realty sector is groaning under the collective weight of heavy debt and slump in consumer demand. Many firms bought land when prices were very high hoping to sell the apartments at those rates and make decent returns. But the fall in prices has quashed those plans, putting many of them in quandary. They have to complete the building for which there are few takers. Banks are still unwilling to lend while public markets have turned unfriendly to builders. One solution is to consolidate, get rid of non-core properties and projects while focusing on the important ones which can generate returns. Shriram has completed projects covering 4.5 million sq ft in Bangalore, Chennai, Coimbatore and Kolkata, while 80 million sq ft of projects are in the pipeline at Vizag, Kolkata, Chennai, Coimbatore and Bangalore. Walton Street Capital made its first investment in India through Shriram Properties, while Starwood is the other investor at the entity level of the Chennai group.

Shriram also has a 50:50 joint venture with Sun Apollo, which has brought in Rs 600 crore for executing two special purpose vehicle projects in Chennai and Vizag.

The Sobha scrip closed 6.03% up at Rs 94.05 on BSE on Wednesday.