RMZ, known for development of business parks, has struck a nearly $1-billion deal to buy back shares held by Qatar Investment Authority (QIA) and Baring Private Equity Partners, thwarting a hostile bid by crosstown Bengaluru rival Embassy Group. The promoters of RMZ — billionaire brothers Raj and Manoj Menda — purchased 45% shares held by the two investors in what could be the largest buyback by a private company in recent times.
RMZ Infotech (RIPL) currently operates about 24 mln sqft of fully leased office buildings with a projected net operating annual income of Rs 2,000 cr. The Menda brothers, both of whom are RMZ corporate chairman, confirmed the share buyback deal, which is being paid out through bank financing and internal accruals, and said the family was bringing together all the established, fully tenanted business parks under the holding company. The Mendas said the promoters would retain full ownership of RIPL through family trusts from now on.
The transaction valued the company at over $2 billion, though the asset valuation (at around 7% capitalisation rate) is pegged higher at $4 billion, sources briefed on the matter said. The Mendas refused to disclose valuation details, citing confidentiality agreements. Baring is said to have been advised by Standard Chartered Bank and JLL on the share sale deal, while QIA had StanChart only.
The share buyback was part financed by existing lenders Deutsche Bank and Kotak. RMZ is learnt to have purchased the shares by offering both QIA and Baring returns in the 250-300% range on their investments. The deal also marks one of the first, large profitable exits by global investors who have poured money into the country’s stable, rent-yielding commercial real estate assets.
Last December, Embassy Group chairman Jitu Virwani entered the fray to buy shares after Baring started a process to sell its 21% stake in RMZ. Virwani, locked in a bitter business rivalry with the Mendas, also opened hostile moves to mop up another 24% from QIA to build a significant minority position. RMZ competes with Embassy Office Parks, a joint venture between Virwani and Blackstone Group, and K Raheja Corp in building out large tenanted office spaces in Asia’s third-largest economy.
The battle between Mendas and Virwani has been more intense with occasional display of fireworks. Still, Virwani’s attempts to emerge as a shareholder in the arch rival’s company had stunned the sector.
The Embassy founder was seeking to carve up the RMZ business proportionate to his shareholding, if he had succeeded. After fending off the raider, the Mendas would henceforth look for capital-raising only for projects that are under development, that too for specific large ones. It is learnt that both QIA and Baring have the option of investing in such projects in the near term.
RMZ has big business parks under development in Hyderabad through an equal joint venture with MyHome Industries, and in Chennai. Bengaluru, the home turf of Embassy and RMZ, remains the largest market for grade-A office space absorption in the country. The city had 36% share of the market estimated at 43 million sqft in 2017, said a Colliers International report. NCR and Mumbai followed with 18% and 13% respectively.