$200 Million Morgan Stanley-Wadhwa Group Deal Off Due to Rupee Fall

The fall in rupee value has affected foreign private equity (PE) investment in Indian real estate sector in a bad way. One recent victim is the $200 million PE deal between Morgan Stanley and Mumbai based realty developer Wadhwa Group which fell owing to the rupee depreciation against dollar.

The deal that didn’t get through

Both the companies were working together on the structured finance deal since January. Morgan Stanley was looking at investing $200 million in one of the projects from Wadhwa Group in Bandra Kurla Complex. The project was a commercial project and was called ONE BKC. It was across an area of 1.6 million sq.ft and was set to be completed in the next 12-15 months. The deal was almost signed when the rupee started falling.

As the rupee started falling, the returns that were calculated during early negotiations between the two groups started diminishing even before the deal was concluded. With the depreciating rupee, it would be difficult to hedge the entire project as the hedging costs would be too high.

Wadhwa Group confirmed that the deal with Morgan Stanley was now off. The realty developer is now looking for other options to raise funds to complete the already under-construction project. It is looking at raising a domestic debt of over Rs. 1,100 crore and has approached Standard Chartered Bank. Fund raising is expected to conclude by October this year.

ONE BKC

ONE BKC is a 1.6 million sq.ft commercial project and has two wings. Wing A has 5 lakh sq.ft and Wing B has over 1 million sq.ft. If the deal with Morgan Stanley had gone through, it would have complete control over Wing A. Wadhwa Group has already sold over 5 lakh sq.ft in Wing B to various buyers including corporates, financial institutions and diamond merchants. The entire project offers office spaces as small as 1,000 sq.ft up to as large as 80,000 sq.ft.

Falling rupee hurts foreign private equity

With the rupee having fallen by almost 27% between April 1st and August 31st, returns for foreign PE firms are almost wiped out. These firms invested a few years ago when the Indian currency was between Rs. 42-52 against the US dollar. Now since the the Indian currency is around Rs. 60 for a dollar, they will face a loss of 25-30% in dollar terms if they exit.

Private equity firms are not only stuck with their current investments due to stagnation in the real estate sector, but are also unable to raise any fresh funds for future investments, at least for a short term.