Tuesday, February 3, 2009
Govt to ensure faster credit flow: Pranab Mukherjee
Govt to ensure faster credit flow: Pranab Mukherjee
The Hindu Business Line, February 03, 2009, page 6
More banks expected to cut lending, deposit rates.
New Delhi, Feb. 2 The Union Cabinet Minister, Mr Pranab Mukherjee, who currently holds the Finance portfolio, on Monday said that the Government would strive to ensure smooth flow of credit to boost domestic demand and thereby help arrest the moderation in economic growth.
“We have to ensure faster credit flow to boost demand, especially in the rural economy and highly labour-intensive sectors,” Mr Mukherjee told reporters after a meeting with chief executives of public sector banks here.
At the meeting, sources said that bankers were urged to expand the flow of credit to productive sectors of the economy. According to the third quarter review of the Monetary Policy 2008-09, the total flow of resources to the commercial sector from all sources has been lower during the current year (upto January 23, 2009) compared with the corresponding period of the previous year.
While bank credit has substituted for the shortfall in other sources of funds to some extent, a complete substitution has so far not taken place, it was pointed out. The PSB chiefs were asked to indicate reasons for deceleration in credit growth in recent fortnights and the measures they are taking to ensure that credit growth picks up in the coming months.
Reasons were also sought for low deployment of credit to specific sectors such as industry, housing and transport, despite RBI’s recent measures to ease liquidity, improve flow of credit and stimulate the economy, sources added.
As regards agriculture credit, disbursements have increased nearly three times from Rs 86,981 crore in 2003-04 to Rs 2,43,570 crore in 2007-08. The target for 2008-09 is Rs 2,80,000 crore and disbursement of Rs 1,69,837.28 crore has already been made by the banks (till December 2008).
Meanwhile, the Finance Secretary, Mr Arun Ramanathan, said that he expects more banks to cut lending and deposit rates in the coming days. “As deposit rates have moderated, there is general expectation that lending rates will come down. Some banks have already cut rates. I expect more banks to further cut lending rates.”
Softening bias
The SBI Chairman, Mr O.P.Bhatt, said that the softening bias in interest rates would continue. He said that the meeting only saw review of interest rates and that there was no directive from the Government to cut interest rates.
“There is a thinking,” Mr Bhatt said when asked if the bank would further cut its BPLR. SBI had last reduced its BPLR by 75 basis points to 12.25 per cent.While the Canara Bank Chairman, Mr A.C.Mahajan, said that the bank was likely to cut lending and deposit rates later this month, the UCO Bank Chairman, Mr S.K.Goel, said that the bank is likely to cut its lending rates by 100 basis points this month and by another 100 basis points in March. The Corporation Bank Chairman, Mr J.M.Garg, ruled out any cut in lending rates in the near term.
PSBs mull capping home loan rate at 8%
PSBs mull capping home loan rate at 8%
The Economic Times, February 03, 2009, Page 7
Indian Banks’ Association To Review Borrowers’ Response To SBI’s Flat Home Loan Rate Of 8% After Three Weeks
Niranjan Bharati NEW DELHI
FOLLOWING in State Bank of India’s footsteps, other staterun banks may also come out with schemes offering home loan at an interest rate of 8% that will be fixed for a specified period.
The Indian Banks’ Association (IBA) would review the response of borrowers towards the SBI scheme after three weeks and if it finds that there has been a good response, other banks will follow suit, a top IBA official said.
“We will review the consumers’ response (towards the scheme) and then take a decision accordingly,” IBA chairman T S Narayanasamy told ET on the sidelines of a meeting here on Monday.
Mr Narayanasamy is also the chairman of state-run lender Bank of India (BoI). He said the review would be conducted after the completion of three weeks of the launch of the scheme.
Last week, SBI had announced that it would offer home loans at a flat rate of 8% to all borrowers and would freeze this rate for one year. Floating home loan rates vary from 9% to as high as 12% and above.
The chairman of one of the major banks, asking not to be named, said SBI can afford to lend at such cheap rate as it has one of the best current and savings account (CASA) deposit ratio.
CASA deposits are the cheapest source of funds for a bank and a high CASA deposit ratio brings down the average cost of funds. This, in turn, helps the bank in offering cheaper credit while maintaining its net interest margin. This margin is the difference between the rates at which banks borrow and lend money.
SBI has a CASA deposit of 39.71% as a percentage of total deposits of the bank. Other banks with CASA deposits in that range include Punjab National Bank, Dena Bank, Bank of Maharashtra and United Bank of India. All these banks have about 40% in their CASA deposits as at the end of September 2008, according to data available with the finance ministry.
Another bank chairman, who also asked not to be named, said SBI has taken a very calculated step and there was a possibility that the move can be emulated by other public sector banks.
Last week, the Reserve Bank of India (RBI) had said there was scope for further rate cuts by banks as the central bank has provided them enough cushion to do so. The RBI had expressed these views in its third quarter review of the annual monetary policy.
niranjan.bharati@timesgroup.com
The Economic Times, February 03, 2009, Page 7
Indian Banks’ Association To Review Borrowers’ Response To SBI’s Flat Home Loan Rate Of 8% After Three Weeks
Niranjan Bharati NEW DELHI
FOLLOWING in State Bank of India’s footsteps, other staterun banks may also come out with schemes offering home loan at an interest rate of 8% that will be fixed for a specified period.
