BSEL Infrastructure Realty's Malaysian Venture: A ₹18,000 Crore Investment
BSEL Infrastructure Realty, headquartered in Mumbai, is embarking on an ambitious international venture. The company has pledged a substantial investment of ₹18,000 crore over the next 12 years in Malaysian real estate. This significant investment underscores the firm's confidence in the Malaysian market and its long-term growth prospects.
To facilitate its operations in Malaysia, BSEL has signed a memorandum of understanding (MOU) with Malaysia’s Iskandar Regional Development Authority (IRDA). This agreement lays the groundwork for BSEL to focus on developing properties within the burgeoning Johar Bharu region of Malaysia. They plan to operate through a new company situated in Malaysia, which will either become a subsidiary of BSEL Infrastructure Realty, or function under the umbrella of its UAE subsidiary, BSEL Infrastructure Realty FZE. This new entity will signify a consolidation of the company's presence in the region.
Funding and Financial Projections
BSEL's managing director, Dharmendra Raichura, explained the financial strategy behind these ventures. The company intends to leverage proceeds from its UAE projects to initially finance the Malaysian developments. It reported revenues of ₹300 crore in 2007-08 from its UAE operations and expects this figure to reach ₹700 crore in the most recent financial year. BSEL will supplement these revenues with borrowed funds when necessary to finance the projects.
Project Scope and Expected Returns
The expansive development will encompass 70 million sq ft, rolled out in three distinct phases. The first phase will see the development of 10 million sq ft, with subsequent phases doubling this amount. The financial commitment for the first phase is set at ₹2,500 crore, escalating to ₹5,000 crore for the second phase. Raichura projects remarkably strong returns of 35-40% from this endeavor, a figure noticeably higher than the typical 25-30% return on investment expected by private equity firms investing in real estate projects in India.
Strategic Location and Tax Incentives
The strategic rationale behind selecting Johar Bharu is based on its proximity to Singapore, a global financial hub, according to Raichura:
“Johar Bharu is a 25-minute drive from Central Singapore, where property prices are 25 times more than the rest of the country. The authority plans to transform Johar Bharu into the next hot spot after Singapore in five to seven years. That is why we chose that city.”
Further sweetening the deal, BSEL will benefit from substantial tax incentives, including a tax holiday on land and premises sales until 2015, and an exemption on rental income extending until 2020. These incentives make the investment environment particularly attractive and contribute significantly to the projected returns.