03 February 2010
Naya Bharat Property Company plc
Fourth Quarter 2009 Summary
The unaudited Net Asset Value ("NAV") of the Naya Bharat Property Company plc (the "Company") stood at USD 0.58 per share on 01 January 2010. This represents a decrease of 4.9% from its value on 30 September 2009. The Company's share price fell by 8.7%, whilst the Bombay Stock Exchange Realty Index fell by 12.1%, over the same period.
The Company had a good year, with its NAV rising 107% and its share price 251% higher as its discount to NAV narrowed from 60% to 32% over the course of 2009. The Bombay Stock Exchange Realty Index was 78% higher in comparison. Key trends that drove performance included improving balance sheets, on the back of lower interest rates and equity placements, that reduced the risk of bankruptcy in the sector and a recovery in transaction volumes on improving affordability as selling prices were slashed to reduce inventory.
The performance of Indian property shares over the fourth quarter of 2009 was however disappointing, given the improving economic backdrop. Stronger than expected GDP growth over the third quarter, alongside a number of monthly indicators that suggested that economic activity was continuing to strengthen, saw the Bombay Stock Exchange's benchmark SENSEX index 5% higher in US dollar terms over the final three months of the year. The property sector suffered as raised expectations for GDP growth also led to some speculation that the Reserve Bank of India would soon start to tighten monetary policy. This notion found support from higher inflation, with the wholesale price index up 4.8% over the year to November; inflation on this measure had been in negative territory as recently as August.
There were however some impressive performances with, for example, the Mumbai-based property firm Orbit Corporation seeing its shares trade up 22% over the quarter after both sales and profits almost doubled over the year to the third quarter. Orbit also reported that real estate prices had moved up between 10% and 15% over the quarter. Other companies operating in and around Mumbai, which seems to have seen a rebound in activity earlier than other cities, also fared relatively well, with Housing Development and Infrastructure reporting a near 40% rise in profit over the quarter, as well as the launch of three large residential projects, and being rewarded with a 15% share price rise. Property firms with a more diverse footprint, including those based around New Delhi, fared less well. Market leaders Unitech and DLF saw their share prices fall 21% and 15% respectively over the quarter, with the market choosing to focus on the prospect of tighter monetary policy and the large number of real estate IPO registrations with the Securities and Exchange Board of India.
The outlook for the property sector does however seem to be improving. This is already apparent in Mumbai and will soon most likely be evident elsewhere. As a result, the fourth quarter saw the first IPO from a property company in two years as Godrej Properties listed its shares on both the Bombay and National Stock Exchanges. Godrej is part of a very well reputed consumer goods group and has a widely recognised and respected brand. The company's model is unique in the industry in that it does not own or intend to build up a land bank. Instead it relies entirely on joint development agreements with property owners where it gives them a share of project revenues. This strategy helps the company minimise its capital base and allows it to focus on its strengths: branding and execution. The share issue was attractively priced and ended up being oversubscribed many times over when the offer closed in December. The Company subscribed to the offer.
The addition of Godrej was the key change to the composition of the Company's investment portfolio over the fourth quarter. This position was largely funded by taking some profits in Orbit Corporation. Amongst other changes, the position in Ansal Housing was divested whilst the unwarranted weakness in the Unitech Corporate Parks share price afforded an attractive opportunity to add to the existing holding.
Performance in 2010 is likely to be driven by better price trends in the residential market and a slow turn-around in the prospects for commercial property on the back of improving hiring trends. The current trough valuations of commercial property stocks imply the absence of a recovery in rentals, vacancy rates or cap rates. An improvement in any of these assumptions is likely to result in enhanced value. In the light of the positive outlook for the Indian property market, the Company's investment mandate has been expanded to permit investment in a broader range of property-related investments, including companies operating in such areas as materials, construction, infrastructure and property credit.
In a further change designed to improve returns and assist shareholders, the Company's net asset value per share, previously reported monthly, moved to weekly reporting with effect from 11 December 2009. In addition, the board announced that it will seek to limit the level of discount to NAV at which the shares trade, and authorized a share buy back programme, under certain conditions, to a maximum of 14.99% of the company's issued capital.
The Company's ten largest investments as at 31 December 2009 are given in the table below, together with their weight within the overall portfolio at that time. The Company currently holds no unlisted or pre-IPO investments.
TOP HOLDINGS WEIGHT
HDIL 18.4%
Unitech 15.3%
Indiabulls Real Estate 15.0%
DLF 13.2%
Orbit Corporation 6.8%
Unitech Corporate Parks 5.8%
Phoenix Mills 4.9%
Mahindra Lifespaces 4.0%
Ascendas India Trust 3.8%
Peninsula Land 3.0%
Enquiries:
Notes to editors:
Naya Bharat Property Company is a property company focused on investing in real estate companies in India. The Company seeks to take advantage of perceived capital market pricing anomalies by investing in established listed property investors/developers at substantial discounts to their net asset values. In this way, investors in the Company will potentially benefit from both the reduction in the discount to NAV and the anticipated robust performance of the physical property market. In addition, special situations in unlisted/pre-IPO and property-rich small capitalisation stocks can be sought.
In February 2007 the Company raised c. USD 60 million.
The Company's investment manager is Charlemagne Capital (IOM) Limited which is regulated by the Isle of Man Financial Supervision Commission for investment and corporate service provider business. The Charlemagne Group specialises in managing funds in public and private equity in global emerging markets.
Disclaimer
This document does not constitute an offer to sell or solicitation of an offer to buy shares in the Company and subscriptions for shares in the Company may only be made on the terms and subject to the conditions (and risk factors) contained in the prospectus of the Company. Potential investors should carefully read the prospectus to be issued by the Company which contains significant additional information needed to evaluate an investment in the Company. This document has not been approved by a competent supervisory authority and no supervisory authority has consented to the issue of this document. The information in this document is confidential and it should not be distributed or passed on, directly or indirectly, by the recipient to any other person without the prior written consent of Charlemagne Capital (UK) Limited. This document and shares in the Company shall not be distributed, offered or sold in any jurisdiction in which such distribution, offer or sale would be unlawful and until the requirements of such jurisdiction have been satisfied. This document is not intended for public use or distribution. The purchase of shares in the Company constitutes a high risk investment and investors may lose a substantial portion or even all of the money they invest in the Company. An investment in the Company is, therefore, suitable only for financially sophisticated investors who are capable of evaluating the risks and merits of such investment and who have sufficient resources to bear any loss that might result from such investment. If you are in any doubt about the contents of this document you should consult an independent financial adviser. Investors in the Company should note that: past performance should not be seen as an indication of future performance; investments denominated in foreign currencies result in the risk of loss from currency movements as well as movements in the value, price or income derived from the investments themselves; and there are additional risks associated with investments (made directly or through investment vehicles which invest) in emerging or developing markets. Charlemagne Capital (UK) Limited does not guarantee the accuracy, adequacy or completeness of any information contained herein and is not responsible for any omissions or for the results obtained from such information. The information is indicative only and is for background purposes and is subject to material updating, revision, amendment and verification. All quoted returns are illustrative. No representation or warranty, express or implied, is made as to the matters stated in this document and no liability whatsoever is accepted by Charlemagne Capital (UK) Limited or any other person in relation thereto.