SoftBank-Backed App Lets Indian Teens Flirt in Private

By Bianca Vázquez Toness - Aug 26, 2014

Seventeen-year-old Pranav Sahni’s father doesn’t know he has a girlfriend.
That’s because the teenager, who lives in the northern Indian town of Nainital, uses a chat application called Hike on his Moto G smartphone that lets him hide messages. The app was developed through a venture between SoftBank Corp. (9984) and New Delhi-based Bharti Enterprises Pvt and competes with Line Corp.’s messaging service and Tencent Holdings Ltd.’s WeChat.
“Most Indian parents want to know what their children are doing with their phones,” said Sahni. “My parents sit behind me on the couch and look over my shoulder. With Hike, I can just close the application and restart and the hidden chats are gone. I don’t have to delete my messages. I can read them whenever I want.”
Smartphone apps that allow free messaging and voice calls have become one of the hottest areas of competition among Internet companies as the services eat into wireless carrier revenue from traditional calls and texts. Hike’s privacy feature helped catapult it past WhatsApp Inc. and Facebook Inc.’s Messenger to the top of the Android download charts in India last month. The free app has more than 20 million users in a market with more than 1 billion mobile subscribers.
The messaging service, in which Tokyo-based SoftBank and Bharti have invested at least $21 million, doesn’t plan to allow advertising and hasn’t outlined how it plans to make money, Kavin Bharti Mittal, who runs the venture’s product and strategy business said by e-mail. Mittal is the son of billionaire Sunil Bharti Mittal, the chairman of Bharti Enterprises.

New Investment

Chase Coleman’s New York City-based Tiger Global Management LLC, and BhartiSoftbank will together invest an additional $65 million in the app, Hike communications manager Vartika Verma said by phone yesterday. She declined to say what value investors gave Hike in the latest fundraising round.
“India has a big population and low smartphone penetration, so it will obviously become a big market,” Justin Lee, a Seoul-based analyst with BNP Paribas SA, said by phone. “There is no single dominant messaging app player in India.”
WhatsApp, which Facebook agreed to buy for as much as $19 billion, has more than half a billion users globally and had 48 million active users in India as of April, according to Praveen Menon, an analyst with Bloomberg Intelligence. The country is the second-largest wireless market by users.

SMS in Retreat

Services like Hike offer a way for wireless carriers like SoftBank and Bharti to recoup money lost from a decline in revenue from traditional short message service texts, known as SMS, and voice calls, said Rahul Raghavan, a Chennai-based digital technology investor with Ventureast.
“If I’m Bharti, I’m thinking I’m losing all of this SMS revenue, how do I get back in the game?,” Raghavan said. “The answer is I create my own WhatsApp.”
Free messaging services are also taking off in more developed markets such as Japan.
Tokyo-based Line Corp. has almost 500 million users and said second-quarter revenue from its core business more than doubled to 18.2 billion yen ($175 million) as it expands globally. Sales of digital stickers, used to embellish chats, to Line users generates about 1 billion yen a month, a spokeswoman, Hazuki Yamada, said.
The company submitted an application for an initial public offering to the Tokyo Stock Exchange, people familiar with the matter have said.
“Our goal right now is to build Hike into a highway for the Internet,” said the younger Mittal. “We’re currently building our infrastructure, that being our users. We’ll talk more about monetization around the 100 million user mark.”

Secret Sweetheart

Hike launched its Hidden Mode feature this summer with a marketing campaign targeted at young people living at home.
“What’s that? A dirty joke?” read one promotion on Hike’s website. “A secret sweetheart? Ooh, late night plans! Hey, we’re not judging. But your mom and dad might.”
The hidden feature allows users to protect messages via a password and is available for phones that use Google Inc.’s Android operating system. Hike will soon release a version for mobiles running Microsoft Corp.’s Windows system. The version currently available through Apple Inc. doesn’t conceal chats.
Forty percent of Hike users are hiding more than one conversation, according to Verma. “The need for privacy is heavily felt in this market,” she said.

