by NR INDRAN / INT

As per a news article in the Economic Times, dated 29 September 2011, Oberoi Realty is in talks to buy the 50% stake held by ICICI Venture in a residential project located at Annie Besant Road in Worli for INR3.0bn. After the deal, 50% of the project will be held by Oberoi Realty (BUY, PT INR 284) while the remaining 50% will be held by the Oberoi Realty promoter Vikas Oberoi.As background, in 2004 Oberoi Constructions (promoter Group Company) and ICICI Venture jointly bought the land parcel from GSK SmithKline for INR 1.07bn.

Later, the project entered into a legal tussle after the Brihanmumbai Municipal Corporation (BMC) raised a claim of ownership of the land claiming that the land was given to GSK only on lease. BMC refused to give the mandatory no-objection certificate and demanded INR1.34 bn because the land had originally belonged to it.

The Supreme Court of India has recently ruled against the BMC. Source: Times of India, “Saga of twin tower project” dated 14 December 2010.

On our initial assessment, the price of INR 8,238 psf (based on saleable area) that is being paid by Oberoi Realty is attractive as this acquisition is likely to provide Oberoi Realty an IRR of around ~36%. Additionally, 100% stake in the project by Oberoi Group will provide operational synergies in terms of execution given the project got stalled due to government approvals in the past.

You can contact author @ [email protected]