1. CA Vinit Vyankatesh Deo
Chairman & Managing Director
Posiview Consulting Partners Group
September 2014
Fund Raising for Real Estate
Opportunities for Chartered Accountants

2. Disclaimer
 The document contains selected information to assist the recipient in making an initial decision to
proceed with further investigation. The information contained in document will not constitute or
form part of any offer for sale or purchase shares in the Company / Project nor will any such
information form the basis of any contract in respect thereof. An investor must rely on the terms
and conditions contained in such a contract subject to such limitations and restrictions as may be
therein.
 No representation or warranty, expressed or implied, is given by the Shareholders, Posiview, the
Company or any of their respective directors, partners, officers, affiliates, employees, advisers or
agents.
 No responsibility or liability is accepted for any loss or damage howsoever arising that you may
suffer as a result of the document and any, and all responsibility and liability is expressly
declaimed by the Shareholders, Posiview and the Company or any of their respective directors,
partners, officers, affiliates, employees, advisors or agents.
 Information provided in this document contains forward-looking statements that involve risks and
uncertainties. Certain information included in this presentation may contain statements that are
forward-looking, such as statements relating to uncertainties that could affect performance and
results of the Company in the future and, accordingly, such performance and results may
materially differ from those expressed or implied in any forward looking statements made by or
on behalf of the Company.
 The Company believes that the expectations reflected in such forward looking statements are
reasonable at this time, but it can give no assurance that such expectations will prove to have
been correct.

3. Assessing Fund Requirements:
Why & When would a Developer need money?

4. Why do you need money?
Land Stage
• Token
• JV Deposit
• Buying Land
• To get plan
sanctioned
Commencement
of Project
• For initiation of
work
• For advances to
creditors
• For Construction
Growth &
Liquidity
• Many a times the
company lets go
of several
opportunities
because of lack
of liquidity or
Growth Capital.
It is important not just to get the money, but to get it at the right time!

5. Understanding Private Equity:
How Private equity has grown in importance

6. What is a Private Equity Fund
 Private equity is an asset class consisting of equity securities in companies that
are not publicly traded on a stock exchange.
 A private equity fund is a pool of funds from institutional investors used for
making equity investments in various companies according to a fixed investment
strategy.
– At inception, institutional investors make an unfunded commitment which is then
drawn over the term of the fund.
 A private equity investment is generally made by a private equity firm,
a venture capital firm or an angel investor.
– Each of these categories of investor has its own set of goals, preferences and
investment strategies.

7. Assessing Funding Options:
Pros and cons of various sources of funds available to developers

8. Fund Raising Options for a Developer
Debt Equity
Construction Finance
•Working Capital requirement
•Term Loan
Funding at Land Acquisition Stage
(50% stake)
Post Construction Finance
• Loan against property
•Lease Rental Discounting
Cash Out (after acquisition of land)
Equity Funding at Project Level from
Venture Capital Fund
Equity Funding at Company Level
from Venture Capital Fund
Initial Public Offering (IPO)
8Posiview Consulting Partners Private Limited
Practically, maximum proportion of developers need funds for acquisition of land
and as per RBI guidelines, Banks do not provide loan for Land.

9. Debt Funding
9Posiview Consulting Partners Private Limited
• Working Capital Requirement
• Term Loan
Construction Finance
• Loan Against Property
• Lease Rental Discounting
Post Construction
Finance

10. Bank Loan – Positives & Negatives
 Positives
– Can be secured easily by providing security and sufficient collateral
– Relatively lower cost than equity funding
– No need to share profits with the Lender
 Negatives
– Limitation on the amount which can be raised
– In case of slowdown, repayment of principal and interest becomes a
burden
– Bank does not share Project risk
Posiview Consulting Partners Private Limited

11. Equity Funding
Land Acquisition Stage Cash Out
Project Level and /Or
Company Level from
Venture Capital Fund
Initial Public Offer (IPO)
11Posiview Consulting Partners Private Limited

