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Blackstone-backed India real estate trust kicks off IPO

Embassy Office Parks listing would be first of its kind in south Asian nation

Commercial real estate in Asia's third-largest economy is benefitting from the surge in demand for office spaces as companies seek to tap into the country's large talent pool and cost advantages.    © Reuters

MUMBAI (NewsRise) -- Blackstone-backed Embassy Office Parks REIT's share sale began Monday, setting the stage for the listing of India's first realty trust amid a boom in the south Asian nation's commercial real estate sector.

Commercial real estate in Asia's third-largest economy is benefiting from the surge in demand for office spaces as companies seek to tap into the country's large talent pool and cost advantages. The sector has ducked the slowdown plaguing the residential real estate that has been grappling with higher interest rates and increased taxes through last year.

The largest share sale of this year comes even as investors remain cautious ahead of the federal elections scheduled by May. The primary market, buoyant in the past few years with fundraising reaching a record high $11 billion in 2017, saw investor appetite weakening in 2018. Indian companies raised half that amount from 161 IPOs last year, according to data from E&Y.

Further, risk aversion, which dominated after a suicide bombing attack inflamed tensions between India and Pakistan in February, has subsided. Equity markets picked up pace after Prime Minister Narendra Modi's swift response to the incident strengthened his hand ahead of the polls in April-May, according to analysts.

Embassy Office Parks REIT, set up in partnership between Indian commercial developer Embassy Group and Blackstone Group in March 2017, said the issue of 129.5 million units will be priced at 299 rupees to 300 rupees apiece, making the IPO size at as much as 47.50 billion rupees ($693 million).

The IPO got off to a slow start with barely 1% being subscribed on the first day of the offering, according to provisional data on the National Stock Exchange. The share sale will close on Wednesday.

However, the REIT has already raised 17.4 billion rupees through allotment to 59 anchor investors, led by Fidelity International, Capital Group, and Schroders, among others. Morgan Stanley India, Kotak Mahindra Capital, and J.P. Morgan India are among the list of global coordinators and lead managers of the IPO.

The REIT, which operates in top office markets such as Bengaluru, the National Capital Region, and Mumbai, had seven office parks and four prime city-center office buildings, totaling 32.6 million sq. feet at the end of March 2018.

Analysts are upbeat about the IPO, citing the stability of the REIT's portfolio and the new investment opportunity it presents to foreign investors, who accounted for a lion's share of the anchor book.

According to Edelweiss Securities, about 81% of the REIT's rentals from their more than 160 tenant base is contracted with leading multinational corporations and more than 43% with Fortune 500 companies such as JP Morgan, IBM, and Microsoft.

The scale and quality of the REIT's business make those properties the preferred office location, Edelweiss said in a report. "This has enabled them to attract, retain and grow multinational tenants in their parks, leading to stickiness."

Brokerage ICICI Direct has asked investors to "subscribe" to the IPO, citing the quality of assets backed by global player Blackstone and potential rental growth.

--Dhanya Ann Thoppil

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