Friday, February 27, 2009
Inflation at 15-month low of 3.36%; may fall below 1% by March
Inflation at 15-month low of 3.36%; may fall below 1% by March
The Financial Express, February 27, 2009, Page 2
fe Bureau
Inflation fell sharply by 56 basis points to a 15-month low of 3.36% for the week ended February 14, raising expectations of rate cuts from the Reserve Bank of India. With the government already announcing a 2% cut in service tax and excise duty, the action is now expected to shift towards the RBI. Inflation stood at 3.92% in the previous week.
Analysts now expect inflation rate to fall below 1% by March end, while RBI has targeted an inflation of 3% or lower. The second round effects of the fuel price reduction announced earlier has lowered the pace of price rise of various commodities. While most products including food and manufactured items turned cheaper, some luxury items like wine became expensive. The wholesale price index-based inflation is at its lowest since November 24, 2007 when it stood at 3.11%. Inflation for the week ended December 20 was revised to 5.91% from 6.38%, indicating a sharper reduction in inflation numbers than reflected in the provisional data.
Bond yields eased marginally, with the benchmark 2018 government bond ticking down one basis point to 6.58% after the inflation data. The rupee and the stock market held steady. The yield closed at 6.51% on Thursday, down from previous close of 6.65%. The 30-share BSE Sensex ended up 0.59% at 8,954.86 points and the 50-share NSE index closed up 0.84% at 2,785.65 points. The rupee closed at 50.45/47 per dollar, from previous close of 49.96/97, as month-end dollar demand from refiners and importers coupled with non-deliverable forwards-related dollar demand weighed on the rupee.
“Inflation is drastically coming down mainly due to the second round impact of the fuel price cut. Global crude prices have fallen drastically and the government may announce another fuel price cut soon. If that happens, then inflation would fall at a much faster pace,” Bank of Baroda chief economist Rupa Rege Nitsure said.
“With inflation at such low levels, good liquidity in the system and slackening credit demand, all warrant a lending rate cut of 50 to 100 basis points by banks,” she said. After aggressive rate cuts since October, RBI’s key lending rate, the repo, stands at 5.5%, while the reverse repo is at 4%. RBI governor Duvvuri Subbarao said in Tokyo recently there was room to cut rates, but the question was when and by how much. He, however, said a fall in inflation does not automatically mean rates will drop too.
Primary articles’ inflation fell to 7.3% from 8%. Food articles inflation fell across-the-board to 9.9% in the current week compared with 10.4% last week, coming down to a single digit level. Non-food articles’ inflation fell to 2.9% compared with 3.8% in the previous week. Fuel and power’ group inflation decreased to (-) 4% from (-) 3%. Manufactured products’ inflation fell to 4.7% from 4.9%.
Rs 5000-crore for housing
Rs 5000-crore for housing
The Economic Times, February 27, 2009, Page 3
THE government will provide financial assistance of Rs 5,000 crore to states in the next four years to construct 10 lakh affordable houses in the country, reports Our Bureau from New Delhi. The Central assistance will help in creating civic infrastructure. Construction of houses will be done under public-private partnership where states will provide land.“The scheme will increase the stock of houses ranging from 300 square feet to 1200 square feet,” said an official release issued after the Cabinet Committee on Economic Affairs on Thursday.
The Economic Times, February 27, 2009, Page 3
THE government will provide financial assistance of Rs 5,000 crore to states in the next four years to construct 10 lakh affordable houses in the country, reports Our Bureau from New Delhi. The Central assistance will help in creating civic infrastructure. Construction of houses will be done under public-private partnership where states will provide land.“The scheme will increase the stock of houses ranging from 300 square feet to 1200 square feet,” said an official release issued after the Cabinet Committee on Economic Affairs on Thursday.
Low-cost houses to be set up in PPP mode
Low-cost houses to be set up in PPP mode
Business Standard, February 27, 2009, Page 4
The Cabinet Committee on Economic Affairs (CCEA) on Thursday approved a scheme, to be implemented through the public-private partnership (PPP) model, to encourage states to increase the supply of land and construct one million affordable houses.
