'UNITECH , DLF LAND BUYS NOT TRANSPARENT ’
Mail Today, January 31, 2009, page 1
Credit Suisse questions accounting practices of realty biggies and says their land acquisition disclosure is inadequate
AFTER Satyam, real estate biggies like DLF and Unitech now have their corporate governance and accounting practices under the scanner.
In a report which could further spook investors, global investment banking major Credit Suisse ( CS) has said the corporate governance practices of real estate firms DLF, Unitech, IVRCL, IBREL, Parsvnath and Sobha Developers are lacking in transparency and that key financial disclosures are inadequate.
They also had flaws in their corporate governance and planning.
In its report titled ‘ Corporate Handbook’, CS analysts warned that the losses caused by the steep fall in markets and the economic slowdown will have to be reflected in “ someone’s net worth”. It said investors “ may see many new ways in which they are reported or hidden in profit and loss statements.” DLF and Unitech in particular, were found to be opaque with regard to land acquisition processes. Both deviated sharply from conservative accounting practice, with a mismatch between revenue recognition and cash flow, the analysts reported.
The practice of buying land from companies controlled by the promoters of the realty majors, lack of disclosures on the acquisition process, as well as on the land banks, which form the bulk of their assets, are issues of concern, CS analysts said.
The CS framework analyses corporate governance on structural risks, accounting risks, transactional risks and events/ issues that raise investor concern.
DLF’s spokesperson declined to comment on the findings in ‘ Corporate Handbook’ as the company was due to disclose its results on Saturday, and was thus in a “ silent period.” Unitech said it “ does not comment on such reports.” Efforts to contact DLF chairman K. P. Singh, and his son, DLF vice chairman Rajiv Singh, failed as their mobiles were switched off. K. P. Singh is currently in Davos attending the World Economic Forum.
The areas of concern picked out in the report cover their basic operations regarding acquisition of land, the way they reported revenues on their books, as well as the large number of unlisted subsidiaries and related companies, mostly controlled by the promoters, with which the listed entities had dealings.
Both DLF and Unitech, for instance, showed “ revenues on a percentage of completion method even where the cash receipt is yet not due,” the CS report said.
Unitech’s investments in telecom, an unrelated business at a time when the real estate business needed funds, are also under the scanner.
The report said, “ There is also no transparency in the land acquisition process. The promoters have privately controlled entities from which Unitech buys land. Also, land bank disclosure in annual reports is inadequate and there is no information on areas sold, or unsold areas, or status of completion.” The key related parties at Unitech include a listed entity, Unitech Corporate Parks ( listed on the Alternative Investment Market of the London Stock Exchange).
Unlisted parties include Unitech Wireless, as many as 316 arms, 21 JVs and associates and four entities under the control of key management personnel.
DLF, which has 88.1 per cent of the stake held by promoter K. P. Singh, was flagged for its bewildering network of deals with related, but unlisted or privately- held group firms.
DLF has as many as 245 subsidiaries, 12 partnership companies, 12 joint ventures and 124 entities under the control of key management personnel.
In financial year 2008, DLF sold assets or real estate projects amounting to Rs 5,560 crore to a promoter- controlled entity, DLF Assets. It also cancelled an earlier sale of assets worth Rs1,890 crore.
There is also no transparency in the land acquisition process. Promoters have privately controlled entities from which DLF buys land.
Also, “ its land bank disclosure in annual reports is inadequate,” the report noted. The company does not disclose detailed accounts of all subsidiaries.
DLF reports standalone and consolidated results every quarter, CS analysts found.
DLF had outstanding receivable from promoter entities of Rs 1,940 crore as of March 2008, CS points out. In Unitech’s case, in financial year 2008, loans taken from key management personnel and controlled entities amounted to Rs 350 crore.
Unitech also “ does not disclose detailed accounts of all subsidiaries and reports standalone and consolidated results every quarter,” the report said.
The issues seem to be common across the realty sector.
Another realtor, Parsvnath Developers too has a mismatch between revenue recognition, cash flows and capitalisation of interest expense. It recognises revenues on a percentage completion method and does not disclose detailed accounts of all subsidiaries and reports standalone and consolidated results every quarter.
Besides, there is no transparency in the land acquisition process.
Promoters have privatelycontrolled entities from which Parsvnath buys land and the land bank disclosure in annual reports is inadequate. There is no information on area sold, unsold areas or status of completion available, the report states.
The report reveals that apart from the realty biggies, Bajaj Hindustan, Dr Reddy’s, Grasim, JP Associates and others also have flaws. While the realty majors have gaping issues with their corporate governance norms, Bajaj Hindustan, Dr Reddy’s, Grasim, and JP Associates also have glitches as far as accounting practices, related party transactions and investor sentiment are concerned.
