Real Estate Intelligence Service, Friday, August 21, 2009

World pulling out of slump: IMF

World pulling out of slump: IMF
HT Business, August 20, 2009, Page 25

Hopes of a strong global economic revival sprang anew, with the International Monetary Fund (IMF) predicting that the global economy is beginning to pull out of a recession, but stabilisation is uneven and the recovery is expected to be sluggish.

According to a new report by IMF, the world has begun to recover from recession but sustaining the recovery would require shifting focus to exports for the US and domestic demand for Asia.

IMF’s chief economist Olivier Blanchard said the global recession had “left deep scars, which will affect both supply and demand for many years to come.”

“The recovery has started. Sustaining it will require delicate rebalancing acts, both within and across countries,” Blanchard said.

Latest macroeconomic data from world’s leading economies have shown signs of recovery.

The gross domestic product (GDP) of two of Europe’s largest economies, Germany and France, grew by 0.3 per cent in the second quarter, beating official forecasts.

Japan’s GDP grew 0.9 per cent in April-June.

The Federal Reserve last week said that the US economy was stabilising and that it would gradually scale back its massive effort to pump liquidity into the creaking financial system.

In India, factory output rose 7.8 per cent in June, the strongest growth in 16 months, triggering hopes of a strong economic rebound in the coming months. Manufacturing, which accounts for 80 per cent of overall industrial output, grew by 7.3 per cent.

But the real story lay in the consumer durables sector that grew by a healthy 15.5 per cent reflecting a rise in consumer demand and spending on goods such as televisions and refrigerators.

The risk of a deficient monsoon hurting industrial output growth through lower rural demand for consumer goods, however, appears real.

IMF: global recovery has begun

IMF: global recovery has begun
The Financial Express, August 20, 2009, Page 1

Reuters, Washington

The global economic recovery has begun, but sustaining it will require refocusing the US toward exports and Asia toward imports, the International Monetary Fund’s chief economist said.

In an article released by the IMF on Tuesday, Olivier Blanchard also said potential economic output may be lower than it was before the financial crisis struck. “The turnaround will not be simple,” Blanchard said. “The crisis has left deep scars, which will affect both supply and demand for many years to come.”

US consumption, which accounts for about 70% of the US economy and a large chunk of global demand, would not quickly return to pre-crisis strength as households cope with trillions of dollars in losses from the falling housing and stock markets.

“From the point of view of the US, a decrease in China’s current account surplus would help increase demand and sustain the US recovery,” he said. “That would result in more US imports, which would help sustain world recovery.”

But in order for China to boost domestic demand, it will need to provide a stronger social safety net and increase household access to credit, which will encourage its consumers to save less and spend more. “Both higher Chinese import demand and a higher (yuan) will increase US net exports,” he said.

In the short term, Blanchard said most countries will see positive economic growth for the next few quarters, although probably too tepid to reduce unemployment, which is not expected to crest until some time next year.

Much of that growth is predicated on fiscal stimulus and inventory rebuilding, both of which will have to come to an end, and the stimulus comes at a cost to future growth. “In nearly all countries, the costs of the crisis have added to the fiscal burden, and higher taxation is inevitable,” Blanchard said.

“All this means that we may not go back to the old growth path, that potential output may be lower than it was before the crisis,” he added. If the rebalancing toward more US exports and more Asian imports fails, the future looks far more grim. In that case, a weak US recovery would likely lead to intense political pressure to extend fiscal stimulus.

Interest rates to go up: Kochhar

Interest rates to go up: Kochhar
Business Standard, August 21, 2009, Business Standard, Section II, Page 3

Press Trust Of India / New Delhi

The country’s largest private sector lender ICICI Bank today said lending rates will start going up any time now, quite contrary to the SBI Chairman’s projection that borrowers can breathe easy till Diwali.

“I really believe that interest rates are not going to go down from here. Gradually they would go up. When? Would really depend on how fast the credit growth takes place”, ICICI Bank CEO and Managing Director Chanda Kochhar said.

Her statement comes a day after SBI Chairman O P Bhatt said that rates would not rise till Diwali and may even soften by 25-50 basis points before the busy season in October.

