Real Estate Intelligence Report, Wednesday, June 03, 2009

SPRING IN THE STEP

SPRING IN THE STEP
The Economic Times, June 3, 2009, Page 1

Core’s best show in 10 months

Our Bureau NEW DELHI

APRIL is no longer the cruellest month. In the first month of the current fiscal year, the six core industries together clocked the fastest growth rate in 10 months, emboldening the prime minister’s key economic advisor to hint at the possibility of an upward revision in the economic growth forecast for the year.

Power, crude oil, refinery products, coal, cement and finished steel grew 4.3% year-onyear, recovering from a low of 1.1% in December 2008, according to data released by the ministry of commerce and industry on Tuesday.

The April figures have raised hopes of a brighter industrial output as these six industries have a combined weight of 26.7% in the Index of Industrial Production.

“The growth in core sectors is on expected lines. The upside risk for economic growth projections made by EAC is emerging with a stable government coming to power and business confidence slowly returning,” said Suresh Tendulkar, chairman of the Economic Advisory Council to the prime minister.

The EAC had earlier projected a growth rate of 7%—plus or minus 0.5%—for 2009-10.

April’s figures are the highest since last July when the global financial meltdown pushed the Indian economy into rough waters. Consequently, the growth rate dipped to 2.7% in fiscal 2008-09 against 5.9% in 2007-08. Coal, followed by cement, clocked the highest growth while the annual growth rate in steel production moved into positive territory after a month’s gap.

Economists that ET spoke to forecast that the revival in cement and steel production on the back of higher public spending will pick up further post-April. Data on cement despatch for May from major manufacturers, including Ambuja Cement, Grasim Industries and its subsidiary UltraTech Cement, showed robust growth. However, the regular lull in construction activity during monsoon is likely to dampen this momentum thereafter.

SURESH TENDULKAR
CHAIRMAN, ECONOMIC ADVISORY COUNCIL TO PM
The growth in core sectors is on expected lines. Upside risk for growth projections made by EAC is emerging with a stable govt coming to power and business confidence slowly returning

ADI GODREJ
GROUP CHAIRMAN, GODREJ
Both urban & rural growth numbers are upbeat and we are recording strongest growth in recent years. Political stability and expected fiscal stimuli have lifted consumer confidence

SANJEEV CHADHA
CHAIRMAN & CEO, PEPSICO INDIA
The beverages arm has been clocking unit case volumes growth of 30%, with both carbonated and non-carbonated drinks posting healthy growth

Infrastructure sector rebounds in April

Infrastructure sector rebounds in April
Business Standard, June 3, 2009, Page 1

BS Reporter / New Delhi

Index of six core industries up 4.3%, highest since July 2008.

Hopes of an economic recovery grew, with data for the output in six core infrastructure sectors rebounding in April, showing a 4.3 per cent increase — the most since July 2008 — on a better-than-expected performance in coal, electricity and cement.

These sectors collectively account for 27 per cent of the Index of Industrial Production.

The output in the sector during April is more than the 2.7 per cent increase seen in the previous month, and about double of what was seen in the year-ago month. April's jump would have been higher, but for the substantial dip in production of crude oil and petroleum products (see table). IIP had dipped 2.7 per cent in March 2009, the most since inception of the updated index in 1994.

“Government spending in the infrastructure sector could be one of the key reasons for this increase. The IIP is definitely going to be in positive territory in April,” said DK Joshi, principal economist, Crisil.

The data showed a record increase in coal production during the month under consideration. Industry experts attribute this to output from new mines. About 75 per cent of the overall coal production is used to fire power plants, which recorded a reasonable increase in output during April. Economists said additional demand for power as a result of rising industrial activity could be a possible reason for this increase in output during April.

Cement production growth in the month under consideration was the highest since February 2007, pointing towards increased activity in the infrastructure sector. Experts, however, point out that construction activity in the housing sector, a major user of cement, is yet to pick up. The sector is likely to see 50 million tonnes of additional cement capacity in 2009-10.

Steel production also improved in April over the previous months. The sector has been seeing a dip in production since October 2008, barring the first two months of 2009. Domestic producers have been alleging that many steel products like hot rolled coils are being dumped as a result of falling demand elsewhere.

However, petroleum sector production remained lacklustre. Refinery output in April was also the lowest in more than two years. Crude oil production has been dipping continuously since June 2007, November being an exception. There has been no discovery of high-yielding oil fields in the country, while output from existing oil wells is declining.

Real estate deals show signs of revival

Real estate deals show signs of revival
The Financial Express, June 3, 2009, Page 4

Mona Mehta, Mumbai

Signing of new commercial deals in metros is seeing signs of revival in the first quarter of the financial year 2009-10. Taking advantage of the soft-scenario on real estate deals and incoming supply, corporates are finding it of an advantage to do deals in this area.

