Friday, April 10, 2009
India Inc lobbies for interest subvention
India Inc lobbies for interest subvention
The Financial Express, April 10, 2009, Page 1
Economy Bureau, Mumbai
Indian industry on Thursday asked the Reserve Bank of India to relax the sectoral cap for group exposure by banks. It also asked for special interest rates for sectors such as automobiles and housing.
Emerging from a meeting with central bank governor D Subbarao, Ficci president Harshpati Singhania said, “Even infrastructure projects such as Delhi Airport are finding it difficult to source funds at appropriate rates. If interest rates cannot be brought down across the board, then the government can perhaps consider offering interest subvention to sectors like automobiles, housing and consumer durables.”
Captains of Indian trade and industry have also demanded a further cut in interest rates and a greater flow of funds to boost economic activity across sectors—commercial, infrastructural and retail.
Naresh Takkar, managing director of credit rating agency Icra, said discussions with RBI mainly revolved around issues like the cost of funds at the moment and challenges related to raising equity funding in the current situation. As equity has become difficult to raise (in the current quarter, not a single new issue has been launched in the primary market), companies are crowding the debt window of banks, where costs are proving to be increasingly prohibitive. RBI data shows that prime lending rates are between 12.25% and 11.50%.
Members of prominent trade and industry bodies like CII, Ficci and Assocham, representatives of credit rating agencies, as well as chief financial officers of prominent companies met Subbarao as part of a series of such interactions that RBI has been holding before announcing its annual credit policy at the end of the month. RBI officials met with bank chiefs on Wednesday, wherein the latter said deposit rates needed to be scaled down for lending rates to be clipped.
Singhania said Subbarao assured them he would look into the various suggestions made by industry. Corporate India has claimed that though RBI has taken a series of measures that released Rs 3.9 lakh crore of additional liquidity into the system through several rate cuts totalling 400 basis points, the benefits have not yet reached industry, including SMEs and non-banking finance companies.
“We want RBI to ensure both pull and push factors for both corporates and retail investors. Banks are not passing on the benefits of the recent measures by RBI,” Singhania said, adding that despite inflation falling practically to zero, rates remain in double digits deterring corporate investment and demand from retail investors.
The Financial Express, April 10, 2009, Page 1
Economy Bureau, Mumbai
Indian industry on Thursday asked the Reserve Bank of India to relax the sectoral cap for group exposure by banks. It also asked for special interest rates for sectors such as automobiles and housing.
Emerging from a meeting with central bank governor D Subbarao, Ficci president Harshpati Singhania said, “Even infrastructure projects such as Delhi Airport are finding it difficult to source funds at appropriate rates. If interest rates cannot be brought down across the board, then the government can perhaps consider offering interest subvention to sectors like automobiles, housing and consumer durables.”
Captains of Indian trade and industry have also demanded a further cut in interest rates and a greater flow of funds to boost economic activity across sectors—commercial, infrastructural and retail.
Naresh Takkar, managing director of credit rating agency Icra, said discussions with RBI mainly revolved around issues like the cost of funds at the moment and challenges related to raising equity funding in the current situation. As equity has become difficult to raise (in the current quarter, not a single new issue has been launched in the primary market), companies are crowding the debt window of banks, where costs are proving to be increasingly prohibitive. RBI data shows that prime lending rates are between 12.25% and 11.50%.
Members of prominent trade and industry bodies like CII, Ficci and Assocham, representatives of credit rating agencies, as well as chief financial officers of prominent companies met Subbarao as part of a series of such interactions that RBI has been holding before announcing its annual credit policy at the end of the month. RBI officials met with bank chiefs on Wednesday, wherein the latter said deposit rates needed to be scaled down for lending rates to be clipped.
Singhania said Subbarao assured them he would look into the various suggestions made by industry. Corporate India has claimed that though RBI has taken a series of measures that released Rs 3.9 lakh crore of additional liquidity into the system through several rate cuts totalling 400 basis points, the benefits have not yet reached industry, including SMEs and non-banking finance companies.
“We want RBI to ensure both pull and push factors for both corporates and retail investors. Banks are not passing on the benefits of the recent measures by RBI,” Singhania said, adding that despite inflation falling practically to zero, rates remain in double digits deterring corporate investment and demand from retail investors.
Inflation falls to 30-year low of 0.26%
Inflation falls to 30-year low of 0.26%
The Financial Express, April 10, 2009, Page 3
fe Bureau, New Delhi
Inflation fell to a 30-year low of 0.26%, although manufactured prices rose marginally and prices of essential food items rose by up to 17%. Wholesale price index (WPI) -based inflation declined by 0.05 percentage points for the week ended March 28 from 0.31% in the previous week.
Even as the point-to-point inflation is near zero level, the average rate of price rise works out to be 8.4% for the fiscal 2008-09 against 4.7% in 2007-08, while the average monthly inflation in March 2009 is 0.7% as against 7.5% in March 2008, the finance ministry said in a statement on Thursday. Economic affairs secretary Ashok Chawla said domestic demand continues to remain robust. Planning Commission deputy chairman Montek Singh Ahluwalia has said that inflation will not be a problem this year.
With the inflation dropping to such a low, analysts feel that the Reserve Bank of India may signal further cut in interest rates in the medium term. RBI governor D Subbarao on Wednesday reviewed the interest rate scenario with the heads of commercial banks ahead of its annual review of the monetary policy slated on April 21.
State Bank of India on Thursday cut deposit rates by 25-50 basis points for deposits below Rs 1 crore, effective from Monday. “Given the sharp slowdown witnessed in the real economy, we expect RBI to cut repo and reverse repo rates by another 50-100 basis points before the end of this rate cycle. However, we do not expect RBI to cut interest rates immediately in the annual monetary policy,” Kotak Mahindra Bank economists Indranil Pan and Kaushik Das wrote in a note. The repo rate, currently at 5%, is the rate at which RBI lends short-term funds to commercial banks, while RBI absorbs funds from banks at reverse repo rate of 3.5%.
Subbarao has said India's economic slowdown had been steeper than estimated, but cautioned that further fiscal stimulus would carry a cost. He also expressed concern about consumer price inflation, which was running at an annual 9.6% in February.
The RBI has cut its key lending rate by 400 basis points, while the government has slashed factory gate duties and service tax to protect growth and jobs. But increased spending has led to heavy market borrowing, pushing up bond yields and undermining the impact of the central bank's rate cuts.
Some analysts have also been concerned about the heavy government borrowing crowding out private firms and feeding inflation in the months ahead. Among commodities, prices of edible items like salt, sugar, milk, cereals, pulses, manufactured food products, spices and fruits rose.
The Financial Express, April 10, 2009, Page 3
fe Bureau, New Delhi
Inflation fell to a 30-year low of 0.26%, although manufactured prices rose marginally and prices of essential food items rose by up to 17%. Wholesale price index (WPI) -based inflation declined by 0.05 percentage points for the week ended March 28 from 0.31% in the previous week.