In April, ICICI Bank was the first to reduce lending and deposit rates by 50 basis points after announcement of the annual credit policy by the Reserve Bank of India (RBI).

Replying to questions on impact of the large government borrowing on the financial system, Kochhar said, “The amount is large. I don’t think that amount is small. It does have its own impact on interest rates and financial system. I am sure there is a thought behind it.”

In order to step up expenditure to stimulate the economy reeling under the impact of the global financial meltdown, the government decided to raise Rs 4.51 lakh crore through market borrowings this fiscal, up from Rs 3.1 lakh crore in 2008-09.

Expressing concern over the high government borrowing, RBI Governor D Subbarao had recently said that it was impairing the ability of the central bank to further lower the interest rates through monetary measures.

Pointing out that there is more clarity on the market borrowing programme of the government, Kochhar said, “What will happen to the interest rates. Is more dependent on how the credit growth picks up. As far as the government borrowing is concerned, now that there is so much clarity. The market has already built in whatever the impact will be.”

The centre has decided to borrow 70 per cent of its requirement during the first half, she said, adding that the important message that the government gave out was that it would bridge the revenue-expenditure shortfall, if any, by raising taxes and not through more borrowings.

Moreover, she added, “The private sector plans depend not so much on government borrowing. Their plans depend more on their own performance. And their belief... To raise debt and equity.”

The data for the last three months indicate improvement in capacity utilisation by India Inc, Kochhar, ranked the world’s 20th Most Powerful Woman by Forbes, said and added that since the commodity price correction, these people are coming back to restart their projects.

Inflation at minus 1.53%, food prices still rising

Inflation at minus 1.53%, food prices still rising
The Financial Express, August 21, 2009, Page 2

fe Bureaus, New Delhi

Inflation rose marginally to (-) 1.53% for the week ended August 8 from (-) 1.74 in the previous week, even as food prices continued to rise amid an erratic and deficient monsoon. The food articles index surged 10.5% compared with a year ago as a weak monsoon hit crops. It was the second week in a row that the food price index saw growth of at least 10%.

Economists expect wholesale price index based inflation to rise sharply in the coming months. Inflation is expected to turn positive after September and reach 7-7.5% by the year end, HDFC Bank economist Jyotinder Kaur said. The WPI inflation was at 12.82% during the corresponding week of the previous year. Consumer price index-based inflation stood at 9.29% in June.

The government on Thursday raised the minimum support prices for paddy by Rs 100 a quintal and pulses by up to Rs 300 a quintal. This is expected to make pulses and cereals more expensive. Essential items like fruits turned expensive by 2.6%, bajra and urad by 2% each, and condiments, spices and arhar by 1% each. Khandsari and rice bran oil were expensive by 3% each, while imported edible oil, sooji and cotton seed oil were up by 2% each, and maida, ghee and oil cakes by 1% each.

If one looks at year-on-year comparison, prices of food items rose much more exorbitantly. For example, prices of vegetables rose by 40%, cereals 11.6%, pulses 17.6%, condiments and spice by 4.7%. Analysts say the government action is now needed to tame rising food prices caused by insufficient rainfall as monetary policy cannot tackle supply-side bottlenecks.

“We still feel food inflation is the biggest risk and we expect a quite proactive fiscal policy by the government to manage this, but we don’t expect too much of a monetary policy to fight this supply-side inflation,” Anand Rathi Financial Services wrote. At its monetary policy review last month, the Reserve Bank of India revised up its inflation outlook for 2009-10 to 5% from 4%.

The inflation rate based on the consumer price index (CPI) rose sharply in July 2009, according to the data released by labour ministry on Thursday. Inflation based on the CPI-AL (agricultural labourers) increased to 12.90% in July from 11.52% in June. Inflation based on the CPI-RL (rural labourers) increased to 12.67% in July from 11.26% in June.

Sharma, Pranab lock horns on I-T holiday for SEZ units

Sharma, Pranab lock horns on I-T holiday for SEZ units
The Financial Express, August 21, 2009, Page 12

Rituparna Bhuyan, New Delhi

A policy measure, which seeks to provide full income tax exemption to units located inside Special Economic Zones (SEZs)has become the cause for yet another point of friction between the commerce ministry and finance ministry. The bone of contention is a corrected tax exemption formula prescribed by Section 10aa of the Income tax Act of 1961, which the commerce ministry feels should be applicable from April 1, 2006, and not 2010, as clarified by the finance ministry in this year’s Budget presented in July.