The Future

Young adults in India often live with their parents until marriage and family homes frequently accommodate several generations.
“As we can see in Japan and the U.S. mobile instant messenger services are one of the most popular apps for smartphones,” Mariko Osada, a spokeswoman for SoftBank, said by phone. “They are also expected to play an important role in the prospective mobile Internet markets in India from now, so we invested in the venture.”
Osada declined to provide a valuation for Hike.
Hike’s platform also allows messaging between traditional texting and smartphones, which is building appeal in India, where about 70 percent of the population still use phones with limited Internet capability, according to PricewaterhouseCoopers.
While 26-year-old software engineer Saurabh Chawla used WhatsApp for years to message his friends and family, he recently moved some conversations to Hike to keep them private.

Music, Games

“I hide my chats from my parents,” Chawla said dressed in jeans and a T-shirt with the words “Nothing 2 Lose” at the entrance of an upscale mall in South Delhi. “I don’t have a girlfriend, but I want one, so obviously I chat with girls. My parents wouldn’t like that.”
Hike could generate revenue through music or games, said Neha Dharia, an analyst with Bengaluru-based Ovum. The service might also follow the route of Line and South Korea-based Kakao Corp., which have tied up their messaging apps with e-commerce platforms, according to the analyst.
The app may expand into other developing markets such as Africa or East Asia and will likely find it difficult to grow in other places where established services already dominate, said Donghwan Oh, an analyst at Samsung Securities.
Twenty-one-year-old Sonal Dhanjal shares a room and bed with her sister in her family’s home in South Delhi and says she downloaded Hike because her younger sister looks at her phone.
“I still use WhatsApp more,” she said while waiting for the subway in New Delhi. “But now everyone is getting Hike, too. You can hide your chats. No other app will let me do that.”
To contact the reporter on this story: Bianca Vázquez Toness in New Delhi at btoness@bloomberg.net
To contact the editors responsible for this story: Michael Tighe at mtighe4@bloomberg.net Aaron Clark

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Citigroup Prefers India Stocks as Inflation Cuts Bond Gains

By Shikhar Balwani - Aug 25, 2014

India’s stocks are a better bet than bonds as the fastest inflation in Asia erodes fixed-income returns and deters interest-rate cuts, Citigroup Inc. says.
“If you’re talking about the next six to 12 months, yes, the preference would be for equities over bonds,” Pankaj Vaish, Mumbai-based head of markets for South Asia at the third-biggest U.S. bank, said in an Aug. 22 phone interview from New York. “It’s hard to expect a huge return out of bonds immediately because we have to wait for this whole disinflation process to yield results.”
Equities would be the better performers should Prime Minister Narendra Modi deliver on a pledge to revive India’s $1.88 trillion economy, he said. Debt gains are seen limited as the central bank will probably hold borrowing costs until mid-2015 to quell price pressures, according to Vaish, who said that prior to an Aug. 5 policy meeting he’d been expecting a reduction as early as the coming quarter.
Reserve Bank of India Governor Raghuram Rajan flagged risks to his goal to slow consumer-price gains this month, as a weak monsoon threatened to boost food costs in a nation where more than 800 million people live on less than $2 a day. Local stocks rallied 25 percent this year, the best performance among the world’s 10 largest markets, as Modi unveiled plans to allow more foreign investment and to improve public finances.
International investors have pumped $12.6 billion into Indian equities this year and the S&P BSE Sensex (SENSEX) climbed to a record today. The nation’s government bonds returned 8.4 percent, the biggest gain in Asia’s local-currency debt markets, as global funds boosted their holdings by $16.5 billion, according to exchange data compiled by Bloomberg.

Rising Yields

The yield on 10-year sovereign notes has climbed nine basis points since sinking to 8.44 percent in July, the lowest level since September 2013. The spread over similar-maturity U.S. Treasuries widened to 612 basis points, or 6.12 percentage points, from this year’s low of 571 in January.
The RBI’s target to rein in gains in the consumer-price index to 6 percent by 2016, from almost 8 percent last month, “looks difficult” to achieve, according to Vaish. Local interest rates may even rise as policy makers step up the fight against inflation, fueling bond declines, he said.
“We had hoped that we would wait only another six months but I think we have to wait another 12 months” to see the results of steps to temper CPI increases, said Vaish. “Before that, it may become hard for the bond market to get too excited.”