Even as the point-to-point inflation is near zero level, the average rate of price rise works out to be 8.4% for the fiscal 2008-09 against 4.7% in 2007-08, while the average monthly inflation in March 2009 is 0.7% as against 7.5% in March 2008, the finance ministry said in a statement on Thursday. Economic affairs secretary Ashok Chawla said domestic demand continues to remain robust. Planning Commission deputy chairman Montek Singh Ahluwalia has said that inflation will not be a problem this year.
With the inflation dropping to such a low, analysts feel that the Reserve Bank of India may signal further cut in interest rates in the medium term. RBI governor D Subbarao on Wednesday reviewed the interest rate scenario with the heads of commercial banks ahead of its annual review of the monetary policy slated on April 21.
State Bank of India on Thursday cut deposit rates by 25-50 basis points for deposits below Rs 1 crore, effective from Monday. “Given the sharp slowdown witnessed in the real economy, we expect RBI to cut repo and reverse repo rates by another 50-100 basis points before the end of this rate cycle. However, we do not expect RBI to cut interest rates immediately in the annual monetary policy,” Kotak Mahindra Bank economists Indranil Pan and Kaushik Das wrote in a note. The repo rate, currently at 5%, is the rate at which RBI lends short-term funds to commercial banks, while RBI absorbs funds from banks at reverse repo rate of 3.5%.
Subbarao has said India's economic slowdown had been steeper than estimated, but cautioned that further fiscal stimulus would carry a cost. He also expressed concern about consumer price inflation, which was running at an annual 9.6% in February.
The RBI has cut its key lending rate by 400 basis points, while the government has slashed factory gate duties and service tax to protect growth and jobs. But increased spending has led to heavy market borrowing, pushing up bond yields and undermining the impact of the central bank's rate cuts.
Some analysts have also been concerned about the heavy government borrowing crowding out private firms and feeding inflation in the months ahead. Among commodities, prices of edible items like salt, sugar, milk, cereals, pulses, manufactured food products, spices and fruits rose.
IIP cloud has silver lining
IIP cloud has silver lining
The Financial Express, April 10, 2009, Page 1
Economy Bureau, New Delhi
Industrial outpu-accounting for a fifth of GDP-contracted for the second time in three months to a record 15-year low growth of -1.2% in February. Within this, factory output fared worse, contracting by 1.4% in February, against 9.6% a year earlier.
But despite falling way below the robust 9.5% growth of February 2008, the trends show investment rates in the economy are picking up. The capital goods industry grew by a robust 10.4% in February, despite coming on top of a high base of 10.7% growth logged in February 2008. Month-on-month, too, the capital goods output growth rate is holding up. It was 15.1% in January 2009. This is a significant turnaround as capital goods production had slowed to 3.3% in the third quarter of 2008-09.
If the current trends continue into March, growth of the capital goods sector in the fourth quarter of 2008-09 would be the highest across the last five quarters. Reacting to the numbers, the stock markets held up, with the Bombay Stock Exchange 30-share Sensex closing on Thursday at 10,803.86—a 62-point rise. The rise was also partially due to a fall in inflation as measured by wholesale prices to 0.26%, thereby giving the Reserve Bank of India further room to ease monetary policy later this month.
The revival in the capital goods sector has been mainly on account of an increase in production of machinery and equipment, which has emerged the highest growing sector in the past two months. The sharp pick-up in demand for machinery and equipment suggests that capital investments, especially in power, have perked up after the stimulus packages provided by the government.
An Axis Bank report says these include power sector projects like the Rs 40-crore gas turbine compressor blade expansion project by Corrtech International, at Changodhar, ahead of schedule in January 2009. The project is currently operating at full capacity. Also JCB India completed its Rs 300-crore construction and earthmoving expansion project at Ballabhagarh in Haryana late last year.
Commenting on the results, economic affairs secretary Ashok Chawla told reporters, “If you look at the numbers, the impact continues to be on sectors where there is a very heavy export linkage, sectors like cotton textile, leather, mining, where the export of mines products is not taking off.” He said domestic demand continues to be robust particularly in the rural sectors.
The aggregate industrial output growth for April 2008-February 2009 has now fallen to just 2.8%, against 8.8% in the same period in the previous fiscal. The low growth rate means GDP for 2008-09 could finally close at around 6.2%. The worry line also includes the postponement of capital expenditure plans as credit off-take has slipped to 17.3% as on March 28, compared with a 21.6% plus rise in last fiscal, according to latest RBI data.
The revival in demand for investment goods seems to have been backed to some extent by the pick-up in the consumer durable goods sector that rose by 5.7% in the month.
However, output in the basic goods sector continues to contract for the second consecutive month, though the rate of decline has been contained at 0.4%.
And the 5.4% decline in the intermediate goods sector remains a cause for concern as the output in the segment has now contracted for the seventh consecutive month.
The Financial Express, April 10, 2009, Page 1
Economy Bureau, New Delhi
Industrial outpu-accounting for a fifth of GDP-contracted for the second time in three months to a record 15-year low growth of -1.2% in February. Within this, factory output fared worse, contracting by 1.4% in February, against 9.6% a year earlier.
But despite falling way below the robust 9.5% growth of February 2008, the trends show investment rates in the economy are picking up. The capital goods industry grew by a robust 10.4% in February, despite coming on top of a high base of 10.7% growth logged in February 2008. Month-on-month, too, the capital goods output growth rate is holding up. It was 15.1% in January 2009. This is a significant turnaround as capital goods production had slowed to 3.3% in the third quarter of 2008-09.
If the current trends continue into March, growth of the capital goods sector in the fourth quarter of 2008-09 would be the highest across the last five quarters. Reacting to the numbers, the stock markets held up, with the Bombay Stock Exchange 30-share Sensex closing on Thursday at 10,803.86—a 62-point rise. The rise was also partially due to a fall in inflation as measured by wholesale prices to 0.26%, thereby giving the Reserve Bank of India further room to ease monetary policy later this month.
The revival in the capital goods sector has been mainly on account of an increase in production of machinery and equipment, which has emerged the highest growing sector in the past two months. The sharp pick-up in demand for machinery and equipment suggests that capital investments, especially in power, have perked up after the stimulus packages provided by the government.
An Axis Bank report says these include power sector projects like the Rs 40-crore gas turbine compressor blade expansion project by Corrtech International, at Changodhar, ahead of schedule in January 2009. The project is currently operating at full capacity. Also JCB India completed its Rs 300-crore construction and earthmoving expansion project at Ballabhagarh in Haryana late last year.
Commenting on the results, economic affairs secretary Ashok Chawla told reporters, “If you look at the numbers, the impact continues to be on sectors where there is a very heavy export linkage, sectors like cotton textile, leather, mining, where the export of mines products is not taking off.” He said domestic demand continues to be robust particularly in the rural sectors.
The aggregate industrial output growth for April 2008-February 2009 has now fallen to just 2.8%, against 8.8% in the same period in the previous fiscal. The low growth rate means GDP for 2008-09 could finally close at around 6.2%. The worry line also includes the postponement of capital expenditure plans as credit off-take has slipped to 17.3% as on March 28, compared with a 21.6% plus rise in last fiscal, according to latest RBI data.