12. Understanding Equity Funding :
- Various stages at which Private equity funds can bring in money
- Understanding the Pros and Cons
- The role of SPVs

13. Land Acquisition stage
 The Funding at Land Acquisition stage includes the involvement of Investor &
Developer jointly for acquisition of land.
 Separate Private Company need to be formed for stamp purpose in which both
the parties will have share depending upon the agreement signed by them.
 Typically the Investor looks for:
– Whether the fund is FDI Complaint or Domestic. (The Foreign
Investment Promotion Board has set up guidelines for FDI projects).
– Non-Agriculture Land
– Whether the land is outright purchase or the Developer will get
Development Authority and Power of Attorney.
– Normally the Investor invest for 50% of the share, however in some
exceptional cases it can be more or less than 50%.
13Posiview Consulting Partners Private Limited

14. FDI Guidelines for Reference
FDI in townships, housing and construction-development projects:
 Conditions: Minimum area be developed under
– In case of development of serviced housing plots, a minimum land area of
10 hectares (25 acres).
– In case of construction-development projects, a minimum built-up area of
50,000 sq.mts.
– In case of a combination project, anyone (above) two conditions would
suffice.
 The investment would further be subject to the following conditions:
– Minimum capitalization of US$ 5 million (Rs 24 crs) for JV with Indian
partners.
– Investment cannot be repatriated before 3 years.
– At least 50% of the project must be developed within a period of 5 years
from the date of obtaining all statutory clearances.
14Posiview Consulting Partners Private Limited

15. Cash Out (After Acquisition)
 The investor reimburses the fully/partially amount invested by developer in
land. This is a means by which a developers get back the money already
invested in land.
 A Separate SPV is formed and the land is transferred to that SPV and then
later the developer takes out money from the SPV.
 The decision for cash out depends upon the credibility of the builder and
market Value of the land and the potential to generate the return, i.e., future
cash flows.
15Posiview Consulting Partners Private Limited

16. Entity Level Vs SPV Level
Particulars Entity SPV
Amount Returned
after 3 Years
Exit of the investor is
through a listing on the
stock exchanges
Exit to Investor
Whether Company
has to Return
Amount
Not Necessary. Investor
can exit form listing on
Stock Exchange or selling
his stake to a Third party.
Yes. Compulsory for the
Company to return this
amount.
What is the
Advantage
Since the initial capital
does not go out of the
Company, the Company’s
financials and cash flow
become strong
There is a pressure on the
Company to return the
amount with IRR of around
25%.
16Posiview Consulting Partners Private Limited

17. What is a Special Purpose Vehicle (SPV)
– A Special Purpose Vehicle (SPV) is a new Private Limited Company formed
for the purpose of a specific Project.
– The SPV can also be a Partnership or a Limited Liability Partnership (LLP).
However Foreign Direct Investment (FDI) is not allowed in such case.
– In this case usages of funds given by an investor is for the specific project.
– Based on the valuation of the project, the equity in the SPV will be given to
the investor so as to generate a minimum of the required IRR
– Post completion of the project, the profits will be distributed between the
equity investors as agreed and the Company will be closed.
17Posiview Consulting Partners Private Limited

18. Venture Capital/Private Equity – Positives & Negatives
 Positives
– Investor shares the risk of the Project
– Enables Company to raise additional Debt Funding
– Market perception of companies having equity financing is generally
better
 Negatives
– Relatively high cost of capital over a long period of time.
– Private equity needs exit avenues over a period of time.
– Additional compliance requirements and public scrutiny of companies
accessing public markets.
– Would want to get involved in some key management decisions.
18Posiview Consulting Partners Private Limited

19. PE Funding – Benefits & Responsibilities
Benefits
 Long Term Funds;
 Increased Shareholder Value;
 Diversified Equity Base;
 Liquidity Premium to Shares;
 Higher Market Visibility;
 Attract and Retain Talent.
Responsibilities
 Disclosure Requirements;
 Promoters Holding diluted;
 Corporate Governance;
 Transparent Reporting;
 Shareholder Expectations;
 Increased Regulations;
 Restrictions on transfer of shares.