‘Break Glass’

The 10-year yield will be at 8.45 percent by year-end, compared with 8.53 percent today, according to the median estimate in a Bloomberg survey of five banks and mutual funds. The 30-stock Sensex may climb to 28,143, or about 6 percent, by then, a separate survey of seven strategists showed last month.
Stocks advanced this year as Modi’s government eased the foreign-investment cap in the defense industry and announced plans to build more highways, coal-fired power plants, airports and ports. Economic growth slid to below 5 percent in the last two years from 9.6 percent in 2006-2007.
“Equities have rallied a lot on expectations and I think what will be important now is that the pace of reforms has to be maintained,” Vaish said. “Given the bold promises that Mr. Modi laid out, there is an agreement with voters that you will break glass, take some bold decisions. There are a couple of things they have done well. My view is if you have political capital, you use it. If you don’t, it actually disintegrates.”

Bond Inflows

Even as stocks rallied to an all-time high, foreigners plowed more money into Indian bonds than shares this year for the first time since 2011. Investments quickened as optimism about an economic recovery buoyed the rupee, adding to the appeal of Asia’s highest investment-grade yields. The currency gained 2.3 percent this year to 60.4375 per dollar.
India’s 10-year bond yield compares with 2.40 percent in the U.S., 0.98 percent in Germany and is more than double China’s 4.20 percent, according to data compiled by Bloomberg.
Last month, India eased foreign-investment rules for government debt, raising a cap on overseas ownership by $5 billion to $25 billion. While that allowed global asset managers to buy more bonds, quotas for sovereign wealth funds were simultaneously cut to $5 billion from $10 billion, keeping the ceiling for total foreign holdings unchanged at $30 billion.
India should consider gradually raising the limits for foreign institutional investors, or FIIs, said Vaish.
“We tend to be very skeptical of debt inflows,” he said. “FIIs actually are friends and well-wishers of India. They are not necessarily fair-weather friends who will run out.”
To contact the reporter on this story: Shikhar Balwani in Mumbai at sbalwani@bloomberg.net
To contact the editors responsible for this story: James Regan at jregan19@bloomberg.net Anil Varma

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India’s Rupee Climbs to This Month’s High as Equities Advance

By Kartik Goyal - Aug 19, 2014

India’s rupee rose to this month’s strongest level as stocks advanced on optimism the government is stepping up efforts to rein in the budget deficit.
The S&P BSE Sensex (SENSEX) index of local shares climbed as much as 0.5 percent to a record high today. On Aug. 14, India cut the size of its weekly bond auctions in the coming five periods to 120 billion rupees ($2 billion) each from 140 billion rupees. The decision has buoyed confidence in the government’s plan to narrow its shortfall, according to Mumbai-based brokerage Edelweiss Financial Services Ltd.
“The overall bullish sentiment across asset classes is driven by expectations the government will take steps to strengthen the economy,” said Ankur Jhaveri, co-head of currency and rates at Edelweiss Financial in Mumbai. “The rupee gains are driven by inflows into equities.”
The Indian currency gained 0.1 percent 60.6850 per dollar as of 9:55 a.m. in Mumbai, prices from local banks compiled by Bloomberg show. It climbed to 60.6575 earlier, the strongest since July 31. The local currency market was shut yesterday for a holiday. The rupee rose 0.8 percent on Aug. 14.
Finance Minister Arun Jaitley aims to reduce the budget deficit to 4.1 percent of gross domestic product, which would be the least since 2008, in the year through March 2015, according to budget estimates released last month.
The benchmark equity index has jumped about 25 percent this year, the best performer among the world’s 10 biggest markets, as foreigners poured $12.3 billion into local stocks.
The rupee’s one-month implied volatility, a gauge of expected moves in the exchange rate used to price options, rose three basis points, or 0.03 percentage point, to 7 percent.
Three-month offshore non-deliverable forwards rose 0.4 percent to 61.63 per dollar, data compiled by Bloomberg show. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.
To contact the reporter on this story: Kartik Goyal in Mumbai at kgoyal@bloomberg.net
To contact the editors responsible for this story: James Regan at jregan19@bloomberg.net Anil Varma, Andrew Janes