The Indian Banks’ Association (IBA) would review the response of borrowers towards the SBI scheme after three weeks and if it finds that there has been a good response, other banks will follow suit, a top IBA official said.
“We will review the consumers’ response (towards the scheme) and then take a decision accordingly,” IBA chairman T S Narayanasamy told ET on the sidelines of a meeting here on Monday.
Mr Narayanasamy is also the chairman of state-run lender Bank of India (BoI). He said the review would be conducted after the completion of three weeks of the launch of the scheme.
Last week, SBI had announced that it would offer home loans at a flat rate of 8% to all borrowers and would freeze this rate for one year. Floating home loan rates vary from 9% to as high as 12% and above.
The chairman of one of the major banks, asking not to be named, said SBI can afford to lend at such cheap rate as it has one of the best current and savings account (CASA) deposit ratio.
CASA deposits are the cheapest source of funds for a bank and a high CASA deposit ratio brings down the average cost of funds. This, in turn, helps the bank in offering cheaper credit while maintaining its net interest margin. This margin is the difference between the rates at which banks borrow and lend money.
SBI has a CASA deposit of 39.71% as a percentage of total deposits of the bank. Other banks with CASA deposits in that range include Punjab National Bank, Dena Bank, Bank of Maharashtra and United Bank of India. All these banks have about 40% in their CASA deposits as at the end of September 2008, according to data available with the finance ministry.
Another bank chairman, who also asked not to be named, said SBI has taken a very calculated step and there was a possibility that the move can be emulated by other public sector banks.
Last week, the Reserve Bank of India (RBI) had said there was scope for further rate cuts by banks as the central bank has provided them enough cushion to do so. The RBI had expressed these views in its third quarter review of the annual monetary policy.
niranjan.bharati@timesgroup.com
DLF: Room for disappointment
DLF: Room for disappointment
Business Standard, February 03, 2009, Section II, Page 1
With demand from corporate and residential sectors still weak, revenues and profits could remain under pressure.
Shobhana Subramanian / Mumbai February 03, 2009, 0:35 IST
More than the sharp fall in revenues and profits of real estate companies, what seems to be worrying the Street is the rise in their indebtedness. That’s one reason the DLF stock closed down 13.5 per cent at Rs 153.20 — an all-time low— on Monday. Despite attempts to conserve cash, DLF’s debt is estimated by analysts to have risen by about Rs1,500 sequentially to just under Rs 15,000 crore. However, the company says it has already repaid Rs 1,000 crore of the short term outstandings of around Rs 5,000 crore that need to be paid by mid-2009, and has arranged for another Rs 3,000 crore.
That’s comforting but according to Citigroup, mounting receivables from DLF Assets Ltd (DAL) —a company owned by the promoters of DLF—of around Rs 5,400 crore, is a worry and ‘enhances risks’. Analysts estimate the net to equity for the company at around 0.63 and 0.82 if receivables from DAL are included. DLF has been restructuring its borrowings such that most of it can be paid over a longer time period. Besides, the average cost of debt, which is a shade under 12 per cent, is expected to come down to single digits over the next year or so.
Meanwhile, the business itself is losing momentum. To begin with, revenues from DAL will taper off because of the lower offtake from the IT sector. While the contract that DLF has with DAL allows for the sale of around 20 million sq ft of space in IT SEZs, only 11 million sq ft has already been sold so far and the remaining area may take longer to be sold than the anticipated 12 months. The management feels it may not be able to sell more than one million sq ft of space or so over the next year and, therefore, some projects have been deferred.
The weakness in the corporate space apart, there aren’t too many buyers in the residential segment either. That was clearly reflected in the sharp 64 per cent sequential fall in DLF’s revenues for the December 2008 quarter—volumes for sales and leases were lower by just over 60 per cent at about 1.7 million sq ft. Nevertheless, the company managed to post operating profit margins that were reasonably strong at 56 per cent, just 270 basis points lower sequentially.
As the management points out, typically margins on rentals would be 100 per cent so excluding that component, operating margins are in the region of 35 per cent.
With a clear shift towards middle-income housing though, margins could trend downwards in the future, especially, since DLF is pricing its new launches competitively. Its recent launch in Hyderabad –priced at between Rs 1850-2200 per sq ft—is understood to be at a discount to the ruling market price.
With margins under pressure, the company’s revenues and profits are expected to fall by around 55 per cent in 2009-10 to around Rs 5,100 crore and Rs 2,100 crore respectively. DLF was probably the only property firm to have launched a product in the December 2008 quarter. That’s not surprising because prospective buyers remain unsure about their salaries and jobs in the current environment. That’s why despite lower property prices and lower interest rates, demand may take its time coming.
Business Standard, February 03, 2009, Section II, Page 1
With demand from corporate and residential sectors still weak, revenues and profits could remain under pressure.
Shobhana Subramanian / Mumbai February 03, 2009, 0:35 IST
More than the sharp fall in revenues and profits of real estate companies, what seems to be worrying the Street is the rise in their indebtedness. That’s one reason the DLF stock closed down 13.5 per cent at Rs 153.20 — an all-time low— on Monday. Despite attempts to conserve cash, DLF’s debt is estimated by analysts to have risen by about Rs1,500 sequentially to just under Rs 15,000 crore. However, the company says it has already repaid Rs 1,000 crore of the short term outstandings of around Rs 5,000 crore that need to be paid by mid-2009, and has arranged for another Rs 3,000 crore.
