ONE SOUTH: INVESTING IN EMERGING MARKETS Harvard Case Solution & Analysis

ONE SOUTH: INVESTING IN EMERGING MARKETS Case Solution

Evaluate the investment in One South Technology Park by listing the pros and cons. (25 marks)

            The investment in One South Technology Park has many benefits for Saboput Group LLC. There are strategic and financial benefits for investing in One South Technology Park in Chennai, India. However, the investment also has many disadvantages and risks inherent in its agreed terms which might make this investment too risky for Saboput Group LLC. The pros and cons for investing in the One South Technology Park have been evaluated below:

PROS

            The evaluation of the advantages for investing in the One South Technology Park is described below:

  • This investment is the formal beginning of the important relationship development with the promoters of this real estate project who are also looking forward to develop several other similar projects in Delhi and Chennai. This would benefit Claybyrd Fund in the long term expansion of their real estate investment business.
  • The risk for this deal has been minimized by providing Claybyrd Fund II with guaranteed net operating income and the downside returns protection at a rate of 16.5% of the IRR. Therefore, we can say that the return is guaranteed for Claybyrd Fund if it proceeds ahead to invest in this project.
  • All the promoters of the One South Technology Park project, who will have a stake of 74% after the completion of the deal in CPIL, will have a strong experience with real estate development and strong business backgrounds. Having such a promoter team with strong operational and management capabilities means that this project is being developed and handled by some experienced individuals within the real estate development.
  • The ability of the Claybyrd Fund II for arranging the optimal financing for this project was quick as compared to the other real estate domestic and foreign funds. Moreover, their response time was also shorter and they have personal relationships with the promoter which means that this would serve as the beginning of their long term working relationship.
  • If we evaluate the location of the One South Technology Park property, then it is located centrally in Chennai, has access to all the modes of transportation such as road, rail and air and it faced very little competition from the other commercial real estate developments in the micro market therefore, we can say this is investment asset is attractive and it will generate huge rent after its initiation. The property is also close to the five star hotels and the airport
  • The property is also characterized by the 3 to 5 year lock in period from the A grade list of the tenants. This means consistent rent would be generated. Moreover, government’s support is also provided in the development of this property, which is 85% complete and an occupancy rate of 80% has also been estimated from October 2006.
  • The financial returns are impressive from these properties which are much higher than the guaranteed minimum return of 16.5%. The pre tax, post tax and LP IRR for this project based on the current projected cash flows are 21.45%, 20.31% and 16.52% respectively. These returns show that this project would create significant value for the Claybyrd Fund II.
  • Furthermore, the above returns and the equity returns show that the fund would be able to avail consistent debt financing based on the same terms which they have agreed with many Indian banks. This ensures that there would be no problems for funding this project at any time of the project.................                     This is just a sample partial case solution. Please place the order on the website to order your own originally done case solution.
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