The revival in demand for investment goods seems to have been backed to some extent by the pick-up in the consumer durable goods sector that rose by 5.7% in the month.
However, output in the basic goods sector continues to contract for the second consecutive month, though the rate of decline has been contained at 0.4%.
And the 5.4% decline in the intermediate goods sector remains a cause for concern as the output in the segment has now contracted for the seventh consecutive month.
FDI inflows fall 73% in February
FDI inflows fall 73% in February
The Financial Express, April 10, 2009, Page 2
fe Bureau, New Delhi
Global financial crisis continued to take its toll on foreign direct investment (FDI) to the country as such inflows fell in February 2009, for the fourth time in five months. FDI inflows in February dropped by as much as 73% to $1.49 billion from $ 5.67 billion a year ago.
FDI inflows from the beginning till the penultimate month of 2008-09 fiscal has touched only $25.38 billion. This means, the country may miss the $35 billion FDI target for 2008-09 or even the reduced target of $30 billion.
But total FDI during April 2008-February 2009 has already crossed $24.57 billion that the country received in the previous fiscal, an official said. In 2006-07, India had received only $15.5 billion worth FDI.
Though FDI inflows were robust in the first half of 2008-09, as the global financial crisis started spreading, it slowed down.
After maintaining a monthly average of $2.8 billion till September in the 2008-09 financial year, FDI inflows fell by 26% in October to $1.49 billion. After slipping by a similar 26% in November to just $1 billion, FDI inflows once again fell to $1.36 billion in December 2008 from $1.56 billion in December 2007, a year-on-year slump of about 13%.
However, it turned upwards in January, rising 55% at $2.74 billion, against $1.77 billion in January 2008.
While during the April-September 2008, FDI inflows were up 137% from the year-ago period at $17.2 billion, the growth fell to 66% during the April 2008-January 2009 period at $23.94 billion.
India has attracted FDI inflows of around $88 billion from April 2000 to February 2009.
•FDI inflows were robust in the first half of 2008-09, as the global financial crisis started spreading
• It slowed after maintaining a monthly average of $2.8 billion till September in the 2008-09
• FDI inflows fell 26% in October to $1.49 billion
• After slipping 26% in November to just $1 billion, FDI inflows once again fell to $1.36 billion in December 2008 from $1.56 billion in December 2007
The Financial Express, April 10, 2009, Page 2
fe Bureau, New Delhi
Global financial crisis continued to take its toll on foreign direct investment (FDI) to the country as such inflows fell in February 2009, for the fourth time in five months. FDI inflows in February dropped by as much as 73% to $1.49 billion from $ 5.67 billion a year ago.
FDI inflows from the beginning till the penultimate month of 2008-09 fiscal has touched only $25.38 billion. This means, the country may miss the $35 billion FDI target for 2008-09 or even the reduced target of $30 billion.
But total FDI during April 2008-February 2009 has already crossed $24.57 billion that the country received in the previous fiscal, an official said. In 2006-07, India had received only $15.5 billion worth FDI.
Though FDI inflows were robust in the first half of 2008-09, as the global financial crisis started spreading, it slowed down.
After maintaining a monthly average of $2.8 billion till September in the 2008-09 financial year, FDI inflows fell by 26% in October to $1.49 billion. After slipping by a similar 26% in November to just $1 billion, FDI inflows once again fell to $1.36 billion in December 2008 from $1.56 billion in December 2007, a year-on-year slump of about 13%.
However, it turned upwards in January, rising 55% at $2.74 billion, against $1.77 billion in January 2008.
While during the April-September 2008, FDI inflows were up 137% from the year-ago period at $17.2 billion, the growth fell to 66% during the April 2008-January 2009 period at $23.94 billion.
India has attracted FDI inflows of around $88 billion from April 2000 to February 2009.
•FDI inflows were robust in the first half of 2008-09, as the global financial crisis started spreading
• It slowed after maintaining a monthly average of $2.8 billion till September in the 2008-09
• FDI inflows fell 26% in October to $1.49 billion
• After slipping 26% in November to just $1 billion, FDI inflows once again fell to $1.36 billion in December 2008 from $1.56 billion in December 2007
Realty firms' profits may melt
Realty firms' profits may melt
Business Standard, April 10, 2009, Page 5
Raghavendra Kamath / Mumbai
Profit expected to fall 90%, top lines 66% in Q4, say analysts.
The last quarter of the 2009 fiscal is expected to be a washout for property companies. Data culled by leading stock brokerages show that the net profit of these firms is expected to see an average fall of 90 per cent, while the top lines are expected to go down by 66 per cent.
The fall is being attributed to slower sales compared with the last quarter of the 2008 fiscal and the fall in property prices. According to research agency Liases Foras, property sales have dropped to a third in big cities like Mumbai from their peak in 2007, while prices have fallen 35-40 per cent.
After a hiatus of three-six months, property developers like DLF, Unitech and HDIL have launched projects at prices 20-30 per cent less than the market rates in the fourth quarter. Developers claim good demand for mid-income projects. However, on a yearly basis, their numbers are expected to fall after January because they follow the percentage completion method. This means they book revenues based on progress of construction. The possession of apartments is 18-36 months away.
The operating profit margins of property companies are expected to fall by an average of 1,000 basis points in the March quarter, as developers see price cuts and lower realisations from property sales and rentals. However, some companies like Unitech and Orbit may improve their margins due to asset sales and change in the product mix.
According to a Centrum Broking report, office rentals have fallen 15-20 per cent in the National Capital Region (NCR) and are set to fall by another 15-20 per cent. The vacancy level in malls, nationally, is expected to be about 9 per cent. The NCR had 25 per cent vacancy at the end of 2008.
“Commercial real estate, especially IT SEZs, has been suffering with vacancies increasing and rentals coming off sharply. We expect this to continue till business sentiment on the whole improves,” Kejal Mehta, an analyst with Prabhudas Lilladher, said in a report.
In the third quarter of FY 2009, net sales of property companies have fallen by an average of 59 per cent, while the net profit has fallen 71 per cent and operating profit margins over 700 basis points, a study of 14 listed property companies reveals. During the March quarter, banks have cut home loan rates by 175-200 basis points.
But analysts say the new demand is not sustainable. “We believe higher volumes were a result of bunching of demand and perceived bargaining and, hence, unsustainable in the long run,” said Edelweiss analysts Aashiesh Agarwaal and Akshit Shah in a recent report.
Though property developers such as DLF, Unitech, Parsvnath, HDIL and others have rolled over loans after the central bank allowed developers to restructure loans till June 2009, analysts say realtors may find it difficult to service their debt if the real estate market does not pick up in the near term.