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Modi Vows Bank Accounts for Poor With Zero Imports for India

By Santanu Chakraborty and Bibhudatta Pradhan - Aug 15, 2014

Indian Prime Minister Narendra Modi pledged to provide bank accounts and life insurance for millions of poor people while seeking to revive manufacturing in the country to reduce reliance on imports.
Modi announced the plan to give bank accounts and 100,000 rupees ($1,643) of life insurance to poor families during a wide-ranging Independence Day speech in Delhi in which he hailed women’s rights, denounced religious violence and urged a clean environment. He also called for foreign companies to set up manufacturing facilities in India.
“I want to see an India which has zero imports and all exports,” Modi said at the Red Fort today. “We should stress on zero defect while manufacturing products. We should strive to make products which are accepted globally and also should not harm the environment.”
Modi is seeking to revive Asia’s third-biggest economy after taking office in May with India’s biggest electoral mandate in 30 years. The rupee has been Asia’s second-worst performer since then after Modi blocked a global trade deal, refrained from cutting subsidies in his first budget, and didn’t allow foreigners to hold majority stakes in defense companies.
“It was great oratory, extempore, still reasonably strong announcements were missing,” A.S. Thiyaga Rajan, a senior managing director at Aquarius Investment Advisors Pte in Singapore, which oversees $450 million, said by e-mail today. “No major announcements have happened except in insurance, which has been held up. After the budget people were thinking things will happen slowly but no indications on any of that.”

Consensus Politics

Modi said his party members “are not those who want to move ahead on the basis of our mandate” and will seek consensus while governing. Opposition lawmakers yesterday blocked a bill proposing a higher foreign ownership cap in the insurance sector, raising concerns that Modi will struggle to pass laws to revamp land policy and to start a uniform goods and service tax.
Modi lamented that millions of Indians who had mobile phones don’t have bank accounts. The insurance cover will help the poor cope with unforeseen setbacks, he said.
“Economic development must benefit poor and it should start from here,” Modi said.
The World Bank estimated in 2012 that 65 percent of adult Indians don’t have a bank account. That’s about 530 million people, more than the U.S. and Brazil combined, or the whole European Union. In China, by contrast, 36 percent of adults don’t have a bank account.

Cash Transfers

Modi’s plan will include identifying the poor, creating unique biometric identifiers for them, opening linked bank accounts, and making government transfers into those accounts, Reserve Bank of India Governor Raghuram Rajan said earlier this week. The previous administration had invested $550 million in a similar program.
Last month, the RBI proposed allowing mobile-phone companies and supermarket chains to set up banks that can take deposits and transfer money for customers in rural areas.
Planning Commission, a Soviet style body that formulates five-year plans, would soon be replaced with a new institution because of the change in India’s economy, Modi said today.
“If we have to take India forward, then states will have to be taken forward,” Modi said. “The importance of federal structure is more today than it was in last 60 years. We need an institution of creative thinking.”
Modi’s speech “laid out the direction of government policy and its priorities,” Deven Choksey, managing director at Mumbai-based K.R. Choksey Shares & Securities Ltd., said by phone. “The market will take confidence from Modi’s approach.”
To contact the reporters on this story: Santanu Chakraborty in Mumbai at schakrabor11@bloomberg.net; Bibhudatta Pradhan in New Delhi at bpradhan@bloomberg.net
To contact the editors responsible for this story: Daniel Ten Kate at dtenkate@bloomberg.net Ravil Shirodkar

®2014 BLOOMBERG L.P. ALL RIGHTS RESERVED.