The scheme is expected to activate the measures announced for the housing construction sector under the economic stimulus packages.
It will increase the stock of houses ranging from 300 sq ft to 1,200 sq ft plinth area built at affordable rates on land provided by state governments.
The government has set aside Rs 5,000 crore for the next four years for this purpose. Private sector developers and builders as well as state-run housing boards are expected to be partners to the government for these projects, with funding from institutional sources.
Real estate developers looking at low-cost housing during the downturn would now have an opportunity to take up projects where the demand for housing is still high. The urban housing shortage is estimated at 24.7 million, largely for the weaker and low-income households.
The pace of applications for home loans at reduced interest rate of 8 per cent to 8.5 per cent (for loans up to Rs 5 lakh) and at 9.25 per cent (for loans up to Rs 20 lakh) can now be expected to increase, an official statement announcing the decision said.
A minimum of 25 per cent houses of 300 sq ft area will be compulsory for the economically weaker sections and the urban poor, in each project to be allotted by the government.
Meanwhile, the government today approved a Rs 3,070-crore package to implement recommendations of the second Vaidyanathan Committee on reviving the long-term cooperative credit structure.
The initial package, recommended by the panel, had been recast by the government in view of the announcement of the debt waiver scheme in last year’s Budget.
“While this (recommendation of the committee) was under examination, the agricultural debt waiver was announced. Factoring in the relief granted under the debt waiver scheme, the package recommended by the Vaidyanathan Committee has been recast,” Home Minister P Chidambaram said in New Delhi, briefing the media about decisions taken by the Cabinet.
Business Standard, February 27, 2009, Page 4
The Cabinet Committee on Economic Affairs (CCEA) on Thursday approved a scheme, to be implemented through the public-private partnership (PPP) model, to encourage states to increase the supply of land and construct one million affordable houses.
The scheme is expected to activate the measures announced for the housing construction sector under the economic stimulus packages.
It will increase the stock of houses ranging from 300 sq ft to 1,200 sq ft plinth area built at affordable rates on land provided by state governments.
The government has set aside Rs 5,000 crore for the next four years for this purpose. Private sector developers and builders as well as state-run housing boards are expected to be partners to the government for these projects, with funding from institutional sources.
Real estate developers looking at low-cost housing during the downturn would now have an opportunity to take up projects where the demand for housing is still high. The urban housing shortage is estimated at 24.7 million, largely for the weaker and low-income households.
The pace of applications for home loans at reduced interest rate of 8 per cent to 8.5 per cent (for loans up to Rs 5 lakh) and at 9.25 per cent (for loans up to Rs 20 lakh) can now be expected to increase, an official statement announcing the decision said.
A minimum of 25 per cent houses of 300 sq ft area will be compulsory for the economically weaker sections and the urban poor, in each project to be allotted by the government.
Meanwhile, the government today approved a Rs 3,070-crore package to implement recommendations of the second Vaidyanathan Committee on reviving the long-term cooperative credit structure.
The initial package, recommended by the panel, had been recast by the government in view of the announcement of the debt waiver scheme in last year’s Budget.
“While this (recommendation of the committee) was under examination, the agricultural debt waiver was announced. Factoring in the relief granted under the debt waiver scheme, the package recommended by the Vaidyanathan Committee has been recast,” Home Minister P Chidambaram said in New Delhi, briefing the media about decisions taken by the Cabinet.
Realty biggies likely to lower earlier profit figures
Realty biggies likely to lower earlier profit figures
Business Standard, February 27, 2009, Page 6
The country’s leading real estate companies are likely to lower part of their earlier profit figures as the dwindling income levels of home buyers may force some of them to walk out of booked projects, analysts said.
Last month, Mumbai-based Lok Housing and Construction had said it would restate its accounts for the past three financial years as the revenue it booked hasn’t materialised after the investors and buyers backed out of its projects. Lok plans to write off Rs 225.01 crore worth of profit and Rs 282.14 crore of sales it recognised in its books in the previous financial years.