Unitech, which owed Rs 2,500 crore by March 2009, repaid around Rs 500 crore in January and rolled over Rs 1,400 crore. DLF, the country’s largest developer, which had to repay Rs 4,300 crore by June 2009, refinanced Rs 2,000 crore and raised another Rs 2,300 crore through various ways like bond sales and rent discounting. The KP Singh-promoted DLF is expected to post a net profit of Rs 338 crore in the last quarter of FY 2009, nearly 85 per cent lower than in the corresponding quarter last year. The company’s net profit in the last quarter of FY 2008 was Rs 2,2076 crore. The absence of DAL (DLF Assets) revenues is expected to hit the net profit and top line of DLF in Q4 of FY 2009. The company’s total sales are expected at Rs 1,035 crore, nearly 76 per cent less than the December quarter of fiscal 2008.
DLF used to sell its commercial assets to group company DAL, which owes around Rs 5,400 crore to DLF, and the company is said to have ended its asset sale to DAL in Q4 of FY 2009. Analysts attributed the drop in operating margins to aggressive foray into affordable housing, which carries lower margins. Its operating profit margins are expected to be 54 per cent, over 1,100 basis points lower than its margins in the corresponding quarter of the 2008 fiscal. The company’s operating margins were 65.64 per cent in Q4 of FY 2008.
Though the downturn has affected Unitech’s net profit and top line, its operating margins are expected to improve (see table) due to sale of assets such as a stake sale to Telenor and sale of a Gurgaon hotel property.
The company got Rs 1,250 crore through the 67.25 per cent stake sale in its telecom arm, Unitech Wireless, to Norway’s Telenor.
Unitech also sold its Gurgaon hotel to an investor in New Delhi for around Rs 235 crore, of which it has got 45 per cent of the proceeds.
Mumbai-based developer Orbit has also improved its margins due to high margin projects, like a housing project in South Mumbai.
Business Standard, April 10, 2009, Page 5
Raghavendra Kamath / Mumbai
Profit expected to fall 90%, top lines 66% in Q4, say analysts.
The last quarter of the 2009 fiscal is expected to be a washout for property companies. Data culled by leading stock brokerages show that the net profit of these firms is expected to see an average fall of 90 per cent, while the top lines are expected to go down by 66 per cent.
The fall is being attributed to slower sales compared with the last quarter of the 2008 fiscal and the fall in property prices. According to research agency Liases Foras, property sales have dropped to a third in big cities like Mumbai from their peak in 2007, while prices have fallen 35-40 per cent.
After a hiatus of three-six months, property developers like DLF, Unitech and HDIL have launched projects at prices 20-30 per cent less than the market rates in the fourth quarter. Developers claim good demand for mid-income projects. However, on a yearly basis, their numbers are expected to fall after January because they follow the percentage completion method. This means they book revenues based on progress of construction. The possession of apartments is 18-36 months away.
The operating profit margins of property companies are expected to fall by an average of 1,000 basis points in the March quarter, as developers see price cuts and lower realisations from property sales and rentals. However, some companies like Unitech and Orbit may improve their margins due to asset sales and change in the product mix.
According to a Centrum Broking report, office rentals have fallen 15-20 per cent in the National Capital Region (NCR) and are set to fall by another 15-20 per cent. The vacancy level in malls, nationally, is expected to be about 9 per cent. The NCR had 25 per cent vacancy at the end of 2008.
“Commercial real estate, especially IT SEZs, has been suffering with vacancies increasing and rentals coming off sharply. We expect this to continue till business sentiment on the whole improves,” Kejal Mehta, an analyst with Prabhudas Lilladher, said in a report.
In the third quarter of FY 2009, net sales of property companies have fallen by an average of 59 per cent, while the net profit has fallen 71 per cent and operating profit margins over 700 basis points, a study of 14 listed property companies reveals. During the March quarter, banks have cut home loan rates by 175-200 basis points.
But analysts say the new demand is not sustainable. “We believe higher volumes were a result of bunching of demand and perceived bargaining and, hence, unsustainable in the long run,” said Edelweiss analysts Aashiesh Agarwaal and Akshit Shah in a recent report.
Though property developers such as DLF, Unitech, Parsvnath, HDIL and others have rolled over loans after the central bank allowed developers to restructure loans till June 2009, analysts say realtors may find it difficult to service their debt if the real estate market does not pick up in the near term.
Unitech, which owed Rs 2,500 crore by March 2009, repaid around Rs 500 crore in January and rolled over Rs 1,400 crore. DLF, the country’s largest developer, which had to repay Rs 4,300 crore by June 2009, refinanced Rs 2,000 crore and raised another Rs 2,300 crore through various ways like bond sales and rent discounting. The KP Singh-promoted DLF is expected to post a net profit of Rs 338 crore in the last quarter of FY 2009, nearly 85 per cent lower than in the corresponding quarter last year. The company’s net profit in the last quarter of FY 2008 was Rs 2,2076 crore. The absence of DAL (DLF Assets) revenues is expected to hit the net profit and top line of DLF in Q4 of FY 2009. The company’s total sales are expected at Rs 1,035 crore, nearly 76 per cent less than the December quarter of fiscal 2008.
DLF used to sell its commercial assets to group company DAL, which owes around Rs 5,400 crore to DLF, and the company is said to have ended its asset sale to DAL in Q4 of FY 2009. Analysts attributed the drop in operating margins to aggressive foray into affordable housing, which carries lower margins. Its operating profit margins are expected to be 54 per cent, over 1,100 basis points lower than its margins in the corresponding quarter of the 2008 fiscal. The company’s operating margins were 65.64 per cent in Q4 of FY 2008.
Though the downturn has affected Unitech’s net profit and top line, its operating margins are expected to improve (see table) due to sale of assets such as a stake sale to Telenor and sale of a Gurgaon hotel property.
The company got Rs 1,250 crore through the 67.25 per cent stake sale in its telecom arm, Unitech Wireless, to Norway’s Telenor.
Unitech also sold its Gurgaon hotel to an investor in New Delhi for around Rs 235 crore, of which it has got 45 per cent of the proceeds.
Mumbai-based developer Orbit has also improved its margins due to high margin projects, like a housing project in South Mumbai.
Some revival in housing
Some revival in housing
The Economic Times, April 10, 2009, Page 10
Will Not Sustain Unless Land Prices Fall
DLF’s residential project in west Delhi has reportedly generated a good response, suggesting that there is sufficient demand if the pricing is right. Elsewhere, too, sharply lower prices of new projects have managed to attract buyers interest. Indeed, in real terms, the prices are probably down to their levels in early 2006 and in the suburbs, where the price correction is more substantial, they have been rolled back even more. This sharp price correction is attracting those who had been priced out of the market in the real estate bubble. However, this interest is unlikely to sustain beyond the euphoria of those waiting on the sidelines over the last three years watching housing prices soar. Even at current prices, housing is out of reach for most Indians — according to a NCAER survey, the average household in India had an annual income of about Rs 65,000 in 2004-05. That interest rates have not fallen as much as expected is not helping either. The key issue, however, is land prices, which have to come down for house prices to fall to levels where there is a steady demand.