Tata Motors Surges as Profit Jumps on Demand for Jaguar

By Siddharth Philip - Aug 12, 2014

Tata Motors Ltd., India’s biggest automaker, surged the most since November after beating analysts’ estimates with a threefold jump in profit.
The company’s shares jumped 5.9 percent to 472.70 rupees as of 9:38 a.m. in Mumbai, the highest intraday gain since Nov. 14. Net income rose to 54 billion rupees ($883 million) in the quarter ended June, the Mumbai-based company reported yesterday. That surpassed the 37.9 billion-rupee median of 34 analysts’ estimates compiled by Bloomberg and was the biggest profit increase since the three months ended December 2010.
Sales of Jaguar and Land Rover in China, the world’s largest car market, surged 61 percent helping Tata Motors, which is struggling to revive demand in India, increase profit. Deutsche Bank AG and Credit Suisse Group AG were among brokerages which raised their share price target for the maker of Nano hatchback and Indigo sedan after the earnings announcement.
“JLR benefited from strength in China demand, strong variant mix and ability,” Govindarajan Chellappa and Rajasa Kakulavarapu, analysts at Jefferies wrote in a note today. “Strength in China is the key to sustenance of the high levels of profitability.”
Profit at the luxury unit more than doubled to 693 million pounds ($1.16 billion) on demand for the F-Type convertible and Range Rover SUVs. Tata Motors group revenue climbed 38 percent to 646.8 billion rupees.
Deliveries at Jaguar Land Rover climbed 22 percent to 115,596 vehicles in the quarter, bolstered by the F-Type that began shipping last year and the new and refreshed Range Rover line up.

Indian Car Debut

Tata Motors is striving to turn around its local business.
The brand will unveil its first new car model in five years today. The compact sedan, called the Zest, was developed to revive profitability at the Indian business as it lost market share to Maruti Suzuki India Ltd. and the local unit of Seoul-based Hyundai Motor Co.
Tata Motors’ domestic passenger-vehicle deliveries fell 37 percent in the quarter, according to the Society of Indian Automobile Manufacturers. The company’s truck sales dropped 25 percent in the same period.
“The domestic business has been a drag,” said Juergen Maier, a fund manager at Raiffeisen Capital Management in Vienna. “But we hope that with the new passenger vehicle models and the commercial vehicles picking up, things will get better.”
The local business of Tata Motors reported a profit of 3.94 billion rupees, after receiving a dividend of 150 million pounds from Jaguar Land Rover.

Small Jaguar

The automaker’s luxury unit is also building a mid-size sports sedan called the XE, which it will unveil next month and will go on sale in 2015.
The Jaguar XE, to be unveiled in London on Sept. 8, will compete against Bayerische Motoren Werke AG’s 3 series and Daimler AG’s Mercedes-Benz C Class models. The Jaguar will be the only car in its segment to be built on an aluminum platform that will help it go 75 miles (120 kilometers) on a gallon of fuel, the company has said.
The XE model will feature four cylinder, 2-liter gasoline and diesel engines built at the company’s new engine factory, according to the carmaker.
To contact the reporter on this story: Siddharth Philip in Mumbai at sphilip3@bloomberg.net
To contact the editors responsible for this story: Young-Sam Cho at ycho2@bloomberg.net Arijit Ghosh, Subramaniam Sharma

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India Sets Norms to Open $20 Billion REIT Market

By Bhuma Shrivastava and Santanu Chakraborty - Aug 11, 2014

India approved the setting up and listing of real-estate investment trusts as the nation seeks to unlock a $20 billion market.
The trusts, or REITs, will have to own assets worth at least 5 billion rupees ($82 million), the Securities and Exchange Board of India said in New Delhi yesterday. Investors must put in a minimum 200,000 rupees. Final notifications would be issued soon to make the new rules for REITs effective in a month or two, Press Trust of India reported, citing U.K. Sinha, chairman of the capital-markets regulator.
The introduction of REITs will provide a new source of funding for cash-strapped developers that are struggling to reduce debt amid one of the highest interest rates in Asia and economic growth near the lowest in a decade. The products will give investors the ability to participate in the country’s property market without investing directly.
“The sector has been in all sorts of trouble primarily due to high leverage for most of the developers,” Pramod Gubbi, director for institutional sales at Ambit Capital Pvt., said in an interview to Bloomberg TV India. “What REIT does is to open up another avenue for funding and this should bring down their cost. More money in the hands of the developers could see more projects taking off.”
DLF Ltd. (DLFU), India’s largest developer by value with about 28 million square feet (2.6 million square meters) of operational rental assets, could be a “big beneficiary,” brokerage Emkay Global Financial Services Ltd. said in an Aug. 1 report.

