LICHFL URBAN DEVELOPMENT FUND

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The LICHFL Fund is registered with SEBI as a VCF under the SEBI (Venture Capital Funds) Regulations 1996.

Brief Terms of LICHFL Urban Development Fund:

Target Corpus Rs. 500 crores with green shoe option of upto Rs. 250 crores
Use of Proceeds Invest in Companies involved in development of mid-income housing projects and allied urban infrastructure; income yielding assets including IT & Industrial Parks, warehouses & SEZ.
Indicative IRR +22%
Term of Fund 6 years with option of increasing by 2 terms of one year each.
Minimum Capital Commitment Institutional Investors – Rs. 5 Crores
Corporate Investors – Rs.2.5 Crores
Individual Investors and other Investors – Rs. 25 Lakhs
Initial Draw down 20% of the Capital Commitment
Commitment Period 2.5 Years
Fund Manager’s Fee 2% p.a. charged to the fund.
Establishment Fee One-time fee of 2% charged to the fund.
Carry 20% with ‘catch up’
Preferred Return 12% per annum
Legal/Tax Counsel Chitale& Associates/Chitale Law Associates

Investment Rationale to invest in the LICHFL Urban Development Fund

A) Relevance of Investment Focus:

  • Investment focus is on mid-income housing being not less than 50% and balance in income yielding micro infrastructure assets like IT Parks, Warehouses, etc.
  • Growth in mid income housing demand is driven by: –
    • Improved Affordability:
      • Rising disposable income- The average age of home buyers has declined over the years, while the number of double-income households has grown significantly.
      • Income Tax deduction (interest and principal repayments deductible).
  • Growing Urbanisation: currently only 31% of Indian population is urban.
  • Favourable Demographics:
    • 60% of India’s population is below 30 years of age.
    • Rapid rise in new households.
  • This growth in housing demand is substantiated with the average growth of over 25% in housing finance disbursements by HFC’s over the last 5 years. The growth in credit off take is largely fuelled by the activity in the mid income housing segment.
  • The strategy to invest in IT Parks is based on the expansionary mode of the IT Companies and the strategic advantage of the Indian IT Industry in the global arena.
  • Opportunities in Warehouses and Industrial spaces have been boosted by the introduction of Warehousing Receipts and would be further boosted by the proposed introduction of GST as it would lead to consolidation and centralization of warehouses.
  • The increasing size of the middle class and their growing aspirations has spawned the need for quality education and healthcare.
  • The focus segment in which the Fund operates is largely need based and end user driven and characterized with consistent demand.
  • Asset prices/value being closer to the cost of construction, it will also serve as an effective hedge against inflation as replacement cost will increase every year.

B) Strategy:

  • Security, good Returns and early Liquidity: Investments to be made at the project level whereby investments will be secured by the underlying assets. Strategy is designed to earn enhanced returns and early liquidity. Hence distribution is likely to happen early as no reinvestment is envisaged. It is to be noted that strategy to invest at the asset and project level is designed to insulate NAV & exit from vagaries of the market.
  • Prudent Investment Process: Investment will be done on the back of a pre agreed business plan detailing cost, time line, milestones and quality control issues, roles and responsibilities of JV partners. Invest with established regional players to manage local environment and create incentive for JV Partners by linking part of the profit share with performance, thereby aligning interest with Investors.
  • Unique but tried and tested investment strategy: Last milestone acquisitions of assets can come at discounted pricing as they are yet to be stabilized and give scope for aggressive negotiation. Asset Manager will monitor lease and facility management and stabilize the asset before hiving it off. This is a unique, but tried and tested approach wherein asset value will be substantially enhanced by the Asset Manager.

C) Capabilities:

  • Strong Pedigree: Sponsored and promoted by the LIC Group. LICHFL is the second largest housing financer in India with over two decades of successful experience in real estate and housing finance. LIC of India is the largest Insurer and Investor in the Indian Financial Market. Both bring significant capabilities to this opportunity as promoters of the AMC and joint sponsors of the fund. The LIC Brand carries high brand visibility and trust at the retail level which adds value to investments in terms of better saleability in Projects.
  • Network and Access to Real Time Information: Pan India LICHFL network of over 210 branches provides access to real time data facilitating real time market information translating to speedier action on ground. LICHFL network and relationship with local developers will offer proprietary deals.
  • High level of commitment: LICHFL has made firm commitment of Rs. 50 crore. LIC has committed Rs. 50 crores. or 10% (lesser of the two) of the fund corpus Senior most management of the LIC Group and independent stalwarts participate in the high powered AMC & Trustee board.
  • Proven and successful track record of key personnel of the Asset Management Company. The key members of the AMC have managed similar fund and successfully completed investment cycle. The Team members have relevant real estate experience in all facets of real estate from land acquisition to approvals to planning to execution to sales and marketing to managing assets. This will not only enable superior due diligence and management but also facilitate takeover of projects in case of wilful deviation from agreed business plan. The experience of the key personnel will assist in active monitoring of investments with hands on approach and strong MIS.

D) Other Unique Advantages:

  • Significant representation to Investors in the Investment Committee to ensure corporate governance and commitment to investor interest. Substantial representation to other Investors (other than LIC/LICHFL) in the Investment Committee to the extent ranging from 50% to 67%.
  • Claw back of management fees charged by the AMC to the extent of uninvested commitments.
  • 12% Hurdle rate as compared to 10% of most funds. This displays the confidence of the Investment Manager to deliver higher returns to Investors.
  • Fund level Carry as compared to Project level carry.
  • In addition to periodic reports to Investors, there would be an annual collective interface with Investors.

 

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