Land prices are high in cities and towns as suburban areas are not within commutable distance from the city centre. Because of the necessity to remain within commutable distance from the work place there is undue pressure on house prices in cities and towns. Partly, prices are also inflated because of the tardy development by the urban land authorities and a lack of incentives for redevelopment. For instance, there is always a rush for houses sold by the Delhi Development Authority because of their affordable pricing and strong emphasis on weaker sections. Yet, despite sitting on ample land, the authority has not been able to meet the growing demand. There is a case for increasing availability within the cities and towns through faster development and redevelopment entailing better used of land. More importantly, urban transport and road infrastructure needs greater attention, allowing people to live in suburban areas where land is a lot cheaper. Clearly, reviving housing is substantially within the government’s domain.
THUMBS-UP FOR SERVICED SPACES
THUMBS-UP FOR SERVICED SPACES
Economic Times, ET Realty, April 10, 2009, Page 1
The global slowdown has affected the real estate sector heavily; however, it seems that the commercial market is slowly gaining back its momentum. With the serviced offices’ market gaining popularity in Delhi and NCR, the future for this segment of real estate looks bright and sunny. ET Realty explores
Tanvi Rustagi
Serviced apartments are surely heard of, but what about serviced offices? This is the latest trend in the commercial market. Serviced office space is primarily meant to provide end-to-end facilities for companies or professionals, to carry out their regular business operations. The space is inclusive of all the necessities and amenities that are required for an organisation to function smoothly, like furnishing, air conditioning, power back-up, housekeeping, security, valet parking, reception, pantry services, etc.
Serviced offices are usually fully equipped offices, with no start-up costs, flexible terms and an already available high-tech telecom and IT infrastructure. Hitesh Sahni of HSN Realty Services, a real estate consulting firm based out of Delhi explains, "Serviced offices, also known as managed offices, business centres, office business centres, executive suites or executive centres, are mostly established in the business districts of large cities the world over."
There are reasons galore for a company to rent a serviced office, starting with the fact, that commercial spaces in large cities like Delhi and NCR are quite expensive and sometimes out of the reach of many. And, if it's a posh locality, it is pretty much out of question. However, a serviced office makes it possible for a new company also to have its office in a prestigious locality, without having to pay the exorbitant price. Another reason is the fact that, these offices are fully furnished and are ready-to-move-in. This relieves the occupants from the headache of furnishing the entire place, thinking about the interiors and the numerable issues involved with furnishing a work space. Apart from these, the cost of electricity consumption, air-conditioning and power back-up is normally included in the deal for normal working office hours. Serviced offices also provide Internet, included or extra, depending upon the speed package and negotiations along with dedicated telephone lines priced as per the lease conditions. Some of them even offer housekeeping and valet parking facilities along with dedicated parking slots.
One big advantage of a serviced office is the flexibility in the leasing and rental format. Harmeet Singh, Director, Credence Relocity informs, "There are various commercial arrangements available that are determined by various variables including the area required as dedicated space. While the cost of some shared amenities would definitely be factored in, there is a possibility of offering some optional amenities or value added services. The rent also depends on the duration of lease or occupancy, where generally, the hourly and daily rentals would be higher than the longer duration commitments. There is also an option of advance blocking or reservations. As these office spaces have a more dynamic occupancy pattern, the facility providers encourage advance booking and one might even get a discount on booking in advance." Rentals vary from Rs 15,000-20,000 per workstation, but can be as high as Rs 45,000-50,000, depending upon the size, extent of instrumentation, general enablement and the office location.
But, who really takes up these spaces? "Most of the time, newer companies and those in a 'start-up' situation are particularly interested in serviced offices for many reasons, including the possibility of shorter range lease periods (starting from one month, but can also be for long periods of up to several years)," states Prashant Solomon, JMD Chintels India.
Solomon explains that those businesses who are in a start-up situation are rarely in a position to afford the more conventional lease of 5 to 10 years and can now use serviced offices to get their businesses off the ground. But, it is not just for start-up and new companies. It seems that the slowdown has probably been a blessing in disguise for the serviced offices market as Solomon informs that larger firms who find themselves in a position where they need to downsize their overheads could also benefit from serviced offices. The clientele includes not only starts-ups, but, even established MNCs and industrial houses in India. The break-up of the sectors which hire serviced offices is 28 percent share is of the IT and telecom businesses, 16 percent is finance / insurance and banking, 27 percent is tertiary services like consulting, logistics, design, HR and the rest two percent is occupied by miscellaneous sectors. Though, it is the slowdown which has brought it into the limelight, the trend of serviced offices has been picking up in India for a while now. Madhusudan Thakur, Country General Manager of Regus, provider of workplace solutions says, "While the prices are constantly under considerable downward pressure, we are noticing an increase in enquiries from start-ups and new Indian businesses, along with rationalised approach towards various corporates. Our network of 22 centres in nine cities allows us to tap into this renewed demand and spells big cost savings with a solution for flexible working for corporates. Regus has recorded a 25 percent increase in revenue with a similar growth in profits in 2008 as compared to 2007."
This clearly outlines the need of serviced offices in the current global scenario, MNCs and even other industries are looking for furnished and compact offices, which are not only convenient, but also cost effective. As far as the future of serviced offices is concerned, Ashish Malhotra, Manager, Markets, Jones Lang LaSalle Meghraj, points out, "Assuming that foreign firms continue to occupy Indian office spaces at the present scale, we see the concept of serviced offices continuing to proliferate and emerge as a market segment in its own right."
FOCAL POINT
Serviced offices are usually fully equipped offices, with no start-up costs, flexible terms and an already available high-tech telecom and IT infrastructure Rentals vary from Rs 15,000-20,000 per workstation, but can be as high as Rs 45,000-50,000, depending upon the size, extent of instrumentation, general enablement and location
Economic Times, ET Realty, April 10, 2009, Page 1
The global slowdown has affected the real estate sector heavily; however, it seems that the commercial market is slowly gaining back its momentum. With the serviced offices’ market gaining popularity in Delhi and NCR, the future for this segment of real estate looks bright and sunny. ET Realty explores
Tanvi Rustagi
Serviced apartments are surely heard of, but what about serviced offices? This is the latest trend in the commercial market. Serviced office space is primarily meant to provide end-to-end facilities for companies or professionals, to carry out their regular business operations. The space is inclusive of all the necessities and amenities that are required for an organisation to function smoothly, like furnishing, air conditioning, power back-up, housekeeping, security, valet parking, reception, pantry services, etc.
Serviced offices are usually fully equipped offices, with no start-up costs, flexible terms and an already available high-tech telecom and IT infrastructure. Hitesh Sahni of HSN Realty Services, a real estate consulting firm based out of Delhi explains, "Serviced offices, also known as managed offices, business centres, office business centres, executive suites or executive centres, are mostly established in the business districts of large cities the world over."
There are reasons galore for a company to rent a serviced office, starting with the fact, that commercial spaces in large cities like Delhi and NCR are quite expensive and sometimes out of the reach of many. And, if it's a posh locality, it is pretty much out of question. However, a serviced office makes it possible for a new company also to have its office in a prestigious locality, without having to pay the exorbitant price. Another reason is the fact that, these offices are fully furnished and are ready-to-move-in. This relieves the occupants from the headache of furnishing the entire place, thinking about the interiors and the numerable issues involved with furnishing a work space. Apart from these, the cost of electricity consumption, air-conditioning and power back-up is normally included in the deal for normal working office hours. Serviced offices also provide Internet, included or extra, depending upon the speed package and negotiations along with dedicated telephone lines priced as per the lease conditions. Some of them even offer housekeeping and valet parking facilities along with dedicated parking slots.