20. Evaluating your funding options:
Comparing the impact of various avenues of funding in the light of distinct
parameters

21. Impact of Fund Raising Options
Parameters Debt
(Construction
Finance)
Private Equity
(Project level)
Private Equity
(Entity level)
IPO
Cost of finance
14 – 18% per
annum
22% + per
annum
22%+ per
annum
Return on
market
performance
Return of
Principal and
Interest
Yes Yes No No
Term
Short Term
2-3 years
Short Term
2-3 years
Medium Term
3-5 Years
Long Term
Permanent
Industry /
Market
perception
High Debt
companies are
not perceived
well
Project Risk is
shared with the
Investor
Creates a
Market Value for
the Company
Increases
visibility and
brand value
21Posiview Consulting Partners Private Limited

22. Getting familiar with the concept of IRR:
Understanding the impact of Cash Flows using illustrations

23. What is Internal Rate of Return (IRR)
 Suppose an investor invests Rs. 150 Cr in your project.
 The Table below indicates the amount that has to be paid back to the Investor in
addition to the principal of Rs. 150 Cr.
 If we agree on 22% IRR and return the money after 4 Years, then we have to
give a Pay Out of Rs 239 Crs (including Dividend Tax) in addition to the
Principal.
23Posiview Consulting Partners Private Limited
Period of
Investment
(Years)
Internal Rate of Return (IRR)
10% 15% 18% 22% 25%
3 84 117 138 169 193
4 107 157 190 239 278
5 133 203 252 324 386
The concept of IRR is based on the fact that the cash that you receive today
is more valuable than the cash you receive two years down the line or
anytime in the future.
Amount (in Rs. Cr.)

24. Why Cash Flows matter & Why is IRR so important?
 More than Profits, it is the IRR that attracts funds! The reason is that IRRs are
based on the cash flows of the project and hence take into consideration the
time value of money.
 Let’s take an illustration to see the importance of IRR. You are presented
with the following two options to invest your money in – which project will you
choose?
Time Period Project A Project B
0 (1,000,000) (1,000,000)
1 450,000 250,000
2 400,000 300,000
3 350,000 450,000
4 300,000 450,000
5 250,000 450,000
Net Cash Flow 7,50,000 9,00,000
IRR 25% 23%
Investment
made
Although the cash flows from Project B exceed that of Project A,
IRR of Project A is 25% while the other has an IRR of 23%.

25. Understanding IRR difference using Affordable Vs Premium
Project
Inflow Year 0 Year I Year II Year III Total
Promoter Contribution 7.50 - - - 7.50
Amount from
Customers
- 4.50 6.75 11.25 22.50
Total Inflows 7.50 4.50 6.75 11.25 30.00
Outflow Year 0 Year I Year II Year III Total
Land 7.50 - - - -
Construction - 1.35 2.70 2.70 6.75
Overheads - 0.34 0.08 0.34 0.75
Total Outflows 7.50 1.69 2.78 3.04 7.50
Cash Balances Year 0 Year I Year II Year III Total
Opening Cash
Balance
- - 0.50 0.50 -
Net Inflow / Outflow - 2.81 3.98 8.21 15.00
Drawings - 2.31 3.98 8.71 15.00
Closing Cash Balance - 0.50 0.50 - -
IRR 34%
Premium Project (Amount in Rs.
Cr.)
Investment
made in
acquiring
land.

