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How PE Investors Squeezed Developers During 2008 Bust ?

Monday, April 25, 2011

Following the slump in late 2008, many projects invested in were either significantly delayed or, in some cases, found to be unviable in the changed scenario and it is quite likely that a large number of investments are currently incurring losses.

Most investments have clauses in the form of put or call options which protect the investor and make it mandatory for the developer to buy-back the securities held by the PE investor. Also, there are punitive clauses which enable the investor to take control of the project if it is not completed.

Lodha Developers – HDFC Property Ventures:
The HDFC Shareholders‟ Agreement provides the Investors on and from the Investors Exit Date (May 2, 2013 if 95% of the cash flows of the project are not received till then), a put option, in which the Investors shall have the right to call upon our Company to purchase from the Investors all the securities held by them

In the event, other than on the occurrence of a force majeure event or reason approved by a unanimous decision of the board of Lodha Healthy, if the Project is not completed within a period of five years from the date of commencement of the development of the project, then the Investors shall have an additional right to appoint majority directors on the board
Lodha Developers – Deutsche Bank (DB)

DB had granted another Lodha subsidiary the option to purchase the debentures or the converted equity shares of Cowtown prior to Dec’10, failing which DB would be the owner of 99% of Cowtown and, in turn, the owner of the mortgaged land parcels in Thane, Lower Parel and Malabar Hill in the event of a default by LHRB. In our view, this means that if Lodha does not buy back the debentures from the current debenture holders, it would lose control of several valuable land parcels for an amount of just INR16bn
Parsvnath-Sun Apollo Ventures

our company (Parsvnath) has granted to the investors (Sun-Apollo) an option, exercisable at any time on or subsequent to 48 months after the first closing date, to sell to the promoter, all the securities of Hessa (Parsvnath Exotica-II) held by the investors and upon exercise of such option, our company shall be obliged to purchase the securities on the terms and conditions contained in the investment agreement.
Emaar MGF-New York Life Investment (NYLI), Jacob Ballas Capital (JBC) and EIF

the Investors were granted the right to require Emaar to purchase all the Equity Shares subscribed for by the Investors at the per share price at which the Investors had acquired the Equity Shares.
Entertainment World Developers Ltd (EWDPL)-ICICI Ventures Ltd

In the event the IPO does not take place by Feb 15, 2011 the investor has the right to require either the promoters of EWDPL or EWDPL itself purchase all equity shares and optionally convertible debentures and/or redeem all optionally
convertible debentures at a fair value.
Raheja Universal-Urban Infrastructure Venture Capital (UIVC)

Raheja Universal is required to provide the investor an exit within seven years from the date of investment, i.e. by March 2014 or such extended period as may be determined by the investor, through an IPO or strategic sale. In the event the company is unable to provide a suitable exit option to the investors, the investor shall be entitled to exercise a put or call option requiring Raheja to purchase all of its shares in the project or to sell all of its shares in the project to the investor.
The Evils of Private Equity Capitalism led many of these Greedy Realty Developers to Hold on to abnormally High Property Prices when in reality, they offer no value for the Dream Home the hardworking and Honest Tax Paying Citizens deserve.

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