Commerce minister Anand Sharma has sent a missive to finance minister Pranab Mukherjee in the third week of July, asking him to ensure that the corrected formula is made applicable with retrospective effect and not prospectively from April 1, 2010 as clarified in the Budget 2009-10 documents. Government sources said commerce secretary Rahul Khullar had also taken up the matter with his peers in North Block.

The old formula, which came in to force from April, 2006, took into account total turnover of the company setting up a SEZ, which includes business inside as well as outside the zones. As a result, companies like Infosys, Wipro and Tata Consultancy Services, which has business setups in SEZs as well as outside, were not enjoying 100% tax exemption promised in the SEZ Act of 2005.

Differences between the commerce and the finance ministry on the tax exemption formula are not new. The issue was referred to an empowered group of ministers, headed by Pranab Mukherjee, during his stint as external affairs minister in the UPA-I regime.

Subsequently, while presenting the interim Budget in February, 2009, Mukherjee-who had taken over as the finance minister-had accepted that the structure of the formula was an anomaly. But rectification of the anomaly was not carried out by the finance ministry.

Finally, in July, 2009, the Budget memorandum clarified that that total turnover of the “undertaking” and not the assessee would be taken in to account while calculating the export profit, but with prospective effect from April 1, 2010. This meant that between April 2006 and March 2010, exempted export profit of SEZs would be calculated based on the old formula which had the anomaly.

“The prospective nature of the clarification is simply not acceptable and the issue has been taken up at the highest level,” said a commerce ministry official. Some companies having SEZ-based business met Sharma in the third week of July, when he was in Pune and urged him to take up the issue. SEZ units maintain that the finance ministry clarification on section 10aa of the Income Tax Act is a breach of the intent of the SEZ Act.

“An anomaly has to be corrected from the beginning. The intent of the SEZ policy is to provide 100% income tax exemption for the first five years, which was not happening due to the flaw in the formula,” said PC Nambiar, of Pune-based Serum Bio Pharma Park, India ‘s first biotech SEZ.

Significantly, the finance minister, while presenting the interim Budget in February, 2009, had accepted that there was flaw in the wording of Section 10 aa of the IT Act. Pointing out that it “has resulted in discriminatory treatment of assessee having units located both in SEZ and the Domestic Tariff Area (DTA) vis-à-vis assessee having units located only within the SEZs,” Mukherjee had said.

Experts point that if not resolved, issue could lead to litigation. “I cannot understand how an intention (of an clarification) can be prospective and not retrospective. In the past, there has been litigation on clarifications released with prospective effect. Many court judgments have held that a clarification has to be retrospective,” said Tapan Sangal, senior manager, PriceWaterhouseCoopers.

Vikram Bapat, executive director, PriceWaterhouseCoopers points out that other clarifications in the Budget memorandum of 2009-10 are retrospective in nature. “If the issue goes to courts, it will be interesting to see how it gets interpreted,” he said.

New norms to give states leeway on land acquisition for special zones

New norms to give states leeway on land acquisition for special zones
The Financial Express, August 21, 2009, Page 12

Rituparna Bhuyan, New Delhi

The commerce ministry has released a series of guidelines, which seek to partially relax land acquisition norms for special economic zones (SEZs) by state governments. In addition, the norms for building SEZs, which are bifurcated by roads or railway lines, have also been released by the ministry.

An empowered group of ministers had banned compulsory acquisition of land by state governments for SEZs in April 2007 amidst mass protests in Maharashtra and West Bengal. But now a new set of guidelines, released on August 18, will allow states to acquire land for SEZs if land owners have withdrawn or not filed objections towards the move. At the same time, the landowners will also have to give their consent to state governments.

Due to the ban on compulsory acquisition by state governments, SEZ developers have been buying land directly from the owners. While most small and mid-sized SEZs were able to buy land from owners, many multi-product SEZ projects, which require a minimum of 1,000 hectare, are facing difficulties in completing the land acquisition process due to opposition from owners and a demand for additional price for their plots.