26. Inflow Year 0 Year I Year II Year III Total
Promoter Contribution 7.50 0 - - 7.50
Amount from
Customers
0 22.50 13.50 9.00 45.00
Total Inflows 7.50 22.50 13.50 9.00 45.00
Outflow Year 0 Year I Year II Year III Total
Land 7.50 0 - - 7.50
Construction 0 11.25 9.00 2.25 22.50
Overheads 0 2.03 2.03 0.45 4.50
Total Outflows 7.50 13.28 11.03 2.70 27.00
Cash Balances Year 0 Year I Year II Year III Total
Opening Cash
Balance
0 - 0.49 0.49 -
Net Inflow / Outflow - 9.23 2.48 6.30 18.00
Drawings 0 8.73 2.48 6.79 18.00
Closing Cash Balance - 0.49 0.49 0.00 0.00
IRR 68%
Affordable Project (Amount in Rs.
Cr.)
Investment
made in
acquiring
land.
With the same amount of investment, an affordable project
given higher returns over the same time period !

27. What do Fund Managers look at before
investing?
Understanding various assessment parameters that Private Equity investors
use.
This needs a few answers from you…

28. 1. Company background / History
 How long have you been into existence?
 Do you have a established a track record?
 What projects do you have to showcase?
 How quality conscious are you?
2. Financials
 Do you have timely debt repayments ? Your creditors matter a lot!
 How strong is your balance sheet ?
3. Management & Execution
 How strong is your management team and your organizational structure?
 How disciplined a company you are in managing your day to day records?
 Can you prove your project execution capability?
 How time bound and cost effective are you in your construction?

29. 4. Promoters
 How efficient and visionary are the promoters?
 How flexible and open to ideas are they?
 How comfortable are the promoters towards partnering with someone and sharing
data on a regular basis?
 Would the promoters be willing to be disciplined in simple things like board
meetings and regularly tracking the projects?
 Would the promoter be fine with justifying delays in timelines or cost to a partner?
A Private equity investment is not just flow of funds but a meeting of minds.

30. 5. Project
For a Real Estate Company , ultimately it boils down to the project!
Location
Cash Flow visibility
Returns / IRR

31. PE Funds - Priorities
Criteria Bank Funding PE Funding/IPO
Track Record High Low / Medium
Management Medium High
Past Financials High Medium
Product / Service Low High
Corporate
Governance
Low High
Market Size & Growth Low High

32. Getting ready for funding:
Partnering with a Private Equity Fund is about taking your organization
through a change

33. Need For Readiness
 Several Entities like Regulators, Advisors, Auditors etc. are involved;
 Time-bound steps are to be taken;
 Company’s Operations and Records become transparent;
 Financial and Intangible Penalties.
Company has to be fully ready and prepared to face the outside World.
Stage 2
Financial &
Legal
Readiness
Stage 3
Manage the
Funding
Process
Stage 4
Post Funding
Precautions
Stage 1
Strengthen
the Company

34. Strengthening management team, board of directors and advisory board;
Protect Intellectual Property;
Steps to increase the Valuation of the Company to increase the bargaining
power;
Forming Joint Ventures, Collaborations;
Marketing Agents,Offices etc;
Corporate Brand building.
Stage 2
Financial &
Legal
Readiness
Stage 3
Manage the
Funding
Process
Stage 4
Post Funding
Precautions
Stage 1
Strengthen
the Company
Strengthen the Company

35. Corporatisation of business;
Consolidation of all businesses;
Divesting non-core, low value business;
Accounting and Financial Systems;
Past Financial and Operational Information;
Regularising defaults, if any.
Create a Core Group consisting of Financial Advisor, Auditor, Finance Head
& CEO to handle the process.
Financial & Legal Readiness
Stage 2
Financial & Legal
Readiness
Stage 3
Manage the
Funding Process
Stage 4
Post Funding
Precautions
Stage 1
Strengthen
the Company

36. Identification of Investors;
Data Compilation;
Assistance in Selection of various agencies;
Support services during Due Diligence;
Restatement of Balance Sheet, Profit & Loss Account to confirm to legal
requirements;
Assistance in drafting of Information Memorandum (PE) / Prospectus (IPO);
Co-ordination with Merchant Bankers, Auditors, Legal Advisors.
Track the Process Regularly.
Managing the Funding Process
Stage 2
Financial & Legal
Readiness
Stage 3
Manage the
Funding Process
Stage 4
Post Funding
Precautions
Stage 1
Strengthen
the Company