Combined Debt

Other gainers include Prestige Estates Projects Ltd. (PEPL), a Bengaluru-based developer with 8 million square feet, and Phoenix Mills Ltd. (PHNX), a mall operator that owns 6 million square feet, according to HDFC Securities Ltd.
The S&P BSE India Realty Index rose 2.6 percent as of 9:56 a.m. local time. DLF added as much as 4.2 percent, Prestige 4.5 percent and Phoenix Mills 4.8 percent.
The combined debt of India’s six largest developers climbed to a record 394 billion rupees in the 12 months through March 31, more than double the 158.8 billion rupees in 2007, according to data compiled by broker IIFL Ltd.
REIT-funded assets may reach $20 billion by 2020, according to an estimate by property-broker Cushman & Wakefield, of which as much as $12 billion could be raised in the first three to five years.

Top Markets

“It’ll also provide liquidity to investors as these trusts will be listed and traded on stock exchanges,” Neeraj Bansal, partner and head of the real estate and construction practice at KPMG India, said in an e-mail.
REITs, pioneered in the U.S. in the 1960s, are traded publicly and pool investor money to buy real estate such as shopping malls, office buildings and rental housing. India’s REIT market has the potential to grow to rank among the top five markets in Asia by market capitalization, according to Cushman & Wakefield.
While the market regulator had released the first draft of guidelines for REITs in 2008, they didn’t get final approval because of a lack of clarity on taxes and because the global financial crisis hurt the investment climate, according to a report by Knight Frank LLP in June. The regulator released a new set of guidelines in October, outlining the eligibility criteria for setting up REITs.
To contact the reporters on this story: Bhuma Shrivastava in Mumbai at bshrivastav1@bloomberg.net; Santanu Chakraborty in Mumbai at schakrabor11@bloomberg.net
To contact the editors responsible for this story: Arijit Ghosh at aghosh@bloomberg.net; Sam Nagarajan at samnagarajan@bloomberg.net Sunil Jagtiani

®2014 BLOOMBERG L.P. ALL RIGHTS RESERVED.

State-owned Indian Bank and Andhra Bank are cracking down on middlemen, who act as facilitators between lenders and borrowers, to clean up the system after the recent arrest of the Syndicate Bank chairman and company executives over corruption related to enhancing credit limits. While Indian Bank has banned middlemen or arrangers from entering the premises, Andhra Bank has stipulated that an intermediary should always be accompanied by a borrower. State Bank of India doesn't plan any changes to its policy as it follows a rigorous due dili gence process, said Chairman Arundhati Bhattacharya. SBI accounts for 20% of all loans. Syndicate Bank chairman and managing director SK Jain was arrested by the Central Bureau of Investigation on August 2 over charges of corruption. He was arrested for seeking Rs 50 lakh in bribes to increase loan limits for Prakash Industries and Bhushan Steel. CBI also arrested some intermediaries who were said to be negotiating the bribes. The August 4 memo issued by Indian Bank CMD TM Bhasin was explicit: “It has been ensured that no middlemen or arrangers to meet top management so as to avoid extraneous pressures or obligations,“ it said, adding, “Middlemen or arrangers should not be entertained at the zonal and branches level.“ It further said that that all official meetings with the CMD, executive directors and general managers will be held in conference or meeting rooms that have CCTV cameras with a notice making clear that proceedings were subject to surveillance. Also, the bank has directed staff that visitors should only be allowed to carry with them papers, laptops and tablets that are required for meetings or discussions with an X-ray machine installed at the entrance to check those who come in. While many banks are taking a closer look at their policies, the banking regulator is considering measures to improve corporate governance. “There are some good middlemen and some not-so-good middlemen. A good middleman acts as a broker. But if the point of a middleman is to pay bribes, that is obviously not OK. It's part of the whole set of governance issues that we need to look at,“ Reserve Bank of India governor Raghuram Rajan said last week. The central bank under Rajan has been campaigning for banks to take a tough line on bad loans that act as a drag on finances. For small and medium-sized companies that are not well versed in bargaining for better terms with lenders, intermediaries play a significant role. “Intermediaries will be there, they are unavoidable. How to regulate them is an issue,“ said CVR Rajendran, CMD of Andhra Bank. Andhra Bank has made it mandatory for officers to mention from where or from whom the loan proposal originated. Intermediaries will have to arrive and leave along with the borrower. This rule stems from bank officials noticing that intermediaries often ask the borrower they've accompanied to step out from the room for a few moments. The intermediary may then give the borrower the impression that a gratuity of some sort is expected. The Syndicate Bank episode is the third instance in the recent past in which middlemen were involved in bribes-for-loans cases, following such occurrences at State Bank of India and LIC Housing Finance. [Click To Enlarge]