The new guidelines also reaffirm that if owners have any objections to the acquisition of land by state governments for SEZs, the inter-ministerial board of approval (BoA) on SEZs will not consider such cases.

“It seems this is an exception clause for zones, which are yet to complete land acquisition between April 2007 and August 2009. But if there is any objection by land owners to compulsory land acquisition by state government, the SEZ proposal will not be considered,” said Vikram Bapat, executive director, PricewaterhouseCoopers.

Experts do not see any significant benefits form the move but maintain that this could help companies which do not want to be involved in buying land from owners and thus want the state government’s help. SEZs, which do not have the intended land area under possession, are given in-principle approval by the BoA. There are about 146 such SEZs in the country, which plan to acquire 1,25,163 hectare of land. But many of them have asked for more time from the government to complete the land acquisition process.

For example, Reliance Haryana SEZ Ltd has asked for more time to complete land acquisition for its proposed 5,000 hectare SEZ at Jhajjar, three times since mid 2006. The zone was given an in-principle nod in March 2006, but has been able to acquire only 1,059 hectare of land in the area. Of this, 440 hectare was notified as a multi-services SEZ, while the company has an additional 486 hectare as non-contiguous area. Also, Haryana State Industrial and Infrastructure Development Corporation (HSIIDC) has transferred 133 hectare of land to RHSL. While the previous two applications on the extension of time were accepted, the BoA deferred its decision on its latest appeal, along with three other similar pleas.

Meanwhile, the commerce ministry has also released norms, which specify that developers will not get any tax benefits for taking steps to link non-contiguous areas of SEZs by constructing over-bridges and underpasses. SEZ related rules discourage non-contiguous area for SEZs, but approve proposals with separate land tracts on a case-by-case basis. The new rules will ensure clarity on policy measures to be followed while developing SEZs, without a contiguous area.

Sahara Prime City plans to raise Rs 5,000 cr in IPO

Sahara Prime City plans to raise Rs 5,000 cr in IPO
Business Standard, August 21, 2009, Page 4

Press Trust Of India / New Delhi

Sahara group’s realty arm Sahara Prime City is planning to raise up to Rs 5,000 crore by this year-end through an initial public offer (IPO) and will approach market regulator SEBI later this month in this regard.

The company is believed to have engaged investment bankers, including Kotak, Enam and JM Financial, for the public issue, market sources said.

The draft prospectus for the IPO is being readied and the same could be filed with the Securities and Exchange Board of India by the end of this month.

No comments could be obtained from the Sahara group spokesperson, but sources said the group would wish to launch the IPO by the end of this year, subject to Sebi approval.

Sahara Prime City will be the third Sahara group entity to enter the capital market after Sahara Housingfina Corp Ltd and Sahara One Media and Entertainment Ltd. It is present in over 200 cities with its housing and commercial projects.

However, the group’s ambitious Ambey Valley project is not part of the company.

Sahara realty arm plans to go public, raise $1 billion

Sahara realty arm plans to go public, raise $1 billion
The Economic Times, August 20, 2009, Page 13

IPO To Make Firm Second Most Valuable Player In The Segment After DLF

Abhinaba Das & Kausik Datta MUMBAI

THE Lucknow-based Sahara Group is planning to take its realty arm public and raise up to $1 billion, which, if successful, would make the company the second valuable player in the segment after DLF.

A person with direct knowledge of the development told ET that investment bankers JM Financial, Kotak Mahindra Capital Company and Enam will advise the initial public offering of Sahara Prime City Ltd (SPCL) along with legal firms Amarchand Mangaldas Shardul Shroff & Co, Hirani & Co, Luthra & Luthra and Milbank of UK.

The IPO is expected to hit the market by end of this year, the person said on condition of anonymity. Another person — close to one of the three investment banks — said the group wants to offload 10% of its stake in the wholly-owned company, valuing itself at $10 billion (Rs 49,000 crore) behind DLF which has a market cap of Rs 63,000 crore as on August 19, 2009.

Currently, the second valuable firm in the Indian realty firmament is Unitech with a market cap of Rs 17,000 crore. The draft red herring prospectus for the offering will be submitted in a week, the person said.

A Sahara Group spokesman declined to comment for this story, which was broken earlier in the day by ET Now, this newspaper’s business news channel.

