Real Estate Intelligence Report, Wednesday, June 10, 2009

Reality check

Reality check
Business Standard, June 10, 2009, Page 9

The economic indicators still show a mixed picture

More and more people around the world are inclined to believe that the worst of the economic crisis is over, and that the signs of recovery are in the air. In India, the sense of optimism has been reinforced by the rather unexpected political outcome, which potentially frees the government of the many constraints it operated within during its previous term. Anticipation is building up about a breakthrough Budget, which will add momentum to the virtuous circle of evidence and expectations. However, before the book is closed on the meltdown, it would be prudent to do a reality check on the state of the economy, toting up the negative signals along with the positive.

On the positive side, the most visible indicator of a turnaround is the performance of the stock market over the past three months. The benchmark indices have risen by more than 80 per cent from their lows and, importantly, have not given up on their post-election spurt. Both domestic and global liquidity conditions are undoubtedly contributing to this, but underlying the sharp spurt is the view that the corporate earnings cycle too has bottomed out. The prospects of good economic policies being translated from paper into action also help.

Going beyond current expectations, there are some signs of real progress. The Purchasing Managers Index (PMI), which tracks the business cycle through data on procurement, has firmly crossed the dividing line between downturn and upturn. Two-wheeler sales are looking healthy, while some car manufacturers have also reported an increase in sales. Housing loan disbursements appear to be rising, suggesting a revival in this sector after developers have started offering reasonably priced options. Finally, the GDP data for the third and fourth quarters of 2008-09 suggested that not only were things not as bad as previously believed, they certainly weren’t getting any worse.

Against these, there are several indications on the flip side as well. While the Budget to be presented next month will reveal the government’s commitment to fiscal consolidation and reforms, the spreading resistance to disinvestment does not augur well on both fronts. If the government opts to present a politically expedient but economically weak Budget, expectations could spiral downwards as rapidly as they rose. Persistent fiscal pressures will keep interest rates higher than is consistent with a growth stimulus. Exports, which are amongst the country’s most labour-intensive activities, are declining sharply every month and will not stabilise until the affluent economies turn around. And, even if corporate earnings stabilise, companies are unlikely to have the appetite for any significant capacity expansion in the immediate future, which will affect growth.

When the positive and negative factors appear evenly poised, the economy’s vulnerability to new shocks should not be under-estimated. The monsoons may play a role though, at the moment, there is no particular cause for concern. Oil and other commodity prices are edging upwards, a development that could nip the incipient recovery in the bud. All in all, the best one can say is that the bottom has been tested, and that it could be a slow recovery in the initial phase.

Manmohan says 8-9% GDP growth achievable

Manmohan says 8-9% GDP growth achievable
The Hindu Business Line, June 10, 2009, Page 1

Our Bureau, New Delhi

The Prime Minister, Dr Manmohan Singh, has said the Indian economy could achieve growth rate of 8-9 per cent even if the world economy did not do well.

Winding up the discussion on the Motion of Thanks on the President, Ms Pratibha Patil’s address to the joint sitting of Parliament last week, Dr Singh also indicated that the Government would give a further push to public investments, especially in infrastructure, to propel economic growth.

The comments come despite his observation that the country’s fiscal system was under strain.

“The ambition that our Government has is that notwithstanding developments in the global economy, our country must have the resilience to so manage its affairs that it grows at the annual rate of 8-9 per cent. That will be the direction in which we will be moving,” Dr Singh told the Lok Sabha here.

Dr Singh’s optimism over achieving 8-9 per cent growth comes on the back of the strong savings rate of 35 per cent – the second largest savings rate in the world. The Prime Minister said that in 2009-10 the country will maintain at least 7 per cent growth rate.

“In the short run, we cannot do better but this is not good enough,” he said, adding that hence the Government had ambition of achieving 8-9 per cent growth rates.

Even as the fiscal system was under strain, Dr Singh noted that in the short run the country had the manoeuvrability to spend more resources on UPA’s flagship programmes. “I sincerely believe that the Finance Minister, when he presents his budget, will unfold the Government’s strategy in this regard,” he added.