One big advantage of a serviced office is the flexibility in the leasing and rental format. Harmeet Singh, Director, Credence Relocity informs, "There are various commercial arrangements available that are determined by various variables including the area required as dedicated space. While the cost of some shared amenities would definitely be factored in, there is a possibility of offering some optional amenities or value added services. The rent also depends on the duration of lease or occupancy, where generally, the hourly and daily rentals would be higher than the longer duration commitments. There is also an option of advance blocking or reservations. As these office spaces have a more dynamic occupancy pattern, the facility providers encourage advance booking and one might even get a discount on booking in advance." Rentals vary from Rs 15,000-20,000 per workstation, but can be as high as Rs 45,000-50,000, depending upon the size, extent of instrumentation, general enablement and the office location.
But, who really takes up these spaces? "Most of the time, newer companies and those in a 'start-up' situation are particularly interested in serviced offices for many reasons, including the possibility of shorter range lease periods (starting from one month, but can also be for long periods of up to several years)," states Prashant Solomon, JMD Chintels India.
Solomon explains that those businesses who are in a start-up situation are rarely in a position to afford the more conventional lease of 5 to 10 years and can now use serviced offices to get their businesses off the ground. But, it is not just for start-up and new companies. It seems that the slowdown has probably been a blessing in disguise for the serviced offices market as Solomon informs that larger firms who find themselves in a position where they need to downsize their overheads could also benefit from serviced offices. The clientele includes not only starts-ups, but, even established MNCs and industrial houses in India. The break-up of the sectors which hire serviced offices is 28 percent share is of the IT and telecom businesses, 16 percent is finance / insurance and banking, 27 percent is tertiary services like consulting, logistics, design, HR and the rest two percent is occupied by miscellaneous sectors. Though, it is the slowdown which has brought it into the limelight, the trend of serviced offices has been picking up in India for a while now. Madhusudan Thakur, Country General Manager of Regus, provider of workplace solutions says, "While the prices are constantly under considerable downward pressure, we are noticing an increase in enquiries from start-ups and new Indian businesses, along with rationalised approach towards various corporates. Our network of 22 centres in nine cities allows us to tap into this renewed demand and spells big cost savings with a solution for flexible working for corporates. Regus has recorded a 25 percent increase in revenue with a similar growth in profits in 2008 as compared to 2007."
This clearly outlines the need of serviced offices in the current global scenario, MNCs and even other industries are looking for furnished and compact offices, which are not only convenient, but also cost effective. As far as the future of serviced offices is concerned, Ashish Malhotra, Manager, Markets, Jones Lang LaSalle Meghraj, points out, "Assuming that foreign firms continue to occupy Indian office spaces at the present scale, we see the concept of serviced offices continuing to proliferate and emerge as a market segment in its own right."
FOCAL POINT
Serviced offices are usually fully equipped offices, with no start-up costs, flexible terms and an already available high-tech telecom and IT infrastructure Rentals vary from Rs 15,000-20,000 per workstation, but can be as high as Rs 45,000-50,000, depending upon the size, extent of instrumentation, general enablement and location
Unitech to raise Rs 1,250cr via QIP
Unitech to raise Rs 1,250cr via QIP
The Economic Times, April 10, 2009, Page 5
Proceeds May Be Used To Partially Repay Debt Outstanding To MFs
Abhishek Gupta & Gaurie Mishra NEW DELHI
CASH-STRAPPED realty major Unitech is looking at raising around Rs 1,250 crore through a qualified institutional placement (QIP), according to domestic institutional investors.
The QIP proceeds are likely to be used to partially repay the Rs 500-crore debt outstandings to mutual funds which is due on April 19.
According to some institutional investors, Unitech is hoping to close the issue next week. It has already made the presentations to investors such as SBI, LIC and HDFC. If it goes through at Unitech’s present valuation – it’s current marketcap is Rs 6,824 crore –the QIP could result in a 10-15% stake dilution in the company. Unitech shares rose by 7% during to close at Rs 42.10 on Thursday.
When contacted by ET, the Unitech spokesperson declined to comment on the company's fund raising plans
According to an executive of a major fund house, Unitech executive have told mutual funds that they will use the QIP proceeds to substantially repay the Rs 500-crore debt to MFs that is due later this month.
Unitech has simultaneously also been in talks with mutual funds to roll over the Rs 500-crore debt that was due for repayment on April 19. According to a source close to the development, several mutual funds have agreed to roll-over Unitech’s debt if the realty major does not go through the QIP.
Officials in the banking circuit told ET that MFs and Unitech had mutually agreed to rollover debt for 12-18 months for an interest rate of around 16%. The final agreements will only be signed close to the date of maturity.
People with knowledge of the development said that the QIP issue will happen at around Rs 40 per share. This is Unitech’s second attempt at raising equity through the QIP route. The company tried to raise over $1billion in January 2008 at over Rs 500 a share, but abandoned the plan.
The company has been trying to raise cash by selling its assets.
Till now, it has been successful in selling a single hotel property in Gurgaon for around Rs 230 crore. The company is also looking to raise atleast Rs 500 crore by selling its office property in Saket. It is also trying to sell its hotel properties across India, as well as service apartments and school plots in the NCR.
According to a recent analyst report by Motilal Oswal, Unitech would need Rs 2000-2500 crore to recapitalise its balance sheet.
If the company manages to raise the requisite cash, the risk outlook towards it would decline significantly, the report added.
The Economic Times, April 10, 2009, Page 5
Proceeds May Be Used To Partially Repay Debt Outstanding To MFs
Abhishek Gupta & Gaurie Mishra NEW DELHI
CASH-STRAPPED realty major Unitech is looking at raising around Rs 1,250 crore through a qualified institutional placement (QIP), according to domestic institutional investors.
The QIP proceeds are likely to be used to partially repay the Rs 500-crore debt outstandings to mutual funds which is due on April 19.
According to some institutional investors, Unitech is hoping to close the issue next week. It has already made the presentations to investors such as SBI, LIC and HDFC. If it goes through at Unitech’s present valuation – it’s current marketcap is Rs 6,824 crore –the QIP could result in a 10-15% stake dilution in the company. Unitech shares rose by 7% during to close at Rs 42.10 on Thursday.
When contacted by ET, the Unitech spokesperson declined to comment on the company's fund raising plans
According to an executive of a major fund house, Unitech executive have told mutual funds that they will use the QIP proceeds to substantially repay the Rs 500-crore debt to MFs that is due later this month.
Unitech has simultaneously also been in talks with mutual funds to roll over the Rs 500-crore debt that was due for repayment on April 19. According to a source close to the development, several mutual funds have agreed to roll-over Unitech’s debt if the realty major does not go through the QIP.