That’s comforting but according to Citigroup, mounting receivables from DLF Assets Ltd (DAL) —a company owned by the promoters of DLF—of around Rs 5,400 crore, is a worry and ‘enhances risks’. Analysts estimate the net to equity for the company at around 0.63 and 0.82 if receivables from DAL are included. DLF has been restructuring its borrowings such that most of it can be paid over a longer time period. Besides, the average cost of debt, which is a shade under 12 per cent, is expected to come down to single digits over the next year or so.
Meanwhile, the business itself is losing momentum. To begin with, revenues from DAL will taper off because of the lower offtake from the IT sector. While the contract that DLF has with DAL allows for the sale of around 20 million sq ft of space in IT SEZs, only 11 million sq ft has already been sold so far and the remaining area may take longer to be sold than the anticipated 12 months. The management feels it may not be able to sell more than one million sq ft of space or so over the next year and, therefore, some projects have been deferred.
The weakness in the corporate space apart, there aren’t too many buyers in the residential segment either. That was clearly reflected in the sharp 64 per cent sequential fall in DLF’s revenues for the December 2008 quarter—volumes for sales and leases were lower by just over 60 per cent at about 1.7 million sq ft. Nevertheless, the company managed to post operating profit margins that were reasonably strong at 56 per cent, just 270 basis points lower sequentially.
As the management points out, typically margins on rentals would be 100 per cent so excluding that component, operating margins are in the region of 35 per cent.
With a clear shift towards middle-income housing though, margins could trend downwards in the future, especially, since DLF is pricing its new launches competitively. Its recent launch in Hyderabad –priced at between Rs 1850-2200 per sq ft—is understood to be at a discount to the ruling market price.
With margins under pressure, the company’s revenues and profits are expected to fall by around 55 per cent in 2009-10 to around Rs 5,100 crore and Rs 2,100 crore respectively. DLF was probably the only property firm to have launched a product in the December 2008 quarter. That’s not surprising because prospective buyers remain unsure about their salaries and jobs in the current environment. That’s why despite lower property prices and lower interest rates, demand may take its time coming.
DLF stalls a fourth of its projects
DLF stalls a fourth of its projects
Business Standard, February 03, 2009, Page 6
BS Reporters / New Delhi/ Mumbai
DLF, the country’s biggest real estate player, has suspended work on more than a quarter of its commercial projects in a bid to save costs as demand for homes and offices slows.
The Kushan Pal Singh-led realty major has halted construction work on nearly 16 million sq ft of office and retail mall space out of the 62 million sq ft of planned construction. In the office space, the developer has stalled construction on nearly 12 million sq ft of office space out of the 36 million sq ft of space being planned.
DLF Vice-Chairman Rajiv Singh said the projects will remain suspended until its finances improve and there is a demand push.
The disclosure comes amid a 69 per cent drop in the company's consolidated third quarter profit to Rs 670.79 crore. The real estate developer’s move to limit its expansion to save cash hasn’t helped it control debt, which spiralled by Rs 1,500 crore to reach Rs 14,800 crore in the quarter compared to the previous quarter, sources said.
DLF is now in talks with public sector banks to substitute Rs 4,000 crore short-term debt with asset- backed long-term debt in next six months. The company has already substituted Rs 1,000 crore worth debts with long-term debts with a maturity period of 2 to 5 years, Rajiv Singh said. Another Rs 2,000 crore will be raised during the current financial year, he added.
The credit crisis in DLF worsened after receivables from DLF Assets (DAL), a group company that purchases bulk of the office space from DLF, mounted due to reduction in demand for leased office space. DLF’s total outstanding debt is over Rs 15,000 crore of which Rs 2,250 crore is expected from DAL during the January-March quarter.
DAL has so far been unsuccessful in its attempts to raise over Rs 2,500 crore from private equity players.
Stating that DAL’s private placement will happen very soon, Singh said DLF has suspended future sales to DAL. The company has also put on hold development of 2-2.5 million sq ft office space due to the demand slump.
“Given the softness in demand for leased office space, the balance delivery to DAL will be substantially delayed,” Singh said.
The continuing uncertainty in the credit and liquidity conditions has also compelled DLF to tighten its cash outflow by putting several of its new projects on hold.
Realtors to cut rates
New Delhi-based real estate developers DLF and Parsvnath plan to cut property prices by as much as 15 per cent in the next few months to boost sales. The cut comes as part of their plans to launch affordable housing project to lure buyers. Referring to slowing sales, Rajiv Singh, VC, DLF, said the cut in prices will be visible in the next three months. The developer has already cut prices in Hyderabad. The new projects are expected to be at least 10-15 per cent cheaper than similar projects that were announced a year ago, he said.
Parsvnath promoters pledge 10% shares
Pradeep Jain, founder of New Delhi-based real estate developer Parsvnath, said he had pledged 10 per cent of the promoter's shares with lenders to fund expansion plans. He declined to give more details. Jain and his family members own more than 80 per cent of the company. The cash-strapped real estate developer is in talks with banks to restructure its outstanding debt of Rs 1,825 crore. The company is seeking longer repayment tenure with a one-year repayment moratorium, Jain said.
