Aditya Birla Real Estate Fund: AMC to provide investors an exit option

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Aditya Birla Sun Life AMC (ABSLAMC) is a joint venture between Aditya Birla Capital and Sun Life (India) AMC Investments. FE could not immediately ascertain which entity would be providing the exit.

Unable to find investors at a mutually acceptable valuation to liquidate the Aditya Birla Real Estate Fund-I, managed by Aditya Birla Sun Life AMC, has now informed investors that one of the AMC’s shareholders will provide investors with an exit.

Aditya Birla Sun Life AMC (ABSLAMC) is a joint venture between Aditya Birla Capital and Sun Life (India) AMC Investments. FE could not immediately ascertain which entity would be providing the exit.

A letter to investors dated August 31, 2019, reviewed by FE, notes that “significant efforts” were made in “adverse market conditions” to approach various financial institutions and other market participants for liquidation. Of the 10 financial institutions and other market participants approached, it received in-principle offers from only two, and these provided for a valuation of about “25% lower” than the value derived by an independent valuation agency, the fund said.

“In the above circumstances, in the interest of the investors and with a view to give an optimum value to the investments made by the Fund, in the present market conditions, one of the shareholders of the investment manager has agreed to enable this exit,” the letter said.

Earlier in a letter dated June 27, 2019, Aditya Birla Real Estate Fund-I said it was in the process of liquidation having failed to secure an exit from eight of its 13 investments. The fund’s life was extended twice for one year each and the extended life expired on August 31, 2018.

FE, in its edition dated July 30, had reported that the fund was aiming to liquidate the entire investment portfolio by July 31, and in any event no later than August 31, 2019.

Aditya Birla Real Estate Fund was set up in 2010 and raised close to `1,050 crore. The fund has been valued at a net asset value (NAV) of 0.89X basis the valuation of investments done by an independent valuer according to the audited financial statements for the year ended March 31, 2019. The real estate fund has returned a total amount of `601 crore, which is approximately 57% of the initial investment to its investors.

Aditya Birla has informed investors that an alternative investment fund (AIF) has been accordingly set up to purchase the securities of the Fund. The AIF should purchase the securities of the fund and provide a final exit to the investors for an aggregate amount of `368 crore “at a premium of around 8% to the valuation obtained by the independent valuation agency, and is considerably higher than the in-principle offers received”.

The fund has also informed investors it has an ongoing income tax demand of about `30 crore with respect to the financial year 2015-16, for which an appeal filed by it with the income tax commissioner is still underway, and the outcome is awaited. As a result, out of the sale proceeds, the fund shall deposit this amount in an escrow account held with the Trustee of the Fund, and distribute the balance amount of `338 crore to the investors of the fund. Fund has said that according to its market information, similar demands have been received by other venture capital funds.

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“Based on the outcome, the amount shall be adjusted for any tax liabilities and expenses in connection therewith, if any, and the balance shall be distributed to the investors of the Fund as the final payout,” the letter said.

Responses to e-mails sent to Aditya Birla Group seeking comments on the story were awaited till the time of going to press.
Real estate funds have been finding it hard to provide investors with an exit as in a weak demand environment while in some cases the projects have not taken off owing to lack of approvals or litigation. Some funds have extended the tenures of the schemes and in some cases they have been even liquidated.