Real Estate Intelligence Report, Wednesday, July 01, 2009

Realty, metal drag down Sensex 291 pts

Realty, metal drag down Sensex 291 pts
The Economic Times, July 1, 2009, Page 10

MUMBAI: Realty and metal shares led the slide in equity benchmarks on Tuesday, as traders pared their long positions in the run-up to the Union Budget on July 6. Institutional investors, too, chose to play safe, as the general perception is that shares are fairly valued at current levels, and offer limited upsides even if the Budget meets market expectations. The Sensex fell 291.90 points, or nearly 2%, to close at 14493.84. The Nifty fell 89.85 points, or 2.3%, to close at 4291.10. News from the global economy was mixed. According to the Chicago purchasers’ index, US business activity contracted less than expected in June, raising hopes that the economy could improve in the second half of the year. On the other hand, the UK economy shrank a higher than estimated 2.4% in the first quarter of 2009, also the biggest contraction since 1958. Back home, realty shares were the worst hit, as it becomes increasingly clear that only a select few will be able to raise capital, and that too at valuations dictated by buyers. DLF, HDIL and Indiabulls Real Estate were among prominent losers, falling in the 8-12% range. “Our approximate calculations show that $15-20 billion worth of equity issuances at current multiples would raise the book value and 2010 EPS by 4-5% if profitability ratios are maintained on the newly-raised capital too,” said a Credit Suisse note to clients. “Earnings enhancement is less likely for the ongoing year. Forward EPS momentum, rather than valuation expansion, will be the primary positive driver of the market in the quarters to come,” the note added.—Our Bureau

GOVT MAY STICK TO 7% GDP GROWTH

GOVT MAY STICK TO 7% GDP GROWTH
The Economic Times, July 1, 2009, Page 1

Expecting a sharp rally in the second half of FY10, the Centre is likely to retain the GDP growth forecast at 7%, reports Deepshikha Sikarwar from New Delhi.

Centre to still see GDP in 7th heaven

Centre to still see GDP in 7th heaven
The Economic Times, July 1, 2009, Page 11

Deepshikha Sikarwar NEW DELHI

THE central government is likely to retain its GDP growth projection of 7% for 2009-10 as it expects a sharp recovery in the second half of the financial year.

The figure, forecast in the interim budget presented on February 16, is much higher than the World Bank forecast of 5.1%. Indeed, the economy had grown 6.7% in the previous fiscal compared to the World Bank’s estimate of 6.1%.

Though the prospect of poor rains has dampened the cautious enthusiasm, there is hope that recovery would be sharper in the second half, reflecting the growth across the world and making up for the lost steam in the first half, a government official told ET.

The stimulus packages unveiled by governments around the world are beginning to deliver and once demand revives in the developed world, which is seen post-September, the recovery would be faster, the official added. India too is running a fiscal expansionary policy. The interim budget pegged fiscal deficit at 5.5% of GDP in 2009-10. All these factors, together with the increased optimism, are the reason the government is retaining the 7% growth estimate in the economic survey and Budget.

Economic growth could be much higher in the next fiscal year at 8-8.5%, the official said. This is in line with the World Bank forecast that the economy will expand by 8% in 2010, faster than China’s projected growth at 7%. Ratings agency Fitch on Tuesday raised growth projection for India in 2009 to 6%. The government’s optimism is also based on the recovery shown by consumer goods, fastmoving consumer goods and cement. In April, industrial growth, as measured by the index of industrial production, turned positive at 1.4%, after remaining negative for the previous two months, with as many as 11 of the 17 industry groups showing a positive growth.

Up 2.8%,core firmly on recovery path

Up 2.8%,core firmly on recovery path
The Economic Times, July 1, 2009, Page 11

May Trend Portends Renewed Vigour In Industrial Growth, Say Economists

Our Bureau NEW DELHI

THE output in the six infrastructure industries grew 2.8% in May, pointing to a recovery in economic activity. While there is high divergence in the core sector data, the underlying trend is one of renewal in industrial growth, say economists.