Falling market prompts DLF to sell assets, reorganize debt
Falling market prompts DLF to sell assets, reorganize debt
MINT, February 03, 2009, Page 05
The company expects to raise Rs2,000 cr by selling ‘non-strategic’ assets over the next few quarters
The sharp decline in the Indian property market has led DLF Ltd, the country’s largest real estate developer by market value, to plan selling assets and reorganizing debt in the coming quarters.
DLF expects to raise Rs2,000 crore by selling “non-strategic” assets—such as its power business and the land that was to be used for retail and commercial projects—over the next few quarters.
Ground reality: DLF is also replacing Rs4,000 crore of short-term debt that will mature in the later part of the year with long-term debt. In the third quarter, DLF replaced Rs1,000 crore of short-term debt. Harikrishna Katragadda / MintThe DLF group also plans to raise around Rs2,000-2,500 crore in DLF Assets Ltd (DAL), owned by its promoters, by selling stakes to private equity investors. DAL was established to buy and hold completed commercial assets of the listed developer. DAL owes around Rs5,500 crore to DLF for the assets that it has bought from the parent company. “DAL is hoping to complete a financial transaction by this fiscal to repay DLF,” said Rajiv Singh, vice-chairman of DLF. “The second option will be listing, which could happen in the next financial year.”
Like many other realty companies, DLF wants to restructure its debt. DLF has a net debt of around Rs13,000 crore. The company is replacing Rs4,000 crore of short-term debt that will mature in the later part of the year with long-term debt. In the third quarter, DLF replaced Rs1,000 crore of short-term debt and it plans to replace Rs3,000 crore of debt by this fiscal. DLF needs to repay around Rs2,000 of crore of debt by March.
It became evident over the weekend that the developer, as also its peers in the real estate business, would eventually report sales and earnings less than the previous fiscal.
On Saturday, DLF reported a 68.72% decline in net profit to Rs670.79 crore for the third quarter ended December compared with Rs2,144.98 crore in the corresponding period last year. The company’s revenue was down by 39.42% to Rs673.46 crore during the quarter compared with Rs1,111.85 crore during the year-ago quarter.
DLF’s closest rival, Unitech Ltd, on Saturday reported a 74.12% decline in net profit to Rs136.05 crore compared with Rs525.78 crore during the year-ago quarter. The company’s revenue declined by 56.48% to Rs507 crore against Rs1,165.11 crore during the same period last year.
Analyst said the 2008-09 results of real estate companies are likely to be lower compared to last fiscal.
“Revenues of DLF and other real estate developers will be lesser during the fiscal year ended 2009 because I don’t think they will book more sales or launch new projects this quarter,” an analyst with a domestic brokerage firm who did not wish to be named said. “It will either be lesser than year or at the best the companies will show similar performance compared to last year.”
“Looking at the nine months results, it has become evident that they will post lower revenue and profit this year,” another analyst with an international brokerage firm said.
In the last nine months, prices of residential property have dropped 15-20% in India’s top cities, with research houses such as Goldman Sachs predicting a further 30% correction. Assuming that DLF will post similar sales and profit during the fourth quarter, the company could report revenue of Rs4,445.54 crore for fiscal 2009 compared with Rs4,813.72 crore during fiscal 2008. The company is likely to post a decline of 51.95% in its net profit to Rs5,140.89 crore during fiscal 2009 compared with Rs7,812.03 crore during the previous fiscal.
DLF had a commitment to deliver 19.5-22 million sq. ft to DAL. The company has secured tenants for 11.5 million sq. ft. It plans to deliver 9.5 million sq. ft by March and 2-2.5 million sq. ft over the next six-eight months “We will get tenants for the remaining space that needs to be delivered over the next 24-36 months,” Singh said. “However, we think it is not wise to create something that will take so long... We are being cautious about it. The balance delivery in DAL will be substantially delayed.”
Thus, revenue contribution to DLF from sales to DAL will be significantly less for the next several quarters. In the third quarter ended December, DAL contributed to 35% of DLF’s profit before tax, compared to 58% during the same quarter the previous year.
Revenue from rentals, which contributes one-fifth of the company’s profit, is expected to go up to 30-40%, Singh said. DLF also plans to cut prices of new homes by an additional 15-20% in the next three months. Around 12-15 months ago, DLF started reducing prices of its new products. The company reduced prices by 25-30% of the then-prevalent market price, Singh said. “Out of the potential price correction that could happen of up to 50%, 30% price correction has already taken place.
Parsvnath’s new projects to cost less
Parsvnath’s new projects to cost less
Hindustan Times, February 03, 2009, Page 27
Ruling out a rate cut in its existing projects, Parsvnath Developers on Monday said the company would price its upcoming residential projects at a 10 per cent price lower than the prevailing market rate.
“In all our upcoming projects, the prices would be 10-15 per cent lower than the prevailing market prices,” said Pradeep Jain, chairman, Parsvnath Developers.
The company also disclosed that the promoters have pledged over 10 per cent of their 80 per cent holding within the company with public sector banks to repay the loan taken for the Delhi Metro project. “It is over 10 per cent but not majority of our holding has been pledged,” said Jain.
The company said it was currently focusing on completing its ongoing projects.
“Our focus is on competing ongoing projects and starting new projects in locations where there is demand,” Jain said. “We will come up with some drop in prices through cutting down the size of the apartment or bringing down facilities and specifications.” The company has been cutting corners by downsizing staff and reducing salaries for senior officials.