Mail Today, January 31, 2009, page 1
Credit Suisse questions accounting practices of realty biggies and says their land acquisition disclosure is inadequate
AFTER Satyam, real estate biggies like DLF and Unitech now have their corporate governance and accounting practices under the scanner.
In a report which could further spook investors, global investment banking major Credit Suisse ( CS) has said the corporate governance practices of real estate firms DLF, Unitech, IVRCL, IBREL, Parsvnath and Sobha Developers are lacking in transparency and that key financial disclosures are inadequate.
They also had flaws in their corporate governance and planning.
In its report titled ‘ Corporate Handbook’, CS analysts warned that the losses caused by the steep fall in markets and the economic slowdown will have to be reflected in “ someone’s net worth”. It said investors “ may see many new ways in which they are reported or hidden in profit and loss statements.” DLF and Unitech in particular, were found to be opaque with regard to land acquisition processes. Both deviated sharply from conservative accounting practice, with a mismatch between revenue recognition and cash flow, the analysts reported.
The practice of buying land from companies controlled by the promoters of the realty majors, lack of disclosures on the acquisition process, as well as on the land banks, which form the bulk of their assets, are issues of concern, CS analysts said.
The CS framework analyses corporate governance on structural risks, accounting risks, transactional risks and events/ issues that raise investor concern.
DLF’s spokesperson declined to comment on the findings in ‘ Corporate Handbook’ as the company was due to disclose its results on Saturday, and was thus in a “ silent period.” Unitech said it “ does not comment on such reports.” Efforts to contact DLF chairman K. P. Singh, and his son, DLF vice chairman Rajiv Singh, failed as their mobiles were switched off. K. P. Singh is currently in Davos attending the World Economic Forum.
The areas of concern picked out in the report cover their basic operations regarding acquisition of land, the way they reported revenues on their books, as well as the large number of unlisted subsidiaries and related companies, mostly controlled by the promoters, with which the listed entities had dealings.
Both DLF and Unitech, for instance, showed “ revenues on a percentage of completion method even where the cash receipt is yet not due,” the CS report said.
Unitech’s investments in telecom, an unrelated business at a time when the real estate business needed funds, are also under the scanner.
The report said, “ There is also no transparency in the land acquisition process. The promoters have privately controlled entities from which Unitech buys land. Also, land bank disclosure in annual reports is inadequate and there is no information on areas sold, or unsold areas, or status of completion.” The key related parties at Unitech include a listed entity, Unitech Corporate Parks ( listed on the Alternative Investment Market of the London Stock Exchange).
Unlisted parties include Unitech Wireless, as many as 316 arms, 21 JVs and associates and four entities under the control of key management personnel.
DLF, which has 88.1 per cent of the stake held by promoter K. P. Singh, was flagged for its bewildering network of deals with related, but unlisted or privately- held group firms.
DLF has as many as 245 subsidiaries, 12 partnership companies, 12 joint ventures and 124 entities under the control of key management personnel.
In financial year 2008, DLF sold assets or real estate projects amounting to Rs 5,560 crore to a promoter- controlled entity, DLF Assets. It also cancelled an earlier sale of assets worth Rs1,890 crore.
There is also no transparency in the land acquisition process. Promoters have privately controlled entities from which DLF buys land.
Also, “ its land bank disclosure in annual reports is inadequate,” the report noted. The company does not disclose detailed accounts of all subsidiaries.
DLF reports standalone and consolidated results every quarter, CS analysts found.
DLF had outstanding receivable from promoter entities of Rs 1,940 crore as of March 2008, CS points out. In Unitech’s case, in financial year 2008, loans taken from key management personnel and controlled entities amounted to Rs 350 crore.
Unitech also “ does not disclose detailed accounts of all subsidiaries and reports standalone and consolidated results every quarter,” the report said.
The issues seem to be common across the realty sector.
Another realtor, Parsvnath Developers too has a mismatch between revenue recognition, cash flows and capitalisation of interest expense. It recognises revenues on a percentage completion method and does not disclose detailed accounts of all subsidiaries and reports standalone and consolidated results every quarter.
Besides, there is no transparency in the land acquisition process.
Promoters have privatelycontrolled entities from which Parsvnath buys land and the land bank disclosure in annual reports is inadequate. There is no information on area sold, unsold areas or status of completion available, the report states.
The report reveals that apart from the realty biggies, Bajaj Hindustan, Dr Reddy’s, Grasim, JP Associates and others also have flaws. While the realty majors have gaping issues with their corporate governance norms, Bajaj Hindustan, Dr Reddy’s, Grasim, and JP Associates also have glitches as far as accounting practices, related party transactions and investor sentiment are concerned.
Posts
No comments:
Post a Comment