The Prime Minister reckoned that the best way to deal with international slowdown was to push up public expenditure, particularly on infrastructure projects. “That (increase in public expenditure) would not lead to inflation. That would only add to our development growth potential,” Dr Singh added.

FM to meet bankers today, review rate cut

FM to meet bankers today, review rate cut
The Financial Express, June 10, 2009, Page 2

Press Trust of India, New Delhi

Finance minister Pranab Mukherjee will meet heads of public sector banks on Wednesday and is expected to impress upon them the need to further moderate interest rates and increase credit flow to industry.

The broad agenda of the meeting include review of interest rates, credit growth and agriculture loans, official sources said.

Mukherjee had said last month after assuming charge that meeting bankers would be one of his first steps and would ask banks for a “benign plan of action.” “Industry and business have been hurt by the cost of finance... the cost and the speed with which finance can be accessed remains a matter of concern,” Mukherjee had said.

The high profile meet will also dwell upon infrastructure lending, capital adequacy over medium term and housing and education loans, sources added. The meeting would also assess the impact of the three stimulus packages announced by the last UPA government.

The meeting will also take stock of the annual financial performance of the PSU banks and financial institutions. The high-profile meeting will be held in the backdrop of the annual monetary policy by the Reserve Bank of India (RBI) and moderation in the economic growth during 2008-09. India managed 6.7% economic growth in 2008-09 and a 5.8% growth rate during the last quarter of the fiscal. Last week, SBI chairman O P Bhatt had said, there is scope for 25 basis point cut in the interest rates. “We will take a view after (bankers’ meeting with finance minister), he said. There is enough liquidity. Credit is not strong at this point of time but it is expected to pick up during the year,” he said.

Funds via ADRs, GDRs fall 98% in FY09

Funds via ADRs, GDRs fall 98% in FY09
The Financial Express, June 10, 2009, Page 2

Mahalakshmi Hariharan, Mumbai

Total funds raised by Indian companies through American depository receipts (ADR) and global depository receipts (GDR) have witnessed a sharp fall by 98.09% from $2.63 billion in 2007-08 to $0.05 billion in 2008-09.

The number of issues have also dropped from 13 in 2007-08 to 3 in 2008-09.

Further, the average depositary receipts (DR) size has reduced from $202.07 million in 2007-08 to $18.17 million in 2008-09. This signifies that the once high profile ADRs and GDRs went out-of-favour in 2008-09. Further, April 2009 has not seen any ADRs and GDRs, despite hopes of global economic recovery, noted Jagannadham Thunuguntla, equity head at SMC Capital.

Talking about external commercial borrowings, Thunuguntla noted that total funds raised through ECBs by Indian companies have fallen by 35.72% from $24.97 bilion in 2007-08 to $16.05 bln in 2008-09. There has even been a drop in the number of ECBs from 557 in 2007-08 to 458 in 2008-09. However, the average ECB size has slightly increased from $44.83 million in 2007-08 to $35.05 million in 2008-09, which signifies that even debt form of fund raising has become difficult for Indian companies in 2008-09 from abroad.

Further, April 2009 has seen just 25 ECBs raising $0.29 billion, signifying an annualised drop of -78.32% in 2009-10, as a comparison to 2008-09, he added.

The average ECB too has fallen to $8.17 million in 2009-10 from $35.05 million in 2008-09.

Talking about foreign currency convertible funds (FCCBs), total funds raised through by Indian companies have dropped by 75.29% from $5.99 billion in 2007-08 to $1.48 billion in 2008-09. The number of FCCBs has also fallen from 67 in 2007-08 to 20 in 2008-09, said Thunuguntla.

The average FCCB size has also decreased from $89.37 million in 2007-08 to $74.22 million in 2008-09.

“This signifies that the hybrid instruments with dual advantage of equity and debt has been used by high profile corporates such as Reliance Communications and Suzlon Energy, in 2007-08 has completely been shunned off in 2008-09,” noted Thunuguntla.

Further, April 2009 has seen only one FCCB of size $0.01 billion, signifying an annualised fall of -89.87% in 2009-10, as a comparison to 2008-09. Moreover, the average FCCB size has fallen from $74.22 million in 2008-09 to $12.50 million in 2009-10, he added.

