The merger between Indiabulls Real Estate Ltd (IBREL) and Embassy Group, the country’s largest commercial developers, reinforces the consolidation story of the real estate sector that has been panning out over the last few years, real estate experts said.
Bengaluru-based realty firm Embassy Group on August 18 signed an agreement to merge its various housing and commercial projects with IBREL and take control of the merged entity. Embassy Group already has around 14 percent stake in Mumbai-based IBREL and the same will increase to 45 percent after the merger. The merged entity will have about 30 projects.
“IBREL as well as Embassy group's arm NAM Estates (NAM) and Embassy One Commercial Property Developments (NAM Opco) have entered into definitive merger documentation to amalgamate ongoing, completed and planned residential and commercial projects of these two subsidiaries,” according to a regulatory filing.
"The combined IBREL entity shall become one of India's leading real estate development platforms, with 80.8 million square feet of launched and planned development potential," the filing had said.
Anurag Mathur, CEO, Savills India, told Moneycontrol that the merger of real estate assets between two of India’s largest commercial developers “reinforces the consolidation story that has been panning out over the last few years.”
The amalgamation will lead to expanding India’s office markets and such trend indicates a sign of maturity in the industry. For Blackstone, which is a key investor in Embassy, the merger would further boost its presence in the Indian office market, as it would end up adding a massive chunk of office assets to their already existing portfolio, he added.
Other experts said the merger was on expected lines.
“Intending to focus solely on their financial services, Indiabulls had sought to exit their real estate business in 2019 itself, so this merger was expected,” said Shobhit Agarwal, MD and CEO - ANAROCK Capital.
The Indian real estate sector has been consolidating over the last few years since RERA implementation and the onset of the liquidity crunch. The merger between IBREL and Embassy Group, which is part of this wave, will go on to further strengthen Embassy Group’s real estate portfolio, particularly on the commercial office side, after it launched the country’s first REITs last year, he said.
Will we see more such mergers taking place going forward?
Consolidation is a reality, but mergers between strong players will be very selective and based solely on the value proposition, say experts.
"The merger draws upon synergies and allows both firms to sharpen focus on their core strategies. Indiabulls are strong contenders for a banking licence and the RBI does not want banking licence aspirants to have significant real estate exposure. For Embassy, exiting the warehousing JV (with Warburg Pincus) and merging with IBREL complement their development-focused strategy,” said Anckur Srivasttava of GenReal Advisers.
Consolidation of the real estate sector is inevitable.
“One of the by-products of this consolidation-led evolution would be the emergence of well-governed, adequately capitalised, corporate developers. These players will have a multi-city/pan-India footprint and their growth capital will come via public capital markets and investment alliances with opportunistic global investors,” he added.
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