“Salaries of senior level officials have bee reduced by about 20 per cent. Few directors, including me, have taken a slary cut of 50 per cent,” said Jain.
Hindustan Times, February 03, 2009, Page 27
Ruling out a rate cut in its existing projects, Parsvnath Developers on Monday said the company would price its upcoming residential projects at a 10 per cent price lower than the prevailing market rate.
“In all our upcoming projects, the prices would be 10-15 per cent lower than the prevailing market prices,” said Pradeep Jain, chairman, Parsvnath Developers.
The company also disclosed that the promoters have pledged over 10 per cent of their 80 per cent holding within the company with public sector banks to repay the loan taken for the Delhi Metro project. “It is over 10 per cent but not majority of our holding has been pledged,” said Jain.
The company said it was currently focusing on completing its ongoing projects.
“Our focus is on competing ongoing projects and starting new projects in locations where there is demand,” Jain said. “We will come up with some drop in prices through cutting down the size of the apartment or bringing down facilities and specifications.” The company has been cutting corners by downsizing staff and reducing salaries for senior officials.
“Salaries of senior level officials have bee reduced by about 20 per cent. Few directors, including me, have taken a slary cut of 50 per cent,” said Jain.
DLF to build affordable homes, Parsvnath puts projects on hold
DLF to build affordable homes, Parsvnath puts projects on hold
Financial Express, 03 February 2009, Page VIII
fe Bureau
New DelhiThe country’s largest real estate developer, DLF Ltd, which reported a 69% decline in its third quarter profit on Saturday, said on Monday that it will reduce prices of its future projects by 15%, develop 20 million sq ft of affordable housing, raise Rs 2,000 crore from selling non-strategic assets and clear its short term debts by raising long-term funds.
Meanwhile, another Delhi-based developer, Parsvnath Developers Ltd, which reported a 95.18% decline in net profit, said it has pledged 10% of its promoters' share, put its retail and overseas projects on hold and has adopted a go slow mode with its SEZ projects. “We have approached financial institutions to restructure debt and give a moratorium for 9-12 months,” chairman, Parsvnath, Pradeep Jain, said. The company’s net debt as on December 31, 2008, stood at Rs1,825 crore with an average interest cost of 13.59%.
DLF said that it is not ruling out job cuts if the business environment continues to be lull. In order to reduce DLF's receivables from DLF Assets (DAL) it is planning to raise funds to the tune of Rs 2,500 crore.
“After this (15%) rate cut, price of products will be at par with what it was a decade ago,” claimed, vice-chairman, DLF, Rajiv Singh. He said that the property market has come to a 'virtual shutdown' with sales declining by 10% to 25%. As a result, current projects are being offered at significantly cheaper rates.
Singh said that DLF will enter the Rs 20 lakh to Rs 40 lakh market for affordable housing. It will develop around Rs 2 crore sq ft of space for affordable housing in the next few years. These residential units, which will be priced at Rs 2,000 sq ft to Rs 2,500 sq ft, would have fetched DLF Rs 5,000 crore in normal times.
DLF is planning to raise Rs 2,000 crore by March 2009 to clear its short term debt. It has already raised Rs 1,000 crore in the third quarter of this financial year. It has a short term debt of Rs 4,000 crore which has to be cleared by the middle of 2009. “We are not going for any off market borrowing or pledging of promoter’s shares to get funds,” Singh said.
The promoter group company DAL is planning to raise Rs 2,500 crore through private placement of equity. DLF will also stop the sale of its assets to promoter group company, DAL, in the short term as demand for leased office space shrinks sharply and receivables from DAL rise dramatically. The receivables from DAL at the end of second quarter was Rs 4,800 crore.
It is also planning to raise Rs 2,000 crore by selling its non-strategic assets. “This could be surplus land or a non-core business like power,” Singh said.
On Monday, shares of DLF closed lower by 13.54% on the Bombay Stock Exchange at Rs 153.20 whereas Parsvnath shares tanked 1.94%.
Realty rates to fall by 20% in 3 mths: DLF
Realty rates to fall by 20% in 3 mths: DLF
The Economic Times, February 3, 2009, Page 5
Firm To Raise Rs 2k Cr Via Sale Of Non-Strategic Assets
Our Bureau NEW DELHI
PROPERTY prices will fall further by 15-20% in the next three months, DLF vice-chairman Rajiv Singh said on Monday. India’s largest real estate company, DLF, which reported a 69% decline in profit for December quarter, said it was expecting to raise over Rs 2,000 crore through sale of ‘non-strategic’ assets, including wind power business and land parcels that are unlikely to generate revenue for the next 10 years.
Mr Singh said he expects to raise over Rs 2,000 crore through private placement in the promoter group company DLF Assets(DAL), that buys IT space from DLF. Meanwhile, either of the two investment firms - DE Shaw and Symphony Capital- is looking to exit its investment in DAL.
DLF’s shares fell 13.5% on Monday to close at Rs 153 while the benchmark Sensex fell 3.8%. If there was a potential of 40-45% of price correction from the 2007 level, 30-35% is already factored in and rest would happen in the next three months, by when we will see a drop of maximum 20% in prices from current level, Mr Singh said, clarifying that lower prices will be visible only in the new launches. He said prices in three months will reach an inflation-adjusted level of 1998.