The total funds raised from abroad through ADRs, GDRs, ECBs and FCCBs have fallen by -47.66% from $33.59 billion in 2007-08 to $17.58 bln in 2008-09.

Further, April 2009 has seen total foreign funding raised through high profile instruments such as ADRs, GDRs, ECBs, FCCBs to $ 0.30 billion, signifying an annualized fall of -98.29% in 2009-10, as a comparison to 2008-09.

“This signifies that Indian corporate is still continued to face difficult fund raising environment, despite significant global economic recovery,” he said.

Meanwhile Fund raising through several equity instruments such as rights issues, initial public offers (IPOs) and qualified institutional placements (QIPs) during the first two months of financial year 2009-10 has risen 412.75%, by over five-fold from Rs 931 crore to Rs 4,777 crore, more than than the fund raising during the first two months of financial year 2008-09.

Even though there are no IPOs and Rights issues during the first two months of 2009-10, there is a rush of QIPs from several corporates who otherwise are feeling severe cash crunch. This has resulted in healthy fund raising trend during the first two months of FY 2009-10, noted Thunuguntla, .

“With the IPOs are also expected to stage a comeback in the coming months, especially that of PSU IPOs, the fund raising trend in 2009-10 appearing to be healthy going forward,” he said.

Markets bounce back, Sensex closes above 15k

Markets bounce back, Sensex closes above 15k
The Financial Express, Corporates & Markets, June 10, 2009, Page VIII

fe Bureaus
Posted online: Jun 10, 2009 at 0007 hrs

MumbaiIndian equity indices bounced back after Monday’s losses as huge inflows from foreign institutional investors (FIIs) to the tune of Rs 955 crore and comments made by Prime Minister Manmohan Singh that India can achieve a growth of 8% with a high savings rate boosted the sentiments of the markets.

The 30-share Sensex of Bombay Stock Exchange (BSE) added 461.08 points, or 3.14%, to close the day at 15,127 points. The broader S&P CNX Nifty of National Stock Exchange (NSE) surged by 121.05 points, or 2.73%, to end at 4,550.95 points.

The domestic markets started the day on a negative note but made a decent recovery following huge inflows from the foreign as well as Indian fund houses, which led the markets marching forward till the final closing of the session. This apart, fresh buying in realty, capital goods and IT sector stocks also gained.

Deven Choksey, MD of KR Choksey Securities, said, “The markets have been witnessing inflows after every dip. On Tuesday, money came in the markets. The money that is lying on the sidelines is coming in whenever there is a correction and this will continue in the near term. Upward rally may continue in the coming days also, and we might witness Nifty trading at the range of 4,660-4,750 points.”

Dealers and brokers said that markets are hopeful that the government will reveal market-friendly measures in the budget next month.

An analyst from a leading broking house said, “There are chances that, once the budget gets over we might witness more overseas funds coming in India. But till then there are chances that market might remain volatile.”

Provisional figures provided by BSE showed FIIs were net buyers at Rs 955.31 crore, while domestic institutional investors (DIIs) were net sellers at Rs 143.21 crore. In June, FIIs have been on the buying side as they have bought stocks worth Rs 2,317.31 crore, while DIIs have sold stock worth Rs 2,597.44 crore.

“The rally was mostly driven by large-cap stocks and mid-cap stocks as slowly sentiments are improving in the market. However we also witnessed some profit-booking from the insurance companies during the intra-day trade on Tuesday,” said Anita Gandhi, head of institutional business at Arihant Capital market.

IT sectors stocks were in demand for the second straight day with Infosys, Wipro, HCL Tech, Tech Mahindra and TCS leading in front. IT has been one of the beaten down sectors due to rupee getting stronger. Rupee was down at 47.51 to the dollar on Tuesday from 47.55 on Monday.

All of BSE sectoral indices closed the day in green with Realty and IT being the top gains of the day. Out of 2,826 traded on BSE, 1,494 stocks advanced, 1290 stocks declined while 42 stocks remained unchanged. Among Sensex pack, 28 stocks closed in green and two closed the day in red.

