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Global alternative investment firm Varde Partners has reportedly provided around Rs 750 crore in mezzanine debt to Hyderabad's Phoenix Group for construction purposes. The funds are intended for a project where the developer is converting a special economic zone (SEZ) project into a non-SEZ venture. Due to changes in project scope, traditional bank lending was not possible, leading Phoenix Group to seek private lending from Varde Partners. Despite the relatively high interest rates associated with Varde Partners' loans, the move is seen as strategic given the current market conditions. Varde Partners has shown consistent interest in India's real estate market and has invested over $3 billion across 20 transactions in the country over the last four years.
Varde Partners, a global alternative investment firm, has provided approximately Rs 750 crore in mezzanine debt to Hyderabad's Phoenix Group, according to sources. This mezzanine debt has been earmarked for construction purposes. The developer is converting a special economic zone (SEZ) project into a non-SEZ venture, prompting the need for private lending due to project alterations. Usually, banks are prohibited from lending if the loan's purpose changes. Consequently, Phoenix Group has turned to a private lender like Varde Partners for financing. The funds are expected to fuel construction activities.
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Despite Varde Partners typically offering loans at rates exceeding 20 percent, sources have justified this arrangement as a strategic capital utilization move for Phoenix Group, given the current market scenario. Insiders reveal that Phoenix Group has a history of borrowing from Varde Partners and maintains a favourable rapport with the firm due to previous successful transactions.
At the beginning of 2021, Varde Partners extended $155 million (about Rs 1131 crore) to back two pioneering office projects by Phoenix Group in Hyderabad's Gachibowli financial district. This infusion fuelled the completion of over 2.5 million square feet of Grade A developments. Meanwhile, Singapore's sovereign fund GIC entered the scene, purchasing a 1.1 million-square-foot IT-SEZ in Gachibowli from Phoenix Group for Rs 1,050 crore. The visionary Phoenix Aquilla development, spanning 1.8 million square feet, boasts two towers, with the first tower of 700,000 square feet already completed and leased.
This isn't the first time Varde Partners has demonstrated interest in India's real estate market. The firm has consistently shown its commitment by extending loans to various developers. The firm's managing director, Sandeep Chandak, revealed plans to invest $800 million to $1 billion across six to eight deals. Notably, Varde Partners lent Rs 440 crore to Omaxe and provided Rs 400 crore to Chennai-based Casagrand for land acquisition. Additionally, Varde Partners acquired a 15 percent stake in Reliance Power for Rs 933 crore, thereby expanding its investment portfolio. Reliance Power belongs to the Anil Ambani ADAG conglomerate. Varde had infused nearly Rs 550 crore into Reliance Infrastructure.
The firm has invested over $95 billion across different regions like North America, Europe, and the Asia Pacific since its inception in 1993. Having deployed more than $3 billion across 20 diverse transactions in India over the last four years, Varde Partners showcases its confidence and strong belief in the potential of the Indian market.
This move towards strategic lending by global special situations funds like Varde Partners, along with other players such as Oaktree, PAG, and SSG Capital, has gained momentum following the NBFC credit crunch in 2018. The credit crunch led to a reduction in lending to developers by NBFCs, prompting these special situation funds to step in and provide the necessary financial support for real estate projects.
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