Mr Singh said there was a ‘virtual shut down’ of the markets in September-October. DLF sold only 77 residential units in November and December, against an average 400 units per month. The company says it plans to focus on new home launches in the Rs 20-40 lakh category. “If the product is well priced and well located and if general economic scenario improves, people will start looking to buy property from the middle of the current year,” Mr Singh said.
He says lower prices will bring down its margin from 35% to 25% for non-rental business, which currently contributes around 80% of total profits.
One of the two investment funds—US-based DE Shaw and UK-based Symphony Capital— who have put in money in DLF Assets (a privately- held firm floated by the promoters of DLF), is looking at exiting its investments, DLF vice-chairman Rajiv Singh told analysts in a conference call on Monday. Hedge fund DE Shaw which invested $400 million in DAL in 2007, is widely believed to be the fund looking to pull out of DAL. But this could not be independently confirmed.
“One of the two investors is looking at exiting DAL either at the time of listing or before that,” Mr Singh said, without naming the investor citing non-disclosure agreement. He added that the promoters are considering an IPO for DAL.
DLF may cut home prices by 20%
DLF may cut home prices by 20%
The Times of India, February 03, 2009, Page 21
DLF, India's biggest developer, plans to cut prices of homes by 20% to help lift demand in a slowing economy. DLF expects to introduce the price cuts in new projects over the next three months, vice chairman Rajiv Singh told reporters in New Delhi.
The property developer expects to get as much as Rs 25000 crore ($510 million) selling stake in its unit, DLF Assets Ltd, Singh said.
Meanwhile, another realty firm Parsvnath Developers said it has approached banks for 9-12 months' breather on paying instalments of its existing debt, and plans to utilise the additional liquidity on timely completion of current projects.
"We are asking for rescheduling the ongoing installments for our debts and are requesting for a moratorium of 9-12 months," Parsvnath Developers chairman Pradeep Jain said. The company would utilise the additional liquidity that can be generated out of the adjustments to quickly complete the current projects, he added. The company's net debt as on December 31, 2008, stood at Rs 1,825 crore with an average interest cost of 13.59%.
The Times of India, February 03, 2009, Page 21
DLF, India's biggest developer, plans to cut prices of homes by 20% to help lift demand in a slowing economy. DLF expects to introduce the price cuts in new projects over the next three months, vice chairman Rajiv Singh told reporters in New Delhi.
The property developer expects to get as much as Rs 25000 crore ($510 million) selling stake in its unit, DLF Assets Ltd, Singh said.
Meanwhile, another realty firm Parsvnath Developers said it has approached banks for 9-12 months' breather on paying instalments of its existing debt, and plans to utilise the additional liquidity on timely completion of current projects.
"We are asking for rescheduling the ongoing installments for our debts and are requesting for a moratorium of 9-12 months," Parsvnath Developers chairman Pradeep Jain said. The company would utilise the additional liquidity that can be generated out of the adjustments to quickly complete the current projects, he added. The company's net debt as on December 31, 2008, stood at Rs 1,825 crore with an average interest cost of 13.59%.
Homes to become cheaper on service tax exemption
Homes to become cheaper on service tax exemption
MINT, February 03, 2009, Page 11
The exemption is a potential boost to housing demand that has waned after economic growth started slowing, borrowing costs rose and credit became less readily available in 2008Madhurima Nandy Bangalore: Buying that dream home may have just got cheaper. Property buyers don’t have to fork out a service tax any more while buying a house. The finance ministry, in a circular dated 29 January, has exempted all builders of residential properties across the country from paying the service charge.
Earlier, developers would collect 3% service tax on the total value of the property from a buyer in an under construction project. For a Rs30 lakh apartment, a buyer would have had to pay an extra Rs90,000 as service tax.
Boost for buyers: The move may boost housing demand in the country. Harikrishna Katragadda / Mint“It’s a welcome move. In such bad times, it could boost sales for us because the benefits of the exemption are for real buyers,” said Nayan Shah, joint secretary of the Maharashtra Chamber of Housing Industry.
The exemption is a potential boost to housing demand that has waned after economic growth started slowing, borrowing costs rose and credit became less readily available in 2008.
“It’s a benefit but the process of levying service tax is not transparent. Some builders show it as a separate tax and some do not,” said Akshaya Kumar, CEO of Parklane Property Advisors. Kumar said that in the case of the latter, it is incorporated as a consolidated amount charged for the property.
Earlier attempts to revoke the tax were never followed through. In August 2007, a circular from the finance ministry excluded developers from collecting service tax from buyers because construction is done by employing direct labour.
“Certain clauses in the circular were confusing. It said ready flats need not pay service tax whereas such flats had been already exempted from the tax. The new circular carries more clarity on the subject,” said a Mumbai-based developer, who didn’t want to be identified.
Builders charge a 4% value-added tax (that is levied by the state government), along with the service tax.
“Service tax is charged as a one-time payment and it’s usually taken by the builder before the house keys are handed over to a buyer. Builders will continue to collect the 4-5% value-added tax that is levied by the respective state governments,” said Shah.
The circular, however, makes an exception for cases where services of an interior designer or architect are hired independently in a project. Such service providers would then be liable to pay service tax.
MINT, February 03, 2009, Page 11
The exemption is a potential boost to housing demand that has waned after economic growth started slowing, borrowing costs rose and credit became less readily available in 2008Madhurima Nandy Bangalore: Buying that dream home may have just got cheaper. Property buyers don’t have to fork out a service tax any more while buying a house. The finance ministry, in a circular dated 29 January, has exempted all builders of residential properties across the country from paying the service charge.