According to a Credit Suisse report, developers such as DLF, Parsvnath and Orbit have over 20 per cent of their revenues booked since financial year 2006-07 as outstanding from customers and some of these transactions could be cancelled leading to write offs.
"Wherever possible, the customers are looking to walk out of transactions entered at the peak of real estate market,'' the Credit Suisse report said.
DLF, the country's largest developer, had recently cut home prices by 13-14 per cent in its Chennai project 'Garden City' to prevent large scale cancellations, Credit Suisse said.
Construction-to-power group Lanco had reported bookings of 4 million sq ft at its 6.7 million sq ft Lanco Hills project in Hyderabad-based Lanco Hills. As on December 2008, the bookings were down to 2-2.5 million sq ft. The company has cited the inability of buyers to pay in a challenging macro environment, to be the reason for cancellations, the report said.
The profits of real estate companies have increased multi-fold since FY06 on account of the revenues being recognised on a percentage completion method. However, this has also led to an increase in receivables as cash inflows have lagged the revenue recognition.
"Given the falling property prices, economic and job uncertainty, the inability of buyers to pay and investors backing out in anticipation of better deals, some of these transactions could be cancelled leading to the previously recognised profits being written off,'' the brokerage said.
Though the real estate developers denied any immediate need to restate their books, they said they may have to write off their profits if the buyers take more-than-expected time to pay for the booked property. "As of date, we have not found any cancellations or resized our transactions. There is no possibility of restatement at this point of time. However, customers may back out of projects, which could hit real estate companies like us. In the last quarter, we did not get any funds from our customers. If customers do not pay any money in the next three-four quarters, we may have to write off our revenues accordingly,'' said Ramashraya Yadav, head of finance at Orbit Corporation, a Mumbai-based developer.
Both Parsvnath Developers and DLF denied any need to restate their books, saying the customers have to pay the money after they enter into agreements with developers for their properties. "Until we receive money from buyers, we do not recognise revenues in our books,'' said Parsvnath chairman Pradeep Jain.
"If buyers do not pay the agreed money, their booking amount gets forfeited,'' said a DLF official.
Business Standard, February 27, 2009, Page 6
The country’s leading real estate companies are likely to lower part of their earlier profit figures as the dwindling income levels of home buyers may force some of them to walk out of booked projects, analysts said.
Last month, Mumbai-based Lok Housing and Construction had said it would restate its accounts for the past three financial years as the revenue it booked hasn’t materialised after the investors and buyers backed out of its projects. Lok plans to write off Rs 225.01 crore worth of profit and Rs 282.14 crore of sales it recognised in its books in the previous financial years.
According to a Credit Suisse report, developers such as DLF, Parsvnath and Orbit have over 20 per cent of their revenues booked since financial year 2006-07 as outstanding from customers and some of these transactions could be cancelled leading to write offs.
"Wherever possible, the customers are looking to walk out of transactions entered at the peak of real estate market,'' the Credit Suisse report said.
DLF, the country's largest developer, had recently cut home prices by 13-14 per cent in its Chennai project 'Garden City' to prevent large scale cancellations, Credit Suisse said.
Construction-to-power group Lanco had reported bookings of 4 million sq ft at its 6.7 million sq ft Lanco Hills project in Hyderabad-based Lanco Hills. As on December 2008, the bookings were down to 2-2.5 million sq ft. The company has cited the inability of buyers to pay in a challenging macro environment, to be the reason for cancellations, the report said.
The profits of real estate companies have increased multi-fold since FY06 on account of the revenues being recognised on a percentage completion method. However, this has also led to an increase in receivables as cash inflows have lagged the revenue recognition.
"Given the falling property prices, economic and job uncertainty, the inability of buyers to pay and investors backing out in anticipation of better deals, some of these transactions could be cancelled leading to the previously recognised profits being written off,'' the brokerage said.