37. Market & Key Investor Relations;
Assistance to Finance Department in Regulatory & Reporting requirements;
Financial Forecasts for Analysts and Investors;
Management of Issue Funds;
Improving Operational Efficiency;
Project Monitoring.
Remember: All your Actions will be in the Public Domain
Post Funding Precautions
Stage 2
Financial &
Legal
Readiness
Stage 3
Manage the
Funding
Process
Stage 4
Post Funding
Precautions
Stage 1
Strengthen
the Company

38. Understanding the investment Process:
Deal making, structuring and exit

39. The Investment Process
Pre Funding Fund Raising Post Funding
Industry Analysis
Business Plan Draft
Financial Projections
Legal Structuring
Investor Identification
Deal Structuring
Valuation &
Negotiation
Documentation
Closure
Disbursement
System & Process
Setup
Internal Audit
MIS
Internal Control

40. What is a term sheet?
 Term Sheets are brief preliminary documents designed to facilitate and
provide a framework for negotiations between investors and developers.
 A term sheet generally focuses on a given enterprise’s valuation and the
conditions under which investors agree to provide financing.
 The term sheet eventually forms the basis of several formal agreements
including the “Stock Purchase Agreement,” which is a legal document that
details who is buying what from whom, at what price, and when.

41. Managing valuation expectations
Factors on which Valuations depend:
 Ultimately, Cash Flows of the project are being valued. If the Project has very
clear visibility of upcoming cash flows, it would fetch good valuation.
 Risker the project, lesser the valuation.
 There is lot of dependency on the philosophy of the investor as well.
 Valuations are done based on assumptions and logical calculations. At the end it
is negotiation that brings the actual valuation on the table.
It is important to understand that Real estate is not a very standardized industry till
date. Valuations are based on several explicit and implicit factors. Different developers
may get different valuations on the same piece of land based on their credibility and
past track record!
More importantly there are trade offs. The money required today and the money required
tomorrow are valued differently.
Discounted Cash Flow based
Valuation
• Based on the present value of the
future cash flows of the project..
Relative Valuation
• Based on the current market
price/agreed price of the land to be
acquired.

42. Various Structures prevalent
 Waterfall Structure
– Distribution waterfall is a hierarchy delineating the order in which profit of the project
will be distributed.
– The order in which the profits are distributed between the private equity fund and
developer are fixed beforehand.
– Usually the fund gets a higher proportion in the beginning until a certain IRR is
achieved and gradually the proportion of the developer increases.
 Fixed IRR
– The fund gets a pre-decided IRR on the basis of which it gets returns irrespective of
the upside that that the developer gets on the project.
 Minimun Fixed IRR + Upside
– There can also be structure wherein the Private Equity partner is promised a minimum
IRR and is also a partner in the upside.
– This would usually happen in a project where the fund is taking higher risks.
 No IRR Commitment
– Here the fund comes in without any IRR commitment and this is a pure partnership
wherein the profits are distributed as per the share of each party in the project.
– The distribution however can be structured as per pre-decided manner.

43. Exit Issues
Management Buyout
 Management buys out the stake of
the Equity partner and give it an exit
with the expected returns.
Issue: Cash availability with the
management
Strategic Sale
 Entrance of a strategic acquirer
through a merger or acquisition
(M&A)
Issue: Finding the right buyer wherein
the fund and promoter both agree.
Secondary Sale
 Sale of the stake to another Private
Equity firm.
Issue: Agreement of both the parties.
IPOs
 Listing of the company of the stock
exchange.
Issue: Reluctance of the promoters to go
public
Liquidation
 In case of SPVs, liquidation is
common.
Issues:
Marketing & Sales Strategy – Funds wants
steady cash flows and expect the strategy in
accordance whereas the promoters might be
willing to wait.

44. Posiview Consulting Partners Pvt. Ltd.
202, Chintamani Pride, Near City Pride, Kothrud, Pune – 411038
www.posiview.in