By Bhuma Shrivastava and Santanu Chakraborty - Aug 11, 2014

India approved the setting up and listing of real-estate investment trusts as the nation seeks to unlock a $20 billion market.
The trusts, or REITs, will have to own assets worth at least 5 billion rupees ($82 million), the Securities and Exchange Board of India said in New Delhi yesterday. Investors must put in a minimum 200,000 rupees. Final notifications would be issued soon to make the new rules for REITs effective in a month or two, Press Trust of India reported, citing U.K. Sinha, chairman of the capital-markets regulator.
The introduction of REITs will provide a new source of funding for cash-strapped developers that are struggling to reduce debt amid one of the highest interest rates in Asia and economic growth near the lowest in a decade. The products will give investors the ability to participate in the country’s property market without investing directly.
“The sector has been in all sorts of trouble primarily due to high leverage for most of the developers,” Pramod Gubbi, director for institutional sales at Ambit Capital Pvt., said in an interview to Bloomberg TV India. “What REIT does is to open up another avenue for funding and this should bring down their cost. More money in the hands of the developers could see more projects taking off.”
DLF Ltd. (DLFU), India’s largest developer by value with about 28 million square feet (2.6 million square meters) of operational rental assets, could be a “big beneficiary,” brokerage Emkay Global Financial Services Ltd. said in an Aug. 1 report.

Combined Debt

Other gainers include Prestige Estates Projects Ltd. (PEPL), a Bengaluru-based developer with 8 million square feet, and Phoenix Mills Ltd. (PHNX), a mall operator that owns 6 million square feet, according to HDFC Securities Ltd.
The S&P BSE India Realty Index rose 2.6 percent as of 9:56 a.m. local time. DLF added as much as 4.2 percent, Prestige 4.5 percent and Phoenix Mills 4.8 percent.
The combined debt of India’s six largest developers climbed to a record 394 billion rupees in the 12 months through March 31, more than double the 158.8 billion rupees in 2007, according to data compiled by broker IIFL Ltd.
REIT-funded assets may reach $20 billion by 2020, according to an estimate by property-broker Cushman & Wakefield, of which as much as $12 billion could be raised in the first three to five years.

Top Markets

“It’ll also provide liquidity to investors as these trusts will be listed and traded on stock exchanges,” Neeraj Bansal, partner and head of the real estate and construction practice at KPMG India, said in an e-mail.
REITs, pioneered in the U.S. in the 1960s, are traded publicly and pool investor money to buy real estate such as shopping malls, office buildings and rental housing. India’s REIT market has the potential to grow to rank among the top five markets in Asia by market capitalization, according to Cushman & Wakefield.
While the market regulator had released the first draft of guidelines for REITs in 2008, they didn’t get final approval because of a lack of clarity on taxes and because the global financial crisis hurt the investment climate, according to a report by Knight Frank LLP in June. The regulator released a new set of guidelines in October, outlining the eligibility criteria for setting up REITs.
To contact the reporters on this story: Bhuma Shrivastava in Mumbai at bshrivastav1@bloomberg.net; Santanu Chakraborty in Mumbai at schakrabor11@bloomberg.net
To contact the editors responsible for this story: Arijit Ghosh at aghosh@bloomberg.net; Sam Nagarajan at samnagarajan@bloomberg.net Sunil Jagtiani

®2014 BLOOMBERG L.P. ALL RIGHTS RESERVED.