Problem of plenty for QIPs

Problem of plenty for QIPs
Business Standard, June 10, 2009, Page 1

Arun Kumar & Deepak Korgaonkar / New Delhi/mumbai

The qualified institutional placement (QIP) party that started in mid-April with Unitech’s highly successful issue is already showing some signs of fatigue.

It’s actually a problem of plenty for investors now. Buoyed by the success of the three companies that sold their QIP issues within a day of opening, as many as 32 companies have joined the queue, hoping to raise a combined Rs 40,000 crore.

The amount will be the highest since 2006, when the market regulator allowed promoters to raise money through QIP issues in 2006. In the last one week alone, as many as 14 companies have announced their plans and the list includes Reliance Communications, Essar Oil, LIC Housing Finance, Network18 and Asian Electronics. Almost 60 per cent of the applicants are real estate companies.

QIP refers to private placement of shares or securities convertible into stock by a listed company with qualified institutional buyers such as banks, insurance firms, mutual funds and foreign institutional investors.

The sharp increase in the share prices of some of these companies (see table) in the last one month has also made matters more complicated, as promoters’ price expectations have increased.

Result: Potential investors have multiple choices and the time to close transactions is being delayed. “The flurry of such announcements make investors more selective,” Ravi Sardana, senior vice-president at ICICI Investment Banking said.

Yogesh Kapur, senior vice-president at Enam Financial, agreed. “Investors are buying time now in the name of due diligence,” he said.

It’s easy to understand why promoters, who were at the receiving end when their stocks were languishing, have also increased their price expectations. Stocks of companies such as GMR Infra and Parsvnath Developers, among others, have appreciated by 50 to 100 per cent over the last month. GMR Infrastructure, which had announced a QIP issue of Rs 5,000 crore on May 9, is currently trading at Rs 160 after touching a high of Rs 183 per share last week, against Rs 110 on the date of announcement.

Similarly, Parsvnath Developers is trading at around Rs 102 per share. Its share price was below Rs 50 till May 15, 2009. The price has risen 15 per cent since May 25, when the company announced its plan to raise Rs 2,500 crore through a QIP issue.

Such sharp increases are also acting as a deterrent for overseas investors, who were keen to invest in Indian markets. “Such a huge increase in such a short period of time is difficult to justify. This in turn delays the transactions,” said a CEO of a leading investment bank on condition of anonymity.

Amitabh Chakrabarty, President (equity) at Religare Securities, said the supply hangover was delaying closure of transactions. “Although the interest of overseas investors in emerging markets, particularly India, have increased significantly, the oversupply of paper has made them more conservative,” he added.

Here’s a sobering thought for those who are keen on QIPs. Out of the total 65 companies that collectively raised Rs 30,922crore through QIPs between 2006 and 2008, the market price of as many as 52 companies declined from their offer price. These stocks are currently valued at Rs 22,702 crore, which is 27 per cent lower than the amount raised through the QIP issues.

Ramesh slams environment norms, wants transparency

Ramesh slams environment norms, wants transparency
The Financial Express, June 10, 2009, Page 3

Sandip Das, New Delhi

Ordering his officers to post details of all applications for environmental clearance online, minister for environment & forests Jairam Ramesh has admitted that the present regime of mandatory approvals for development and infrastructure projects had proved a complete failure. Ramesh has also slammed existing environment protection laws for “neither meeting the environmental protection objective nor ensuring that industry complies with the law”.

Acting on explicit instructions from Prime Minister Manmohan Singh to expedite and remove hurdles in granting the environmental impact assessment (EIA) for industrial projects, Ramesh has been taking a hard look at procedures and regulations. His findings are far from pleasant.

According to him, the EIA system—in place since 1994 for projects that need land and water—has been a failure, since there has been hardly any follow-up on the environmental impact after projects are cleared. Environmental clearances also take too much time, although Ramesh claims not a single project has been blocked.

“Environmental clearances, in most cases, have taken more than the mandatory 210 days, but most of the 952 projects with the ministry have been passed. The rejection rate is zero and it is wrong to say that there is rejection, though it takes a little more time,” Ramesh told FE.