Though the real estate developers denied any immediate need to restate their books, they said they may have to write off their profits if the buyers take more-than-expected time to pay for the booked property. "As of date, we have not found any cancellations or resized our transactions. There is no possibility of restatement at this point of time. However, customers may back out of projects, which could hit real estate companies like us. In the last quarter, we did not get any funds from our customers. If customers do not pay any money in the next three-four quarters, we may have to write off our revenues accordingly,'' said Ramashraya Yadav, head of finance at Orbit Corporation, a Mumbai-based developer.
Both Parsvnath Developers and DLF denied any need to restate their books, saying the customers have to pay the money after they enter into agreements with developers for their properties. "Until we receive money from buyers, we do not recognise revenues in our books,'' said Parsvnath chairman Pradeep Jain.
"If buyers do not pay the agreed money, their booking amount gets forfeited,'' said a DLF official.
Now, promoters take pledging to new heights
Now, promoters take pledging to new heights
The Economic Times, February 27, 2009, Page 9
Shikha Shrama & Sanjeev Choudhary ETIG ET BUREAU
AN ETIG study based on disclosures made by 467 listed firms shows the promoter group of 27 companies has pledged more than 90% of its holding. Well-known listed companies in this category include Kirloskar Electric, JP Hydropower, ERA Infra Engineering and Micro Inks.
Promoters of another 38 companies, including realty firms Unitech and Parsvnath besides other large firms such as Tata Teleservices (Maharashtra) and India Cements Capital, have pledged over 70% of their holding
When the promoter group pledges a high proportion of its shares, the firm is potentially vulnerable to management change, although so far there are just three cases of a promoter actually losing control as a result of pledging shares.
In case of Satyam, founder B Ramalinga Raju had got the IT firm’s board to approve purchase of a company owned by his family at a phenomenal valuation. This was done at a time when almost his entire stakeholding was pledged. Following the Satyam case, market regulator Sebi has made it mandatory for listed companies to disclose details of pledged shares.
“Usually a lender gives a loan worth 60% of the value of shares and if the share price falls, a margin call is triggered. There is a risk of management change if the quantum of shares pledged is high,” says Prithvi Haldea of Prime database, an independent market research firm. He points out that some promoters may even be tempted to manipulate profits of the company to keep the share prices inflated and avoid triggering selling of shares.
Promoters of a fourth of all companies in the study have pledged more than half of their total stake. Most of them haven’t disclosed either the object or the institutions with which shares have been pledged. Shares owned by promoters are pledged either for their personal borrowings or as a collateral with banks and other financial institutions against borrowings by the company. If the value of shares drops significantly, as is the case currently, banks ask for more shares or some other collateral.
If the firm or the promoter fails to furnish the extra amount the lenders can sell the shares in the market.
Some firms, however, say there is not a significant risk of sale of such shares in the market. Consider the case of power firm JP Hydropower where promoters have pledged around 59% of their total 63% in the company. “These pledged shares are only secondary securities. The primary security is the project for which finance is made available,” argues a senior executive of JP Hydropower.
Moreover, these shares are not really linked to market prices and do not trigger margin call, as they are meant to ensure lenders have control over the company in case of a default. JP Hydro shares were pledged before it was listed.
“There is definitely a case for more disclosure, which will bring in more transparency in the way promoters and companies function,” says Indiabulls Financial Services CEO Gagan Banga. Indiabulls is an NBFC with which many promoters have pledged shares.
Mr Haldea says these are early days. “We will learn lessons as we go along. It’s debatable if companies need to disclose the object, name of lenders and even use of funds. But the focus should only be on disclosures that are relevant and useful for investors.”
There are also firms where one of the co-promoters has pledged a large part of his stake. So even though the proportion of pledged shares of the total promoter holding is not significant, if margin calls are triggered, it could see one of the co-promoters losing part control of the company.
One such example is UTV Software in which the original Indian promoter group of the company has pledged 22.7% out of 23.3% held in the company. But the majority stake in the firm is now owned by Walt Disney(59.9%) and as a result, percentage of promoter group holding pledged would not be significant.