According to a real estate expert, the proposed IPO indicates that the group is refurbishing its real estate business after the Reserve Bank of India (RBI) asked it to pull out of its mainstay parabanking activities over a period of time. RBI has asked Sahara India Financial Corporation not to accept any new deposit which matures beyond June 30, 2011. It has also been asked to stop accepting installments of existing deposit accounts with effect from that date.

The Sahara group had announced its intention to launch a real estate IPO two years ago. SPCL owns a plethora of firms including Sahara City Home, Sahara Star Hotel in Mumbai, Sahara Super Speciality Tertiary Care Hospital in Lucknow and Sahara Grace. It has acquired land of 8500 acres for its township projects. It plans to set up 217 townships, spreading over 100 acres each, in various parts of the country. Of this, the first phase is expected to set up 102 townships while the remaining, in the second phase. The first phase is expected to be over in next five to seven years while it will kick-off the second phase from 2015.

Sahara’s plans aligns with the larger trend in the realty industry, which is crawling out of a market slump. A clutch of real estate companies are in the process of launching IPOs this year in order to cash in on the slow reversal of fortunes in the sector. Emaar MGF, Lodha Developers, Nitesh Estates and Oberoi Constructions are some of the firms waiting this year to launch IPOs. Of this, Lodha Developers’ is expected to be pegged at over Rs 2,000 crore which is value the company at around Rs 20,000 crore.

Loans can’t be cheap always

Loans can’t be cheap always
The Economic Times, August 20, 2009, Page 5

STATE Bank of India chairman OP Bhatt spoke on the transformation of SBI at a seminar in the Indian School of Business. In an interview with ET, Mr Bhatt said the bank was open to acquisitions and would hire 11,000 employees this fiscal. He also hinted that home loans could become dearer in the coming years. Excerpts:

There is a perception that your customers may not gain in the long run from the special home loan packages. Besides, there are fears you could end up with more distressed assets.

We are the largest home loan providers and disbursements doubled between April to July this year compared to the same period last year. But there are no gimmicks in our special home loan packages. We look at the borrower’s income and ability to repay. It is incorrect to say this could lead to a situation similar to the US sub-prime mess. We are strict on due-diligence and have not relaxed the eligibility criteria. We have been vigilant in our appraisals as well.

Would you review the special home loan package that offers cheaper interest in the initial years?

Cheaper loans cannot continue indefinitely. But when the economy was in distress, we did our best to cut interest rate on home loans. For instance, in our “SBI My Home Campaign”, interest rate for the first year is 8%, and for the next two years is 8.5% to 9% depending on size of the loan. The stimulus package to boost home loans was to expire in June this year. But we had to look at those had not made up their minds and were undecided on their plots. We, therefore, extended the scheme till October.

Are you looking at re-structuring more loans?

We have restructured loans aggregating to around Rs 21,000 crore. Many were standard assets and some were non performing assets. We have not set any target for further loan re-structuring.

Will you look at raising more capital?

Our capital adequacy ratio is 14.25% inclusive of tier I capital of 9.38%. We have enough capital for our business growth and are certainly profitable. We need capital for other businesses such as insurance and rural operations. Funds may also be needed if we acquire a bank or for floating new companies.

Are you looking at any acquisitions now?

At the moment we are not looking at any acquisitions. But we are open to opportunities that come our way and want to have capital ready.

Do you plan a more aggressive expansion, especially since wider access for foreign banks has been put on hold now?

We are already opening 1000 branches every. We want to become far more efficient. But our growth has not been driven by the fear of a wider access by foreign banks here. Our own overseas operations grew by over 8%.

You have eaten into ICICI’s market share. What do you attribute the banks growth to?

The banks growth has been driven by its intrinsic strength; technology, product and services range; better quality of service, response time.

Have you set any target for growth in current and savings account deposits? What about hiring plans of SBI?

We will continue to maintain a CASA growth of 38%. We plan to hire 11,000 employees afresh this fiscal.

Has there been a change in the way you do your business after the global meltdown?

Within India, there has been no change expect that there is a slow-down. We therefore do not feel that one particular business is riskier than another. The only place where there is more stress is export-related units.

