GIC Buys $1.4B Stake in Indian Office Developer

Lee Kok Sun of GIC

Lee Kok Sun, chief investment officer of GIC Real Estate sees growth potential in India

Singaporean sovereign wealth fund GIC is making a major bet on Indian real estate by purchasing a stake in a unit of DLF, India’s most valuable real estate developer, for 89 billion rupees (around $1.4 billion).

Through the transaction, an affiliate of GIC will acquire a 33.34 percent stake in DLF Cyber City Developers (DCCDL), which operates a commercial real estate portfolio spanning 26.9 million square feet (about 250,000 square metres) of rent-yielding assets.

The deal is said to be one of the largest-ever private equity transactions in the country’s real estate sector, and adds to a series of investments in India by the Singaporean fund with over $100 billion in assets under management.

GIC Goes for India’s Offices

“We are pleased to enhance our existing partnership with DLF, one of India’s leading real estate developers, through this landmark transaction,” commented Lee Kok Sun, chief investment officer of GIC Real Estate in a statement. “This portfolio comprises high-quality, income-generating assets which are located across India’s top-tier cities,” Lee added. “As a long-term investor, we believe in the growth potential of India and in strengthening relationships with like-minded partners.”

Formed in 2006, DCCDL is based in the northern city of Gurgaon and specialises in developing and leasing commercial properties. DCCDL’s portfolio includes DLF Cyber City in Gurgaon, a 13 million square foot (1.2 million square metre) corporate park housing IT and Fortune 500 firms, as well as office assets and business parks across India and shopping malls in the New Delhi area.

The DCCDL portfolio has a pipeline of roughly 2.5 million square feet (23,000 square metres) under development with potential for further development of around 19 million square feet (1.8 million square metres).

Streamlined Deal for Indian Major

DLF Cyber City

DLF Cyber City, a corporate park in Gurgaon

Parent company DLF revealed in March that it was close to selling a 40 percent stake in the subsidiary to GIC, but ultimately decided to sell a lower stake to the sovereign wealth fund following weeks of deliberation. The stake is owned by Kushal Pal Singh, DFL’s billionaire chairman and chief executive, and his family.

Nearly 15 groups are said to have expressed initial interest in the sale, and GIC won out over a roster of investors that reportedly included a US private equity giant and a consortium of the sovereign wealth funds of Abu Dhabi and Qatar. Morgan Stanley and JPMorgan were appointed by DLF last year to advise on the sale of the stake, which is intended to deleverage the property group’s balance sheet.

The complex transaction, as announced to the Bombay Stock Exchange, values DCCDL at around $5.6 billion and involves a series of steps which will result in DLF holding a 66.66 percent equity stake in the company, with GIC Real Estate affiliate Reco Diamond holding the remainder.

The sellers will earn gross proceeds of around $1.9 billion, comprising the secondary sale of equity shares to GIC for about $1.4 billion (to be completed before closing) and two buybacks of compulsory convertible preference shares by DCCDL for around $500 million (to be completed 12 months after closing). The deal awaits regulatory approval.

Singaporean Fund Deepens India Commitment

The deal marks the second time GIC has partnered with DLF, after the Singaporean fund formed a joint venture with subsidiary DLF Home Developers to invest in a pair of residential projects in central Delhi in September 2015.

GIC has been active in Indian real estate since December 2014, when the fund tied up with property developer Vatika Group to build two residential projects in Gurgaon. In the same month, GIC agreed to buy a controlling stake in Mumbai-based property firm Nirlon for around $200 million.

GIC is also the principal investor in the Ascendas India Growth Programme (AIGP), a S$600 million ($440) vehicle set up with Singapore’s Ascendas-Singbridge in 2013. Last August, the partnership said it would develop an IT park in Gurgaon for an estimated $400 million. And earlier this week, AIGP made its second investment in India by acquiring a 16-acre parcel to be developed into a business park in the suburbs of Pune.

India Continues to Gain with Global Investors

The Singaporean fund is among a number of major global investors that have jumped into India’s real estate sector in search of high returns. Last month, US private equity giant Blackstone was reported to be in talks to buy the $535 million ILFS India Realty Fund I, adding to its $3 billion of property investments in the country.

Other global heavyweights in India have included Dutch pension manager APG, the Canada Pension Plan Investment Board (CPPIB), and Canada’s Brookfield Asset Management.