Environmental clearances have been seen as a persistent hurdle in the way of several infrastructure projects. “Industry looks upon environmental protection as a cost, not an obligation—a cost that is imposed on them,” the minister said, admitting, however, that there are “good examples” of industrial houses implementing best practices for environmental protection.

To ensure transparency and speedier environmental clearances for industrial projects, the ministry plans to post online the registration and clearance process. Ramesh has already asked officials to upload all information relating to projects awaiting clearance from the ministry on its website (envfor.nic.in) by the end of the month.

Companies seeking fresh environmental clearances will also be able to apply online to register their EIA requests soon. “Anybody can seek see the status of their application for environmental clearance and we want to make the process businesslike and transparent,” Ramesh said.

Though he sought some time for the online registration system to become operational, Ramesh said, “If a company can apply for registration online with ministry of corporate affairs, then why not make environmental clearance registration online?”

Turnaround only in second half of year: CII survey

Turnaround only in second half of year: CII survey
The Financial Express, June 10, 2009, page 10

fe Bureaus, Chandigarh

An economic turnaround is expected in the second half of 2009-10 and beyond, predicts a recent CII northern region business outlook survey. The survey also says that the overall outlook for business is better for the current six months (April-September 2009) compared to the actual performance for the previous six months (October-March 2008-09).

The survey is based on 132 responses received from industry across Chandigarh, Delhi, Haryana, Himachal Pradesh, Jammu & Kashmir, Punjab, Rajasthan, Uttar Pradesh and Uttarakhand.

As many as 64% of the respondents were from the manufacturing sector and 36% from the services sector. As many as 72% of the respondents expect GDP growth to be in the range of 5-7%. Against 48.5% of the respondents expecting a GDP growth of less than 7% in the April-November 2008-09 survey, 86% of the respondents this time expect a GDP growth of less than 7%. This indicates a growing convergence towards the view that the Indian economy would witness some moderation in growth rates in wake of the global slowdown.

On inflation, 87% respondents expect inflation to be above 2% in 2009-10, ruling out possibility of sustained deflation. Given the slowdown, 96% respondents expect a turnaround only in the second half of 2009-10 or beyond.

The survey also looked into the expectations on various elements that build up business confidence, with encouraging results. As many as 33% respondents expect an increase in investments during the current six months.

Capacity utilisation is expected to improve, with 55% respondents expecting capacity utilisation greater than 75% against 40% respondents reporting a capacity utilisation of over 75% in last six months. As many as 62% respondents expect an increase in sales against only 39% respondents reporting an increase in last six months.

As many as 56% of the respondents expect production to increase, against only 32% reporting an increase in the last six months. On exports, 42% of the respondents expected an increase in volume compared to 29% actually reporting an increase in the last six months.

The credit availability is also expected to improve, with 26% of the respondents expecting it to increase against only 9% respondents reporting an increase in the last six months. However, 60% respondents expect no change in the situation. Despite the aggressive rate cuts by RBI, only 29% respondents reported a decline in the cost of credit.

Unitech exits New Kolkata SPV

Unitech exits New Kolkata SPV
Business Standard, June 10, 2009, Page 1

Ishita Ayan Dutt / Kolkata

Sells entire 40 per cent stake to partners, won’t say why.

Unitech, the country’s second-largest property developer, has exited from New Kolkata International Development (NKID) Pvt Ltd, a special purpose vehicle (SPV) formed to develop several large projects in West Bengal, including the proposed petroleum, chemicals and petrochemical investment region (PCPIR) at Nayachar.

Unitech had 40 per cent stake in NKID, which has been acquired by the Salim group and Universal Success. Sources said NKID was now a 50:50 partnership between these two; earlier, Salim had a 40 per cent stake and Universal had 20 per cent.

When asked why Unitech quit NKID, the former’s managing director, Ajay Chandra, said, “I have no comments on this.”