According to Sanjay Dutt, chief executive officer — business, Jones Lang LaSalle Meghraj (JLLM), “During Q1 FY10, 4 mn sq ft of commercial space being leased out in metros in the first quarter of the financial year 2009-10, of the overall 55 mn sq ft of space available for commercial leasing across the country. By fourth quarter ending December 2009-10, we expect 27 mn sq ft of commercial area space to be leased out.”

Commercial property transaction volumes in H12008 had fallen by 15% to 20% in both purchase and lease agreements in metros and 30% in tier-II cities in August 2008. This is mainly due to inflationary trends, liquidity crunch from the banks apart from hike in interest rates on home loans. As a result, builders majors have deferred they commercial project launches. According to Anshuman Magazine, managing director, CB Richard Ellis, “The leasing commercial property market had witnessed dip in demand by about 10 to 15% in the fourth quarter of 2008. This is because, various multinationals were looking at postponing their expansion plans for office leasing.”

Abhinandan Lodha, managing director, Lodha Group told FE, “We have recently signed new commercial deals on lease rentals with many big corporates including Aditya Birla Group, KPMG, Ernst & Young , among host of other corporates for Lodha Excelus.” When contacted, Aditya Birla Group spokesperson said the Group’s talks with builders has reached advanced stages. KPMG is in the process of occupying close to 1 lakh sq ft office at Rs 110 on lease per month at Lodha Excelus, said the company spokesperson.

Recently, Wipro is understood to have bought 1 lakh sq ft office on lease in Hiranandani Gardens at Powai in Mumbai. Sources from Wipro have confirmed the new commercial deal on condition of anonymity. Niranjan Hiranandani, managing director, Hiranandani Constructions said, “We are talking to many corporates who are scouting for additional office space in locations nearer to expansive business strategies. By June-end, we hope to finalise many corporates for Hiranandani Gardens.” Meanwhile, Unilever, too, has also sold properties in Kolkata spanning 15 to 17 acres at a valuation of Rs 20 crore, a source added.

As per the recent commercial rental market update by Jones Lang LaSalle Meghraj, commercial leasing has picked up by 5% in volume terms in Q1 2009-10 nationally. Driving this growth are corporates who are now seeking to set up additional offices in metros that offer them better space at lower costs. However, this is much lower than 10% to 15% growth that market saw during Q1 of 2008-09.

Cash-strapped realty players rush for QIPs to raise funds

Cash-strapped realty players rush for QIPs to raise funds
The Financial Express, June 3, 2009, Page 4

Sajan C Kumar, Chennai

A choppy stock market and a sudden crash in credit ratings are forcing a host of cash-strapped real estate companies to look for raising funds via qualified institutional placement (QIP) to get their business going. The companies that have already raised funds through the QIP route to improve liquidity include who-is-who in the real estate world — Unitech, Indiabulls, Parswanath among others.

According to market sources, a slew of real estate players have already mopped up close to $1 billion from foreign investors and deals worth another $2 billion are in the pipeline. “In the current market situation, institutional placement makes sense for real estate players as other means to raise funds are bleak. Also, the PE appetite for real estate companies has literally vanished leaving them with no other option but go for institutional placements,” said an analyst with a local brokerage house adding “this would also help them not to add to their swelling debt in their balance sheets”.

While Unitech Ltd has already raised $325 million, followed by Indiabulls Real Estate which raised $533 million, PTC India mopped up $106 million through QIP route. The board of directors of Parswanath Developers and HDIL recently gave approval to raise $530 million and $600 million, respectively, for their capital requirements.

Now, companies like Puravankara Projects, Hindustan Construction Company (HCC) and Shobha Developers are following the path of Unitech and Indiabulls, while a host of other real estate players, who are laden with high-cost debt are also contemplating QIP route to raise funds. Puravankara Projects is planning to raise $170million while HCC is to raise $318million. Another infrastructure giant Gamon Infra is in the process of raising $100million through institutional placements.

Analysts attribute the sudden appetite for institutional placement by to the current state of markets where most shares are trading at over 50% discounts to their issue price coupled with investor-friendly QIP regime introduced by Sebi.

Four DLF SEZs denotified

Four DLF SEZs denotified
Business Standard, June 3, 2009, Page 1

BS Reporter / New Delhi

Covering 100 acres, the realtor will use the land to develop commercial projects.

The Board of Approvals on Special Economic Zones (SEZs) today agreed to denotify four zones of real estate major DLF, with the rider that the company will have to repay all tax benefits that it availed of while developing these.