The Economic Times, February 27, 2009, Page 9
Shikha Shrama & Sanjeev Choudhary ETIG ET BUREAU
AN ETIG study based on disclosures made by 467 listed firms shows the promoter group of 27 companies has pledged more than 90% of its holding. Well-known listed companies in this category include Kirloskar Electric, JP Hydropower, ERA Infra Engineering and Micro Inks.
Promoters of another 38 companies, including realty firms Unitech and Parsvnath besides other large firms such as Tata Teleservices (Maharashtra) and India Cements Capital, have pledged over 70% of their holding
When the promoter group pledges a high proportion of its shares, the firm is potentially vulnerable to management change, although so far there are just three cases of a promoter actually losing control as a result of pledging shares.
In case of Satyam, founder B Ramalinga Raju had got the IT firm’s board to approve purchase of a company owned by his family at a phenomenal valuation. This was done at a time when almost his entire stakeholding was pledged. Following the Satyam case, market regulator Sebi has made it mandatory for listed companies to disclose details of pledged shares.
“Usually a lender gives a loan worth 60% of the value of shares and if the share price falls, a margin call is triggered. There is a risk of management change if the quantum of shares pledged is high,” says Prithvi Haldea of Prime database, an independent market research firm. He points out that some promoters may even be tempted to manipulate profits of the company to keep the share prices inflated and avoid triggering selling of shares.
Promoters of a fourth of all companies in the study have pledged more than half of their total stake. Most of them haven’t disclosed either the object or the institutions with which shares have been pledged. Shares owned by promoters are pledged either for their personal borrowings or as a collateral with banks and other financial institutions against borrowings by the company. If the value of shares drops significantly, as is the case currently, banks ask for more shares or some other collateral.
If the firm or the promoter fails to furnish the extra amount the lenders can sell the shares in the market.
Some firms, however, say there is not a significant risk of sale of such shares in the market. Consider the case of power firm JP Hydropower where promoters have pledged around 59% of their total 63% in the company. “These pledged shares are only secondary securities. The primary security is the project for which finance is made available,” argues a senior executive of JP Hydropower.
Moreover, these shares are not really linked to market prices and do not trigger margin call, as they are meant to ensure lenders have control over the company in case of a default. JP Hydro shares were pledged before it was listed.
“There is definitely a case for more disclosure, which will bring in more transparency in the way promoters and companies function,” says Indiabulls Financial Services CEO Gagan Banga. Indiabulls is an NBFC with which many promoters have pledged shares.
Mr Haldea says these are early days. “We will learn lessons as we go along. It’s debatable if companies need to disclose the object, name of lenders and even use of funds. But the focus should only be on disclosures that are relevant and useful for investors.”
There are also firms where one of the co-promoters has pledged a large part of his stake. So even though the proportion of pledged shares of the total promoter holding is not significant, if margin calls are triggered, it could see one of the co-promoters losing part control of the company.
One such example is UTV Software in which the original Indian promoter group of the company has pledged 22.7% out of 23.3% held in the company. But the majority stake in the firm is now owned by Walt Disney(59.9%) and as a result, percentage of promoter group holding pledged would not be significant.
Realty cos rejig debt to overcome slowdown blues
Realty cos rejig debt to overcome slowdown blues
Economic Times, February 27, 2009, Page 5
Rajesh Unnikrishnan & Supriya Verma Mishra
MUMBAI
REALTY companies and developers have undertaken ambitious debt restructuring exercises to improve their financial situation as the tight liquidity situation crimps housebuying decisions and debt-equity ratio of companies crosses the prudent level of 0.5. The debt-equity ratio of many property firms currently ranges from 1 and 1.5.
The domestic real estate market has already seen private equity firms buying strategic stakes in holding companies, sale of land banks and non-core businesses, pledging of promoters’ equity for long-term debt and securitising of future receivables for their working capital requirements.
“Developers are quick to accept their over-leveraged position and are taking all possible measures to correct this financial mess,” said Anshuman Magazine, MD (South Asia) of CB Richard Ellis. “Currently, they are focusing only on reducing debt. This can be done either by bringing in a strategic partner or selling land assets,” he added. CB Richard Ellis is working with more than six developers to cut debt exposures.