NKID is a 51 per cent partner for the Nayachar project, while the balance is with the West Bengal Industrial Development Corporation (WBIDC). PCPIR apart, NKID has a host of projects over a 15-year period, which include an Eastern Link Highway, SME industrial estates and a deepwater port close to Nayachar island.

Industry observers said one reason behind Unitech’s exit from NKID could be the long gestation period, given the nature of the projects and the huge investments. Though NKID was incorporated in early 2007, some of the projects ran into rough weather with land acquisition, the most important being the PCPIR, which was ultimately relocated from Nandigram to Nayachar.

The investment in developing infrastructure at Nayachar would be Rs 10,000 crore, while the port could cost Rs 8,500 crore. The investments proposed in NKID projects are sizeable. On the other hand, Unitech has run up debt of around Rs 7,800 crore, and plans to cut it by at least Rs 1,000 crore this fiscal. The company has sold assets over the past few months, and aimed to raise around Rs 1,600 crore for the year ending March 31, from sale of non-core assets in Delhi, Noida, Gurgaon and Kolkata. The focus for the company and all other real estate developers now is affordable housing.

Though the Nayachar investments would be made over a long period of time, smaller investments are underway. For instance, four different studies are on. Also, Singapore-based Jurong Town Corporation have been appointed as consultants. Consultants have been appointed for the deepwater port, too. Even with the offloading of stake in NKID, Unitech would have a presence in West Bengal. The company has a residential project in New Town Rajarhat and an IT park, in partnership with the Universal Success group.

Tatas advance low-cost housing target by 2 yrs

Tatas advance low-cost housing target by 2 yrs
Business Standard, June 10, 2009, Page 3

Raghavendra Kamath / Mumbai

Tata Housing, a unit of Tata Sons, is advancing its plans to build 15,000 low-cost dwelling units by two years. Besides, it should add 300 more houses in its Mumbai project to take the advantage of demand for such homes, a top company official said.

Tata Housing had earlier planned to develop 1,000 houses under the brand 'Shubh Griha' in Bhoisar, a distant suburb of Mumbai, priced at Rs 3.9-6.7 lakh. It is also bidding for nearly 15,000 such low-cost homes in Bangalore, the national capital region (NCR) and others in the next four years.

“We got a good response for our project in Bhoisar . We need to capture the first-mover advantage in the cities where we are planning to launch these projects lest there should be overcrowding, as many other developers are also planning to enter this segment,'' said Brotin Banerjee, MD and CEO, Tata Housing Development Company.

Within three weeks, the company sold 16,000 forms for 1,000 homes, of which 7,200 filled the forms and returned with an earnest deposit of Rs 10,000. For each apartment, 7.2 customers have shown interest.

Based on a lottery, the company will declare a first list and a waiting list within 15 days of the final booking. Winners are expected to be announced by June-end. The company is also planning to launch another low-cost project in the central suburbs of Mumbai.

“We will talk to governments and land-owners for early possession of the land and complete the projects quickly,” Banerjee said.

Tata Housing was targetting revenues of Rs 700 crore from low-cost housing in the next four years. “We will continue to do low-cost housing till the time we get land at low prices. The day we do not get it, we will stop. However, I do not see such a scenario in the next two-three years,'' Banerjee said.

The company is targetting Rs 100-150 crore revenue and an offer of 1,000-1,500 flats at each project. "Going forward, 50 per cent of our revenues in the housing segment will come from premium housing, 20 per cent from low-cost housing and the rest from affordable (mid-income projects),” he said.

Omaxe to allow 100% FII stake

Omaxe to allow 100% FII stake
The Economic Times, June 10, 2009, Page 5

NEW DELHI: Realty developer Omaxe on Tuesday said its board has approved to increase the limit of holding by foreign institutional investors (FIIs) to 100%. The board has approved to increase the limits of holding by the registered FIIs to up to 100%, Omaxe said in a filing to the Bombay Stock Exchange. At present, the limit of overseas investors holding in the company is 24%. The rise in the limit of FII holding was taken on Tuesday, but the company had inadvertently mentioned this limit as 40%. “The increase in the limits of 24% for holding by the registered FIIs was inadvertently mentioned as 40% instead of 100%,” Omaxe said in a statement.