The Board of Approvals (BoA) had denotified another DLF zone in Delhi in December 2008. Today's move leaves the realty major with six notified zones, almost half of what it started out with in 2008

In its request to the BoA, the company had said it was unable to develop the zones because of a “liquidity crunch” and “slowdown in the economy”. Ramesh Sanka, DLF's group CFO, said the land, which covers over 40 hectares or roughly 100 acres, would be used to erect commercial buildings, mainly for the IT sector. He said the group proposed to go ahead with the six other SEZs.

The denotification of the four zones is in the nature of an "in-principle"move. “Once the company repays the tax benefits and we get a confirmation from the Customs department and the development commissioner, the board will give the final go-ahead to de-notify the zones,” said DK Mittal, additional secretary, department of commerce.

The tax incentives amount to Rs 6 crore to Rs 7 crore, though the amount is still to be verified, Mittal added.

Notification is the final approval needed from the commerce ministry, after which an SEZ can start enjoying direct and indirect tax benefits.

The issue of denotification had attracted some controversy last year. Initially, the commerce ministry had maintained there were no provisions for denotification in the SEZ Act of 2005. But in subsequent deliberations, the law ministry told its commerce counterpart that the BoA had the power to scrap the zones. The finance ministry, meanwhile, maintained that tax benefits would have to be repaid to the government by the developer of a notified zone before it was scrapped.

India currently has 315 notified zones, of which 80 are operational. In 2008-09, exports from SEZs — tax-free export-oriented havens that are modelled on China's SEZs — stood at about Rs 95,000 crore, about 42 per cent more than Rs 66,638 crore in the previous year.

Nine zones get formal approval

Meanwhile, the BoA also formally approved nine zones, which includes a multi-product zone by Krishnapatnam Infratech Pvt Ltd in Chillakur, Andhra Pradesh, and two infotech zones to be developed by Larsen & Toubro in Mumbai and Emaar MGF in Alwaye, Kerala.

One-year extensions of formal approval status was also given to 21 zones. Formal approvals are granted to zones that have land under possession. The extension has been granted because these zones have had problems accessing credit to complete construction or facing falling demand for SEZ space, owing to falling global demand for goods and services.

However, the BoA declined to grant extensions to two proposed multi-product SEZs, since the developers had not bought any land to develop these. Developers of these two zones — Videocon Realty and Infrastructure Ltd (in Madhya Pradesh) and Writers and Publishers Ltd (in Maharashtra) — had been given in-principle approval a couple of years ago.

HDIL, MMRDA to develop low rent homes in Mumbai suburb

HDIL, MMRDA to develop low rent homes in Mumbai suburb
The Hindu Business Line, June 3, 2009, Page 2

Our Bureau, Mumbai

Housing Development & Infrastructure Ltd (HDIL) and the Mumbai Metropolitan Development Authority (MMRDA) have joined hands to develop a residential-cum-commercial complex in Virar (a suburb on the Western Railway line, about 60 km by train from Churchgate) across 525 acres.

This is part of an endeavour to provide low-cost rental housing in the Mumbai metropolitan region.

HDIL will provide the land, while related social infrastructure such as schools, hospitals, community centres, playgrounds and police stations will be taken care of by MMRDA. The project, which is about 2 km from the Virar railway station, will be connected by a skywalk.

Mr Sarang Wadhawan, Managing Director of HDIL, said at a press conference here on Tuesday that the project cost, spread over six years, would be about Rs 7,000 crore. He declined to elaborate on the financial model, but reiterated that it would be funded through internal accruals without any debt.

Mr Wadhawan said that 43,000 units with a carpet area of 160 sq ft each, totalling 13 million sq ft of built-up area, would be given to MMRDA for rental housing free of cost. The first phase will see 10,000 units handed over by March 2011.

According to him, the total development on the 525 acres would be 56 million sq ft of built-up area to be completed in four phases by 2015. Nearly 90,000 units aggregating 39 million sq ft (built-up area) would be sold in the open market.

He said construction of 20,000 tenements for the open market would kick off within 60 days. These will range from 520 to 780 sq ft and will be priced in line with market levels.

Implementing projects

MMRDA will be the project implementing authority, while the City and Industrial Development Corporation of Maharashtra (Cidco) would be the special planning authority.

Mr Ratnakar Gaikwad, Commissioner of MMRDA, said that tenements would target the low- and middle-income groups. “It will serve as temporary accommodation for someone who has come to Mumbai for work. The rents will vary from Rs 800 to Rs 1,400,” he said.

