Equity International (EI), an institutional investment management company based in Chicago, has invested US$75 million in Indian hospitality company SAMHI Hotels. The investment, EI’s first in India, was made by EI’s Singapore operating company.
EI was represented in India by J Sagar Associates and in the US by Sidley Austin. Economic Laws Practice acted as legal adviser to SAMHI.
Established early this year, SAMHI is co-sponsored by GTI Capital Group, a privately held investment firm founded by Gaurav Burman, Gaurav Dalmia, Jonathan Schulhof and Madhav Dhar.
SAMHI has a joint venture with Marriott International to launch the Fairfield by Marriott brand for business travellers in India. The venture is expected to create 2,500 guest rooms and around 15 moderate-tier hotels in Bangalore, Chennai and Hyderabad by 2015.
EI targets the homebuilding, retail, warehousing, distribution, office, hospitality, senior living and specialty finance sectors. Its portfolio of investments reflects its desire to focus on opportunities in emerging markets. The company has projects in Argentina, Australia, Brazil, Chile, China, Colombia, Mexico, New Zealand, Peru, Spain, the UK, Uruguay and Venezuela.
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Vijay Jayaraman, senior vice-president of investments at EI, said the company has always been excited about India’s potential, but was only keen to enter the market with a reliable operating partner. “It was just recently that we found such a partner in SAMHI,” he said.
Problems with real estate valuations were another reason for EI’s previous caution. “Given that the Indian real estate market only opened to foreign investment in 2005 and that was during a time of excess global liquidity chasing returns across the world, we were rightly hesitant to commit to Indian deals,” Jayaraman told India Business Law Journal.
“As we now know, there was a bubble in real estate valuations in India both for land and real estate developers that persisted through mid-2008. Though land prices remain at a high level, we find today’s market environment in India a more constructive one.”
Jayaraman said that EI is always concerned about the enforceability of contracts, restrictions on capital flows, and the ease of doing business in emerging economies, but that it is accustomed to those challenges. “In addition, we know that international private equity firms have done well investing in India, so that suggests that these issues are not insurmountable.”
Although its initial fears have been allayed, EI is treading carefully in India. In terms of real estate, the company has worries about the overvaluation of land due to the structure of foreign direct investment policy, lack of clarity in land titling and lack of transparency in the permitting and approvals process.
“On titling and permitting, we recognize that these are handled at the state and local levels, so any sweeping changes are more difficult,” said Jayaraman. “For us, land is simply an input cost in our businesses, and to the extent that it is too costly it not only hurts the investment but it also hinders broader economic growth and limits the potential improvement in living standards for the average person.”
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