Earlier, developers would collect 3% service tax on the total value of the property from a buyer in an under construction project. For a Rs30 lakh apartment, a buyer would have had to pay an extra Rs90,000 as service tax.
Boost for buyers: The move may boost housing demand in the country. Harikrishna Katragadda / Mint“It’s a welcome move. In such bad times, it could boost sales for us because the benefits of the exemption are for real buyers,” said Nayan Shah, joint secretary of the Maharashtra Chamber of Housing Industry.
The exemption is a potential boost to housing demand that has waned after economic growth started slowing, borrowing costs rose and credit became less readily available in 2008.
“It’s a benefit but the process of levying service tax is not transparent. Some builders show it as a separate tax and some do not,” said Akshaya Kumar, CEO of Parklane Property Advisors. Kumar said that in the case of the latter, it is incorporated as a consolidated amount charged for the property.
Earlier attempts to revoke the tax were never followed through. In August 2007, a circular from the finance ministry excluded developers from collecting service tax from buyers because construction is done by employing direct labour.
“Certain clauses in the circular were confusing. It said ready flats need not pay service tax whereas such flats had been already exempted from the tax. The new circular carries more clarity on the subject,” said a Mumbai-based developer, who didn’t want to be identified.
Builders charge a 4% value-added tax (that is levied by the state government), along with the service tax.
“Service tax is charged as a one-time payment and it’s usually taken by the builder before the house keys are handed over to a buyer. Builders will continue to collect the 4-5% value-added tax that is levied by the respective state governments,” said Shah.
The circular, however, makes an exception for cases where services of an interior designer or architect are hired independently in a project. Such service providers would then be liable to pay service tax.
Realtors set free of service tax burden on sale of apartments
Realtors set free of service tax burden on sale of apartments
The Economic Times, February 03, 2009, Page 7
CASH-STARVED DEVELOPERS GET A BREATHER AFTER CBEC CLARIFICATION
Deepshikha Sikarwar NEW DELHI
PROPERTY developers building residential complexes will not have to pay service tax on sale of apartments now, as the tax department has cleared the ambiguity on taxability of these companies.
The Central Board of Excise and Customs (CBEC) in a circular has said construction service provided by a builder to a person buying the apartment till the execution of sale deed would not attract service tax.
Usually, developers enter into an ‘agreement to sell’ with the buyer of the property. But the property remains under the ownership of the developer and it is only after the completion of the construction and full payment of the agreed sum that a sale deed is executed and ownership of the property transferred to the buyer.
“Therefore, any service provided by such seller in connection with the construction of residential complex till the execution of such sale deed would be in the nature of ‘self-service’ and consequently will not attract service tax,” the circular said.
Also, if the ultimate owner enters into a contract for construction of a residential complex with a builder who himself provides service of design, planning and construction, and after such construction the owner receives such property for his personal use, then such activity would not be subjected to service tax. It is because this case would fall under the exclusion provided in the definition of ‘residential complex’.
However, if services of any person like contractor, designer or a similar service provider are received in both the cases, then these would attract service tax.
The circular comes in the backdrop of various builders’ organisations approaching the government seeking clarity over applicability of service tax in a case where a developer enters into an agreement to sell a dwelling unit in a residential complex at any stage of construction. A debate on this was split with a segment of service tax officers who operate on the field arguing that after an agreement of sale between a buyer and a developer, the buyer becomes the owner of the residential unit and subsequent activity of a builder for construction of residential unit was a service of ‘construction of residential complex’ and hence liable to service tax. However, the opinion was countered by another section of officials.
“The CBEC clarification unambiguously puts to rest all conflicting views emerging in case of sale of dwelling unit in a residential complex,” Ernst & Young associate director Bipin Sapra said.
HOME RUN
What was the confusion?
Realtors had asked govt for clarity over applicability of service tax
Builders argued service tax should not be levied when they enter into an agreement to sell a residential unit during construction
What prompted CBEC circular?
There was a difference of opinion within the tax department
One section said a buyer becomes owner of the unit after an agreement of sale with developer, and construction was a service provided by the builder
But this opinion was countered by another section of officials
What has CBEC clarified?
CBEC has now said that construction service provided by a builder to a person buying the apartment till the execution of sale deed would not attract service tax
IL&FS Realty Fund picks 15% in Akruti SPV | Parsvnath pledges shares
IL&FS Realty Fund picks 15% in Akruti SPV
The Economic Times, February 03, 2009, Page 13
MUMBAI: IL&FS Realty Fund, an Indiafocused real estate fund managed by IL&FS Investment Managers, has picked up 15% equity stake in Infrastructure Ventures India, an SPV floated by Mumbai-based developer Akruti City, for Rs 200 crore. Infrastructure Ventures India is primarily a public-privatepartnership project formed for developing housing infrastructure for Mumbai Police in Ghatkopar, a Mumbai suburb.
