ICICI Prudential Real Estate Scheme-1

VENTURE CAPITAL:

This venture Capital is managed by ICICI Prudential Assets Management Company Ltd

FUND DETAILS:
Fund Size	Rs 500 Crore with additional Rs 500 Cr Optional
Target Return	NOT PROVIDED. However, Gross IRR of 22%-27% Expected as another fund managed by them already yielded in this range
Hurdle Rate	10% Pre-Tax
Min Invest.	Individual: INR 30 Lac Insti. Investor: INR 50 Lac
Initial Draw Down	30% of the fund
Draw Down	1+ 1 Year after final closing in two tranches- 30% & 40%
Management Fee	2%
Performance Fee Ratio	10% with 100% catch up
Upfront Cost/ Set up Fee	2%, if Invest. > Rs 50 Lac 2.5%, if Invest. < Rs 50 Lac
Investment Horizon	Long Term- Min 4 Yrs (Max 6 Yrs)

FUND FACTS:

•  The objective of this venture Capital is “Structured/ High yield financing in real estate aiming for superior risk-adjusted returns.
• Contemplated investment in top 7 cities of India- Mumbai Metropolitan Region (MMR), NCR, Bangalore, Chennai, Hyderabad, Pune and Kolkata.
• Investment Preference for under construction residential projects with visibility of cash flows- Mainly with start-up companies/ projects.
• Dedicated team with Average Experience of approx 20 Years and active support of ICICI Bank.

INVESTMENT HYPOTHESIS:

• Restrictive financing options available to developers provide opportunity for better returns.
• Regulatory hurdles: RBI regulations restrict bank financing for land acquisition; developers forced to use internal reserves and private market Borrowings.
• Muted bank lending: Banking sector’s exposure towards commercial real estate lending in India reduced from 23.2% in June 2011 to 4% in June 2012.
• Lower realizations: Slowdown in unit absorption forcing developers to give steep discounts for projects under construction.

INVESTMENT RESTRICTIONS:

• Not more than 25% Fund exposure in any city other than Mumbai Metropolitan Region (MMR) and National Capital Region (NCR)
• Not more than 25% Fund exposure in a single deal
• Up to 70% or higher investment in structured / high yield transactions, up to 30% investment in deals with equity kicker

 

VENTURE CAPITAL ANALYSIS:

The Venture Capital Fund is expected to invest in real estate in 7 cities/ municipal region on project basis with reputed developers.  They are focusing on initial project finance i.e. for new land acquisition/ starved start-up projects. Investment managers are expecting that the restriction, to not finance developers for land acquisition/ initial project start-ups, imposed by RBI on banks and slowdown in unit absorption create opportunities for participation with reputed developers in well located projects.

AS per ‘Master Circular On Housing Finance’ dated July 1, 2011, banks are not permitted to extend fund based or non-fund based facilities to private builders for acquisition of land even as part of a housing project. This is a major concern for developers to start new projects or to continue soft lunched projects and developers has already started looking for other sources of funds. This is has created a very big opportunities for Venture Capitals and especially to those who are backed by a very big financial institutions/ Banks like ICICI Bank in this case.

This is a long term fund having investment horizon of 4 (+1+1) i.e. Max 6 years after final closing. Fund manager has not set target return but their previous assignments have yielded gross IRR of approx 22-27% which they may achieve considering market condition.

RISK: Venture Capital is a closed ended fund and there is no direct exit option.