Embassy Group, an Indian developer whose buildings house the offices of Hewlett-Packard Co. and AT&T Inc., is planning the first sale of an Indian property trust in Singapore, people familiar with the transaction said.

Bangalore, southern India-based Embassy hired Goldman Sachs Group Inc. and UBS AG to arrange the initial public offering of a real estate investment trust, the three people said, asking not to be identified before an announcement. Embassy, which hasn't decided on the amount to be raised, plans to sell shares in the fourth quarter, the people said.

Singapore's regulations and tax benefits are attracting Indian companies to list REITs in the city-state. India is yet to introduce legislation to support REITs, which pay no corporate taxes. Singapore accounts for 47 percent of the REIT market in Asia outside of Japan and Australia. ``The authorities here will probably want to embrace any regional REITs that come here, but at the end of the day you have to deliver a REIT that gives you the right distribution yield,'' said Olivier Lim, Singapore-based chief financial officer of CapitaLand Ltd., owner of three of the 10 property trusts listed in the city-state. ``When you talk about riskier markets, you need some premium.''

Chief Executive Officer Jitu Virwani, who set up Embassy Group about 20 years ago, didn't return calls made to his office in Bangalore or to his cellular phone.

'Faster Expansion'

The company has an 11 million square-feet portfolio of prime residential and commercial space in India, according to Embassy Group's Web site. Its tenants include Hewlett-Packard, the world's second-largest maker of personal computers, AT&T, the largest U.S. telephone company, and Oracle Corp., the world's No. 3 software maker, the Web site shows.

Embassy Group and other Indian real-estate developers are benefiting from faster expansion in Asia's fourth-largest economy. Easing of rules to allow foreign investment is generating demand for homes, office and retail space. Commercial and residential construction in India will surge to $50 billion by 2010 from $12 billion in 2005, a Merrill Lynch & Co. report said last year. India's $775 billion economy expanded 9.3 percent in the three months ended March 31, the fastest pace since the quarter to Dec. 31, 2003.

At least four Indian companies are "looking to do REITs in Singapore,'' said Mark Ebbinghaus, Singapore-based joint head of real estate, lodging and leisure in Asia at UBS. He declined to name the companies or comment on Embassy Group's planned IPO.

`The Right Processes'

K Raheja Corp., which develops business parks, condominiums, malls and hotels in India, is studying the possibility of selling its assets through a trust in Singapore to free up capital for new projects that generate higher returns, said Vinod Rohira, the company's Mumbai-based director of sales and marketing.

" We want to list it in the domestic or international market,'' Rohira said in an interview. "It will take six months to figure out the right processes and probably as much time to do it.''

REITs buy and manage properties from shopping malls to business parks. To retain tax-free status, trust laws require REITs to pay out most of their income, typically at least 90 percent, in the form of dividends to shareholders.

Singapore introduced its first property trust four years ago and the market's value has grown to about $7.5 billion, the biggest in Asia outside of Japan and Australia. Singapore last year cut its tax on dividends from property trusts for foreign investors to 10 percent from 20 percent.

'Guidelines Approved'

Singapore has emerged as a REIT destination,'' Rohira said. " There are mature practices already existent, it's a good area to be able to access the rest of Asian markets, and there are synergies in which we believe Singapore is now conducive to investments in India.''

India's capital market regulator last week approved guidelines for real estate mutual funds, allowing them to invest directly in property assets in India. The funds can also invest in shares or bonds of listed and unlisted property companies, according to the Web site of the Securities & Exchange Board of India.

" That's a good sign because organized equity will come into real estate which will bring in better practices,'' said K Raheja's Rohira. " It will form a platform for working towards REITs.''

To contact the reporter on this story:
Netty Ismail in Singapore nismail3@bloomberg.net.
Last Updated: July 3, 2006 20:09 EDT

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