When do you see associate banks such as the State Bank of Indore merging with SBI?

The process is a fairly long one as some approvals are required from regulator and the government. Our intention is to merge the State Bank of Indore with SBI, though we are yet to hear from the government.

You were parking around Rs 65,000 crore with the RBI. Has it come down now?

The amount parked with the RBI has come down to Rs 20,000 crore partly due to the credit growth. Part of the money is also being redeployed for treasury operations including converting them into dollars.

TDI to invest Rs 1k cr in NCR

TDI to invest Rs 1k cr in NCR
The Economic Times, August 20, 2009, Page 9

After Successful Phase 1, Co To Build 350 Low-Cost Houses In Kundli

Sanjeev Choudhary NEW DELHI

Delhi-based realty firm TDI is planning to invest Rs 1,000 crore to build lowerpriced homes in the national capital region in the next three years, a senior company executive said.

“The demand for homes is coming back slowly,” said TDI managing director Kamal Taneja, adding that the company was focusing on lower priced homes to attract buyers. TDI, which has its real estate projects spread over Delhi, Kundli and Panipat in Haryana and Mohali in Punjab, recently launched 350 residential units in Kundli and claims to have sold all of it in just a month. The company is now planning to launch another 350 homes over the weekend in Kundli, around 35 kms from central Delhi. The 900-sqft independent floor homes will be priced between Rs 16.50-19.50 lakh. The company will invest around Rs 1,000 crore to build a total of 700 homes in Kundli over the next three years, Mr Taneja said.

TDI has tied up with architectural firms Drew Dickson Associates of Australia and HO Partners of Hong Kong for development of its 1600-acre Kundli township. Following a revival in the capital market, many listed real estate companies, including Unitech, HDIL and Sobha, have raised funds via QIP, while some other unlisted firms such as Lodha Developers and Emaar MGF, are lining up their initial share sale. But Mr Taneja says the market is still volatile and an IPO is not on the cards for TDI immediately.

He says his company is relatively less leveraged and doesn’t intend to go in for any private equity deals either immediately and would focus on selling homes to raise cash. “There is very little private equity money available and there are too many developers chasing it. Also, private equity investments made these days are actually debt structured as equity,” he says, explaining why he is not excited about getting PE fund infusion in his company.

Lodha Developers on fund-raising spree

Lodha Developers on fund-raising spree
The Economic Times, August 20, 2009, Page 12

Former Old Lane Fund Partners Buy 26% Stake In Dombivli Project For $25 Million

Shivani Muthanna ET NOW

MUMBAI-based Lodha Developers is tying up funds from private equities (PE) at the project level ahead of its Rs 2,500-Rs 3,000 crore planned initial public offer (IPO).

Few former Old Lane Fund partners have made a $25-million investment for 26% stake in the group’s 115-acre housing and office complex in suburban Dombivli in Mumbai.

The investment values the project, which falls under its CASA brand for mid-income housing, at Rs 460 crore (Rs 4 crore per acre).

“In terms of this , the residential rates for our Dombivalli project will range between Rs 2500-Rs 3000 per sq foot. We are also in continuous talks with various funds who are interested in investments at the project level,” said Abhisheck Lodha, director, Lodha Group.

None of the PE investors from Old Lane, who have formed a new $400 million for realty and infrastructure, were available for comment.

With the latest private equity deal, Lodha Developers now has private equity investments to the tune of $600 million in various special purpose vehicles from the likes of Duetsche Bank, HDFC Realty’s international fund and ICICI Ventures. “The IPO may improve the valuations of the Lodha’s Hyderabad project in which the fund has invested resulting in higher prices for the sale of residential units in the complex,” says senior fund manager at HDFC Realty.

An official in the Lodha group, who did not wish to be named, said the company is expecting a valuation of up to Rs 20,000 crore at the time of tapping the capital markets.

But analysts say a lot will depend on whether the appetite for real estate returns among investors. Now the IPO which is expected to hit the market by late October-November, could provide an exit route particularly for Duetsche Bank since the deal was structured around convertible debentures. Servicing these investments was looking difficult, as a slump in the property market had receded the hopes of meeting the pre-decided returns on them. The company has appointed Enam Securities and JP Morgan as its merchant bankers.