Investors in the Rs 1055-crore Aditya Birla Real Estate Fund – I have some reasons to cheer even though they are staring at an 8% loss for the money they put in the fund nine years ago in 2010. In a letter to investors dated August 31, 2019, Aditya Birla Sun Life AMC’s first real estate private equity fund has said that “one of the shareholders of investment manager” itself would buy back the securities of the fund and distribute the proceeds to investors. This purchase would amount to Rs 368 crore.
As of June this year, the fund had returned approximately Rs 601 crore by way of complete exit in four and a substantial exit from another investment. Thus, adding the Rs 601 crore returned earlier and Rs 368 crore to be returned now, the real estate fund would be able to return a total of 92% of the Rs 1,055 crore collected. This means investors would be losing 8% of their investment which was locked for as long as nine years, after the fund extended its life from the initial term of six years.
The exit route
The new letter comes after one of June 27, 2019 when the fund’s investment manager (Aditya Birla Sun Life AMC) announced its intention to liquidate the investments under the fund and distribute the same as final proceeds to its investors. The problem identified at the time was the fund was unable to exit as many as eight investments.
“We would like to bring to your attention that significant efforts have been made in adverse market conditions to approach various financial institutions (FIs) and other market participants (MP). This resulted in receiving in-principle offers from only 2 of the 10 FIs/MPs approached. Moreover, these in-principle offers provided for a valuation of ~(nearly) 25% lower than the value derived by an independent valuation agency,” the investment manager said in its letter to its investors, as per a source who have seen the letter.
In the above circumstances, Aditya Birla Real Estate Fund – I in the interest of investors and with a view to give an optimum value to the investments, found a way. One of the shareholders of the investment manager i.e. Aditya Birla Sun Life AMC has agreed to enable the exit. “…an alternative investment fund (AIF) has been accordingly set up to purchase the securities of the fund (Aditya Birla Real Estate Fund – I). The AIF shall purchase the securities of the fund and provide a final exit to the investors of the fund for an aggregate amount of Rs 368 crores, which is at a premium of ~8% to the valuation obtained by the indepedent valuation agency and is considerably higher than the in-principle offers received,” said the source, again quoting from the letter.
Additional Read: Rs 1000-Cr Aditya Birla Real Estate Fund – I Runs Out Of ‘Extra Lives’; Unable To Exit 8 Investments (Jun-2019)
Wait, there is a minor hitch too. Aditya Birla Real Estate Fund – I has been slapped with an income tax demand of ~ Rs 30 crore with respect to financial year 2015-16. “The fund has filed an appeal before the Commissioner of Income Tax which is still underway. Out of the sale proceeds, the fund shall deposit this amount in escrow held with the trustee of the fund, and distribute the balance amount of Rs 338 crore to the investors,” added the source, quoting from the letter.
This tax demand issue effectively means an investors in Aditya Birla Real Estate Fund – I will effectively get 89% of initial money and thus stare at a 11% loss. If the tax demand case is won by the fund, then that money i.e. Rs 30 crore will be distributed to the investors of the fund as the final payout after deducting any expenses etc.
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