Officials in the banking circuit told ET that MFs and Unitech had mutually agreed to rollover debt for 12-18 months for an interest rate of around 16%. The final agreements will only be signed close to the date of maturity.
People with knowledge of the development said that the QIP issue will happen at around Rs 40 per share. This is Unitech’s second attempt at raising equity through the QIP route. The company tried to raise over $1billion in January 2008 at over Rs 500 a share, but abandoned the plan.
The company has been trying to raise cash by selling its assets.
Till now, it has been successful in selling a single hotel property in Gurgaon for around Rs 230 crore. The company is also looking to raise atleast Rs 500 crore by selling its office property in Saket. It is also trying to sell its hotel properties across India, as well as service apartments and school plots in the NCR.
According to a recent analyst report by Motilal Oswal, Unitech would need Rs 2000-2500 crore to recapitalise its balance sheet.
If the company manages to raise the requisite cash, the risk outlook towards it would decline significantly, the report added.
Unitech may go for $250-m qualified institutional placement
Unitech may go for $250-m qualified institutional placement
The Hindu Business Line, April 10, 2009, Page 1
--------------------------------------------------------------------------------
Funds mop-up
Unitech is already sounding out potential investors and road shows could follow soon
Proceeds of the QIP are likely to be used for servicing debt
--------------------------------------------------------------------------------
Our Bureau, New Delhi
Real estate company Unitech Ltd is said to be holding discussions with various financial institutions to gauge investor interest for a possible $250-million Qualified Institutional Placement (QIP).
The top brass of Unitech including its Managing Director, Mr Sanjay Chandra, have been camping in Mumbai for the last two days in preparation of the proposed issue. However, much would hinge on the feedback from the investor community.
Sources said that Unitech – which is facing a huge financial crunch and has nearly Rs 8,000-crore debt on its balance sheet – has roped in UBS and IDFC SSKI to manage the QIP issue. An e-mail questionnaire sent to Unitech remained unanswered.
When contacted, a Mumbai-based analyst said that the latest move could lead to an earnings per share (EPS) dilution of about 15 per cent if the company was to mop up $250 million. “At the current market capitalisation of nearly $1.5 billion, a $250-million QIP could mean an EPS dilution of close to 15 per cent,” the analyst said adding that QIP size could be larger if the investor sentiments were really strong.
Sources, however, confirmed that Unitech is already sounding out potential investors and that road shows could follow soon, if investor interest was found to be high. The modalities of the QIP issue are not immediately known.
“The market sentiments have improved since last year,” they said. It may be recalled that last year the company had planned to raise $1.5 billion (Rs 6,000 crore) through the QIP route. But it was forced to put those plans on hold due to instability in the domestic stock market and the global liquidity crunch, at that time.
Sources familiar with the process said that the proceeds of the QIP would largely be utilised to service the company’s debt. Unitech shares on the BSE rose 6.86 per cent to close at Rs 42.05 on Thursday. It had hit a high of Rs 338 on May 5, 2008 and a low of Rs 21.80 on November 28, 2008.
The Hindu Business Line, April 10, 2009, Page 1
--------------------------------------------------------------------------------
Funds mop-up
Unitech is already sounding out potential investors and road shows could follow soon
Proceeds of the QIP are likely to be used for servicing debt
--------------------------------------------------------------------------------
Our Bureau, New Delhi
Real estate company Unitech Ltd is said to be holding discussions with various financial institutions to gauge investor interest for a possible $250-million Qualified Institutional Placement (QIP).
The top brass of Unitech including its Managing Director, Mr Sanjay Chandra, have been camping in Mumbai for the last two days in preparation of the proposed issue. However, much would hinge on the feedback from the investor community.
Sources said that Unitech – which is facing a huge financial crunch and has nearly Rs 8,000-crore debt on its balance sheet – has roped in UBS and IDFC SSKI to manage the QIP issue. An e-mail questionnaire sent to Unitech remained unanswered.
When contacted, a Mumbai-based analyst said that the latest move could lead to an earnings per share (EPS) dilution of about 15 per cent if the company was to mop up $250 million. “At the current market capitalisation of nearly $1.5 billion, a $250-million QIP could mean an EPS dilution of close to 15 per cent,” the analyst said adding that QIP size could be larger if the investor sentiments were really strong.
Sources, however, confirmed that Unitech is already sounding out potential investors and that road shows could follow soon, if investor interest was found to be high. The modalities of the QIP issue are not immediately known.
“The market sentiments have improved since last year,” they said. It may be recalled that last year the company had planned to raise $1.5 billion (Rs 6,000 crore) through the QIP route. But it was forced to put those plans on hold due to instability in the domestic stock market and the global liquidity crunch, at that time.
Sources familiar with the process said that the proceeds of the QIP would largely be utilised to service the company’s debt. Unitech shares on the BSE rose 6.86 per cent to close at Rs 42.05 on Thursday. It had hit a high of Rs 338 on May 5, 2008 and a low of Rs 21.80 on November 28, 2008.
Unitech puts serviced apartment project on block
Unitech puts serviced apartment project on block
The Hindu Business Line, April 10, 2009, Page 2
Moumita Bakshi Chatterjee
New Delhi, April 9 After selling its first hotel property Marriott Courtyard, Unitech Ltd is now learnt to be scouting for a buyer for its serviced apartment project — Marriott Executive Apartments.
Sources indicated that the company has initiated talks with some interested buyers but did not comment on the valuation. The realtor, which is facing a financial crunch, had recently sold its hotel project in Gurgaon for Rs 235 crore to Mr Roop Madan, Managing Director of Delhi-based Sanya Motors. Unitech has received 45 per cent of the payment, while the balance is expected to flow in this month. Sources said the serviced apartment project is structurally complete although the “finishing work” is not yet over.
Unitech Ltd officials were not available for comments.
The serviced apartments project is located in Gurgaon near the Unitech Cyber Park and the Unitech Greenwood City on 3.39-acre parcel of land; the serviced apartments, along with an office block, have been designed by Seattle-based Callison Inc and will be operated by Marriott as Marriott Executive Apartments.
“As per the project blue-print, there will be 117 units, which will consist of single, double and three-bed room units, for single clients and families who would like to stay for longer periods when on work in Gurgaon or Delhi,” a source said.
Company performance
Last year, Unitech had said it was eyeing Rs 1,200-1,500 crore through asset sales (that is sale of hotels and office property). The company intended to largely sell those hotels and office projects that were completed or are nearing completion.
The slump in demand for residential and commercial space has been hurting the performance of realty companies. The consolidated net profit of Unitech Ltd fell 74 per cent to Rs 136.05 crore for third quarter ended December 31, 2008, primarily due to ‘negligible’ sales in the commercial and retail space. Total income for the quarter at Rs 507 crore was less than half of the income in the year-ago period (Rs 1,165.11 crore).
The Hindu Business Line, April 10, 2009, Page 2
Moumita Bakshi Chatterjee
New Delhi, April 9 After selling its first hotel property Marriott Courtyard, Unitech Ltd is now learnt to be scouting for a buyer for its serviced apartment project — Marriott Executive Apartments.