On the difference in the model adopted for Virar and the Dharavi redevelopment project, Mr Gaikwad said that the latter was a curative project as it would remove slums from the city.

In contrast, the Virar plan would prevent slums from coming up as it was intended to provide cheap housing.

Fitch lowers rating of Unitech; places it in default category

Fitch lowers rating of Unitech; places it in default category
Business Standard, June 3, 2009, Page 5

PTI, NEW DELHI

Global rating agency Fitch on Tuesday downgraded the credit rating of the real estate firm Unitech Ltd and placed it in the "default" category.

Noting that financial restructuring was essential for Unitech to avoid a liquidity crunch and default in repayment of debts, the rating agency said, "Fitch has, therefore, treated the restructuring as an effective default".

Fitch lowered the credit rating of various long-term debt programmes of the company from `B-(ind)' to `D', which is assigned to "entities or financial commitments which are currently in default".

When contacted, Unitech's spokesperson refused to comment on the developments.

Unitech, the second-largest real estate company in the country, was badly impacted by the current slowdown hitting the real estate sector.

Describing the financial restructuring agreed by banks, financial institutions and mutual funds as "coercive", Fitch said, "restructuring has not resulted in significant impairment of the commercial terms for creditors."

The terms of debt restructuring, it added, include extension of maturity with higher interest or additional security.

Although the rating agency has also lowered the credit rating of other short-term debt programmes of the company, it said, sale of assets, including a hotel property and office complex in Delhi, inflow of funds from Telenor and raising of equity through Qualified Private Placement (QIP) were "likely to reduce liquidity pressure in the short-term."

These developments along with improvement in "operating environment" could result in the rating outlook, currently negative, being revised to stable.

The negative rating outlook, it said, "reflects Fitch's expectation that the operating environment in the Indian real estate sector will continue to remain challenging in 2009, making asset monetisation and project sales difficult to achieve."

Monetisation of assets and sale of projects, Fitch said, would be crucial for repayment of debts which was rescheduled following restructuring of debt.

Parsvnath to raise Rs 500-750 cr in first phase
Business Standard, June 3, 2009, Page 3

Press Trust of India / New Delhi

Realty major Parsvnath Developers plans to raise Rs 500-750 crore through private placements of shares by the end of this month for reducing the company's debt and completion of its ongoing projects.

In the first phase, the company is likely to raise $100-150 million (Rs 500-750 crore) through qualified institutional placements (QIP), sources said.

The company's board has approved raising of up to Rs 2,500 crore through various instruments, including issue of further securities to persons other than the existing equity shareholders of the company and also by way of QIP to qualified institutional buyers.

The company has called an extra-ordinary general meeting (EGM) on June 20 to take shareholders' nod on the proposal.

The funds raised would be utilised to cut the company's debt, which currently stands at about Rs 1,600 crore, and complete its existing projects, sources said.

Parsvnath is aiming at reducing its debt by at least half by end of this fiscal. While Rs 400 crore of the required Rs 800 crore will come from internal accruals, the remaining would be raised through QIPs, they added.

The company has a land bank of over 200 million sq ft, of which 81 million sq ft is under construction.

Parsvnath, which has presence across 50 cities and 17 states, is operating in all the verticals of real estate that includes housing, retail, offices, SEZs, hotels, IT Parks and integrated townships.

In the last two months, several real estate companies, which are facing a huge slowdown in demand for their properties since the last one year, have raised funds through QIPs.

Unitech, the country's second-largest realty firm, had raised Rs 1,620 crore through QIPs to fund various projects and pay off part of its debt.

Indiabulls Real Estate had raised Rs 2,656 crore through placement of securities to QIBs, while HDIL had said it would raise funds by way of QIP.

The promoters of DLF, India's largest realty firm, had sold nearly 10 per cent stake in the company for about Rs 3,860 crore.

Parsvnath gets approval for La-Tropicana project

Parsvnath gets approval for La-Tropicana project
The Hindu Business Line, June 3, 2009, Page 17

Our Bureau, New Delhi

Parsvnath Landmark Developers, a subsidiary of Parsvnath Developers Ltd, on Monday said it has received approvals to commence construction of premium luxury project La-Tropicana in Delhi.

The approvals include sanction of the building plans by the Municipal Corporation of Delhi.

The company is eyeing a realisation of about Rs 1,300 crore in three years from the project.

The land and construction cost would add up to Rs 700 crore, the Parsvnath Chairman, Mr Pradeep Jain, said, adding that 1.2 million sq ft (of the total 2 million sq ft) of residential space, had already been booked.

Work started

“The excavation work at the site has already been completed and now we shall be deploying equipment and manpower to take up construction in full swing and complete the project within the time frame,” he said.