Parsvnath pledges shares
NEW DELHI: Parsvnath Developers has pledged more than 10% shares with financial institutions as collateral for loans in different projects, chairman Pradeep Jain said on Monday. “We have over 10% of shares pledged and all of it is for project financing,” Mr Jain said, clarifying that promoters have not pledged any shares for their personal investments. Meanwhile, Parsvnath Developers reported 96% decline in profit to Rs 5 crore and 80% decline in revenues to Rs 90 crore for the quarter ended December ‘08. The company said it sold a negligible number of homes in December quarter, without giving the exact number. Mr Jain said property prices have dropped around 10% in new launches. Parsvnath has a total of Rs 1,800 crore of debt on its balance sheet, of which Rs 75 crore is due by March 2009.
Cement sector slowdown can be longer than expected, says Fitch
Cement sector slowdown can be longer than expected, says Fitch
The Financial Express, February 03, 2009, Page 5
fe Bureau
Mumbai, Feb 2
The 206.96 million tonne cement industry is going through tough times. India, the world’s second largest cement producer, is now expected to exhibit volume growth in the range of 6% to 7% over calendar year (CY) 2010 and most of CY 2011, in line with its GDP growth, said Fitch Ratings on Monday in its cement outlook 2009.
The global rating agency, in its projection for the current year, assigns the sector a stable to negative outlook. The pace of capacity expansion is expected to exceed demand growth over the medium term, which Fitch expects to result in lower capacity utilisation for the sector from current levels, with bulk of the impact being felt in 2009 and 2010 when utilisation rates could potentially dip below 80%.
“Over the past few months, the sector has started showing signs of a slowdown which can be more prolonged than previously expected, reflecting the prevailing trends in key consuming sectors,” the rating agency said.
Meanwhile cement prices have also started coming under pressure over the fourth quarter of 2008 along with new capacities becoming operational. The domestic demand is expected to remain muted, with export demand coming under pressure due to the slowdown in key export markets such as the Middle East.
“The slowing down in demand could increase working capital requirements,” the rating agency added. From CY07 onwards, with most large players undergoing significant capacity expansion, Fitch expects leverage levels to increase moderately, although the risks are partly offset by the expectation of only moderate softening of volumes and margins coupled with strong liquid balances and reserves accrued during the boom.
“We expect most medium and large players to face major issues with regard to fund availability to meet their requirements for capex and higher working capital. However, we believe that smaller entities with poor cost structures and ongoing debt-led capex would be more vulnerable during the current down turn. As far as small players with weak credit metrics are concerned, fund availability could also be a concern,” the report said.
Together we shall beat the crisis
Together we shall beat the crisis
The Economic Times, February 3, 2009, Page 15
Beginning Made At Davos, Real Work Starts Now
THE economic crisis we are witnessing now is a transformational one. It will have fundamental effects on our globalised world. Here in Davos over the past five days we began the task of collectively shaping that transformation. Let me explain how.
One objective achieved was to give support to governments and governance institutions – particularly the G20. Davos is only the starting point of a long and difficult road ahead. But by bringing world leaders together over the past days, we have arrived at a better understanding of the origin of the economic crisis and what steps we need to take to re-launch the global economy. Hearing the perspectives of four G8 governments and supporting the dialogue of the G20 process in the run-up to the April summit in London were important first steps. By convening key trade ministers from 17 economies plus the 27-member EU to deter “beggar-thy-neighbour” policies we will also hopefully see the real implications of this spirit. And in bringing together the Chair of the G20, Prime Minister Brown, with heads of government of several G20 members from Africa, Asia and Latin America to address systemic risks in the financial system and how to stabilise the world economy, we have made the first steps in a collective global approach to the crisis.
But the past days have also convinced me more than ever that climate change must not only be tackled but can become at least a part of an economic revival. Business is starting to “hardwire” climate change into their plans going forward – green technologies can no longer be an “add on” or fringe industry. This is a very pertinent discussion for 2009. In December, a follow-on treaty to the Kyoto Protocol on climate change is scheduled for negotiation at the Copenhagen summit. The plans for world economic recovery linked to the jobs, skills, investment and technology opportunities that a global low carbon economy requires, must become a reality if climate change is to be managed successfully. Green technology can become a clean engine for renewed growth. Let’s not talk about “alternative” energy ever again – there is only sustainable energy that will fuel the economy of the future. To this end, industry executives in Davos agreed to move forward with half a dozen specific initiatives to accelerate the integration of sustainable practices into business.
One of the key outcomes from Davos was that despite the economic turbulence, people chose to come together in record numbers from industry, government and a range of other stakeholders to discuss the global challenges we face and to connect in order to respond together to such challenges. This willingness to work together, across geographies and across all sectors from business, politics and civil society is what will hopefully distinguish this current crisis from the 1930s. This collective sense of cooperation and determination that was visible in Davos is what gives me some optimism that can work our way out of the present crisis. It’s easy to dismiss this as wishful thinking but if we have learned one thing from the crisis of the last six months, it is that confidence and trust must be at the heart of any recovery when it finally comes.
Finally, we have noted that none of this is effective without an honest and deep review of our underlying values and ethics. Business needs to look deeply at their systems of remuneration and governance. Business people, policymakers, regulators, and consumers all have to consider the excesses of greed. In today’s highly interdependent world, short-term greed is not a sufficient driver of optimal decision-making. The systemic and inter-generational impact of our actions now are more important than they have ever been before - our ethical codes, as well as our governance or regulatory systems, must reflect this new reality.
These are just the beginning of solutions, but the real work starts now. We must come together to stop our world falling apart.
Klaus Schwab
(The author is founder and executive chairman, World Economic Forum)
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