The Reserve Bank of India’s recent move to allow real estate companies to restructure their outstanding debt may be the last saving grace for these developers. Unitech’s outstanding debt was Rs 10,000 crore, going by the December 2008 quarter results.
Unitech had to repay Rs 2,500 crore by March 2009. It was able to restructure Rs 1,000 crore and this will be due for repayment after 12-18 months, depending on the restructuring terms. Another Rs 1,000 crore was raised through mutual funds and Rs 500 crore was restructured for three months and will be due by the end of March this year. The company is raising funds by part-selling its stake and non-core businesses.
Similarly, HDIL, Omaxe, Unitech and DLF have restructured their debts due for repayment by March 2009.
The Bangalore-based Sobha Developers is restructuring 45% of its Rs 1,900-crore debt. The company, which has a land bank of 3,000 acres, primarily in southern India, is in talks with over ten banks and financial institutions to restructure its debt of about Rs 850 crore.
Economic Times, February 27, 2009, Page 5
Rajesh Unnikrishnan & Supriya Verma Mishra
MUMBAI
REALTY companies and developers have undertaken ambitious debt restructuring exercises to improve their financial situation as the tight liquidity situation crimps housebuying decisions and debt-equity ratio of companies crosses the prudent level of 0.5. The debt-equity ratio of many property firms currently ranges from 1 and 1.5.
The domestic real estate market has already seen private equity firms buying strategic stakes in holding companies, sale of land banks and non-core businesses, pledging of promoters’ equity for long-term debt and securitising of future receivables for their working capital requirements.
“Developers are quick to accept their over-leveraged position and are taking all possible measures to correct this financial mess,” said Anshuman Magazine, MD (South Asia) of CB Richard Ellis. “Currently, they are focusing only on reducing debt. This can be done either by bringing in a strategic partner or selling land assets,” he added. CB Richard Ellis is working with more than six developers to cut debt exposures.
The Reserve Bank of India’s recent move to allow real estate companies to restructure their outstanding debt may be the last saving grace for these developers. Unitech’s outstanding debt was Rs 10,000 crore, going by the December 2008 quarter results.
Unitech had to repay Rs 2,500 crore by March 2009. It was able to restructure Rs 1,000 crore and this will be due for repayment after 12-18 months, depending on the restructuring terms. Another Rs 1,000 crore was raised through mutual funds and Rs 500 crore was restructured for three months and will be due by the end of March this year. The company is raising funds by part-selling its stake and non-core businesses.
Similarly, HDIL, Omaxe, Unitech and DLF have restructured their debts due for repayment by March 2009.
The Bangalore-based Sobha Developers is restructuring 45% of its Rs 1,900-crore debt. The company, which has a land bank of 3,000 acres, primarily in southern India, is in talks with over ten banks and financial institutions to restructure its debt of about Rs 850 crore.
DLF mops up Rs 720 crore from bond sale
DLF mops up Rs 720 crore from bond sale
Business Standard, February 27, 2009, page 6
Raghavendra Kamath & Gautam Chakravorthy / Mumbai
DLF, the nation’s biggest real estate developer, has raised Rs 720 crore from selling bonds to insurance companies as part of its plan to raise Rs 5,000 crore from such sales.
DLF on February 24 raised the funds through issue of non-convertible debentures maturing in five years which offered as much as 14 per cent interest, sources in the company said. The bonds were sold to Life Insurance Corporation (LIC) of India and a few others. DLF officials were not available for comments.
DLF in March disclosed plans to raise Rs 5000 crore from selling bonds to investors. It received a ‘AA stable’ rating for the issue from Crisil. However, the rating company in January downgraded the real estate developer’s pass through certificates to ‘A+’ from ‘AA-’ because of “slowdown in the company’s real estate sales”.
The developer, while announcing its quarterly results, admitted that it had put a quarter of its projects on hold.
The rating company believed that the sales would continue to adversely affect DLF’s operating cash flows. The realtor has been forced to increasingly rely on refinancing of its debt, Crisil said.
Subscribe to:
Posts (Atom)
Posts