Sources indicated that the company has initiated talks with some interested buyers but did not comment on the valuation. The realtor, which is facing a financial crunch, had recently sold its hotel project in Gurgaon for Rs 235 crore to Mr Roop Madan, Managing Director of Delhi-based Sanya Motors. Unitech has received 45 per cent of the payment, while the balance is expected to flow in this month. Sources said the serviced apartment project is structurally complete although the “finishing work” is not yet over.
Unitech Ltd officials were not available for comments.
The serviced apartments project is located in Gurgaon near the Unitech Cyber Park and the Unitech Greenwood City on 3.39-acre parcel of land; the serviced apartments, along with an office block, have been designed by Seattle-based Callison Inc and will be operated by Marriott as Marriott Executive Apartments.
“As per the project blue-print, there will be 117 units, which will consist of single, double and three-bed room units, for single clients and families who would like to stay for longer periods when on work in Gurgaon or Delhi,” a source said.
Company performance
Last year, Unitech had said it was eyeing Rs 1,200-1,500 crore through asset sales (that is sale of hotels and office property). The company intended to largely sell those hotels and office projects that were completed or are nearing completion.
The slump in demand for residential and commercial space has been hurting the performance of realty companies. The consolidated net profit of Unitech Ltd fell 74 per cent to Rs 136.05 crore for third quarter ended December 31, 2008, primarily due to ‘negligible’ sales in the commercial and retail space. Total income for the quarter at Rs 507 crore was less than half of the income in the year-ago period (Rs 1,165.11 crore).
DLF, group co mop up 1,100-cr debt through rental discounting
DLF, group co mop up 1,100-cr debt through rental discounting
The Economic Times, April 10, 2009, Page 5
Sanjeev Choudhary NEW DELHI
COUNTRY’S largest property firm DLF Ltd and its promoter group company DLF Assets (DAL) have together raised around Rs 1,100 crore in debt from HDFC through lease rental discounting (LRD) of their properties. The fresh round of debt raising will ease cash flow at DLF.
A DLF spokesperson declined to comment on fund raising, but two senior company executives confirmed the raising of debt through LRD. LRD allows a property owner to raise funds against the expected rentals from that property in the future.
Privately held DAL has raised around Rs 800 crore while DLF Ltd has raised the rest. The fresh debt will help DAL pay DLF for the properties it had earlier purchased. As of December 2008, DAL owed Rs 5,400 crore to DLF.
DLF had earlier raised over Rs 3,000 crore in debt from Punjab National Bank (PNB), Life Insurance Corporation (LIC), State Bank of India (SBI) and Bank of India (BoI) between December and February, mainly to repay short-term debt.
DLF’s impressive sales and profit figures in the past several quarters were significantly based on its transactions with DAL, a company floated by DLF’s promoter KP Singh. Property sales to DAL contributed 43.5% to revenues and 35% of DLF’s profit before tax for the December ‘08 quarter. DAL, which has attracted investments from US hedge fund DE Shaw ($400 million) and UK-based Symphony Capital (estimated $650 million), was originally proposed to be listed on Singapore Stock Exchange as a real estate investment trust. The global economic downturn, however, forced DLF to change its plan last year and the company has since been trying to raise equity in DAL through private placement.
While announcing the December quarter earnings, DLF vice-chairman Rajiv Singh had said DAL will raise around Rs 2,000 crore through private equity deals. He said DAL would raise the same amount through lease rental discounting if equity deals didn’t materialise.
Market analysts see the rising receivables from DAL as the single-biggest concern for DLF. Meanwhile, DE Shaw is also looking at exiting its investment in DAL and any loss to it on account of a fall in market value of DAL has to be compensated by the DLF promoters.
As per JP Morgan’s estimates, DAL’s market value has fallen to $1.5 billion from $2.2 billion in 2007. In view of this, DLF is mooting three options aimed at extinguishing receivables from DAL and help DE Shaw exit DAL. First is to let DAL raise funds through LRD and pass that on to DLF, which would then use the money to buy DE Shaw’s investment in DAL.
Second option is to convert entire receivables into equity in DAL. This would mean DAL picking a majority stake in DAL. “DLF could look to buy a part stake in DAL at some stage, to provide a one time resolution of balance sheet debtors. This could be done via converting outstanding debtors on balance sheet to an equivalent stake at an appropriate cap rate,” J P Morgan said in a recent report. Third option being discussed by DLF management is to merge DAL with itself.
This may probably require DLF to raise debt to buy DE Shaw’s investment in DAL , following which DAL will be merged with DLF. The merger may entail DLF issuing convertible bonds to Symphony Capital. DLF can’t issue fresh shares to Symphony, a foreign investor, as the realty company is also executing many non-FDI compliant projects.
Sobha Developers gets FIs’ nod to restructure debt
Sobha Developers gets FIs’ nod to restructure debt
The Hindu Business Line, April 10, 2009, Page 2
Anjana Chandramouly & K. Giriprakash, Bangalore
Real estate major Sobha Developers has received in-principle approval from most of the financial institutions for restructuring of its debt. Mr J.C. Sharma, Managing Director, Sobha Developers, said that the company is “through with most of the banks, mutual funds and institutional investors for restructuring of our debt.” “They have looked into our revised cash flows and accordingly agreed to give us time,” he added.
Mr S. Baaskaran, Chief Financial Officer, said that the company now has extended the payment date by 12-18 months, for debts that were scheduled to be paid in the next 12-24 months.
“The ones that were scheduled to be paid after two years have not been restructured,” he clarified. The average interest rate is about 13 per cent, he said.
The company, which is in the process of restructuring its Rs 1,900-crore debt, plans to raise about Rs 900 crore through preferential equity, SPV-level equity and also through sale of a part of its 3,000-acre land bank. “We are looking at various options before us, and things are progressing well,” said Mr Sharma.
Mr Baaskaran said that the company hoped to raise about Rs 300 crore through preferential allotment, about Rs 300 crore through SPV-level funding, and the rest through sale of land. Through these measures, the company hopes to bring down the current leverage of 1.65 to less than 1 by March 2010.
He said that the company is also “planning two SPVs currently for our large integrated township projects at Pune and Kochi”. The Rs 1,000-crore project at Pune would see a development of 5.5 million sq ft spread over 110 acres, while the one at Kochi would see 38 million sq ft development spread over 450 acres at Rs 5,000 crore.
The company also expects to have “very comfortable cash flows for 2009-10”, thanks to its efforts to prune unnecessary costs and manpower, said Mr Baaskaran. While the company has adopted 10 per cent cut in salaries, there are also plans to downsize staff, if the situation warrants. “Things will improve from the third quarter of the next financial year. Prices won’t go up, but we will see better volumes; and with better volumes, the cash flow would be better,” he said.
The company’s contractual business is paying off well now, with 40 per cent of its revenues coming from this vertical.
“We plan to do business worth Rs 350 crore from this vertical in 2009-10, which would be 25 per cent higher than 2008-09,” he said.
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