“There is too much noise in the system and, hence, we cannot say whether this is a sustained recovery. But the underlying trend that is emerging from the data suggests recovery,” said DK Joshi of Crisil. The industries — oil, petroleum refinery products, coal, electricity, cement and finished steel — grew 3.1% in May 2008.

Cement output, which is an indicator of the construction activity in the country, clocked its second-highest growth in 12 months at 11.6%. “The growth in cement is encouraging; it has a multiplier effect and is a driver of growth,” said Ajay Shankar, secretary in the department of industrial policy and promotion (Dipp).

The core industries have a weight of around 27% in the index of industrial production, which is expected to show a high growth. “Industrial output for May is expected to be better… robust performance by domestic demand-driven industries will reflect in industrial output,” added Mr Shankar.

Oil and petroleum refinery products are the two sectors that have showed a drop in growth last month at –4.3% each.

“While the stimulus packages seem to have come in full effect as is seen through a robust growth in raw materials like cement and steel, revival in oil and petroleum holds the key,” said Soumendra K Dash, chief economist of CARE.

SBI improves its home loan offer

SBI improves its home loan offer
Business Standard, July 1, 2009, Page 1

BS Reporter / Mumbai

Offers to fix rates in second, third year of loan.

With real estate prices dropping, action is hotting up in the home loan market. State Bank of India (SBI), the country’s largest lender, today said that it had improved upon its home loan scheme and would offer home loans starting at 8 per cent in the first year before rising 100-150 basis points in the second and third years. Earlier, SBI had only fixed interest rates during the first year of the tenure of the loan.

In addition, the bank has offered to levy interest on a reducing balance basis and has waived the processing fee for home loans taken up to September.

Within a few hours of SBI’s announcement, LIC Housing Finance, the country’s second-largest mortgage company, said it was reducing the interest rate on floating rate loans for existing customers by 50 basis points.

The largest mortgage player HDFC has not announced a counter-strategy yet, and said it would lower lending rates if the cost of funds went down. For the moment, the home finance company said its effective rate was lower than what SBI was offering.

SBI, which became the largest home loan originator in 2008-09, said it had floated two schemes — Easy Home Loan and Advantage Home Loan.

Under Easy Home Loan, for those borrowing under Rs 30 lakh, the rate has been fixed at 8 per cent during the first year and would be increased 100 basis points to 9 per cent and fixed at that level during the second and third years.

From the fourth year onwards, the customer could choose between the floating rate option, for which the rate is 200 basis points below the State Bank Advance Rate (SBAR), and fixed rate which is 100 basis points below SBAR, with a five-year reset. At present, SBAR is at 11.75 per cent.

For a 20-year loan, the Equated Monthly Installment (EMI) during the first year would be Rs 836 per lakh and would rise to Rs 898 per lakh over the next two years.

Under SBI Advantage, targeted at upper-end home buyers, during the first year, the rate has been fixed at 8 per cent. It would then be fixed at 9.5 per cent during the second and third years. From the fourth year onwards, the customer can choose between a floating rate at 100 basis points below the SBAR and a fixed rate of 50 basis points below SBAR, with a five-year reset.

For a 20-year mortgage, the indicative EMI for the first year would be Rs 836 per lakh in the first year and would rise to Rs 929 per lakh over the next two years.

SBI said that the reduction in SBAR, announced last week and effective from tomorrow, would lower the effective floating rates for existing borrowers 50 basis points.

According to HDFC’s calculations, for those borrowing up to Rs 30 lakh from SBI, the effective rate worked out to 9.35 per cent a year, while for the mortgage player, the rate was 9.25 per cent.

Similarly, for those borrowing over Rs 30 lakh, the effective rate for SBI worked out to 10.09 per cent a year, while it was 9.75 per cent for HDFC.

SBI, LIC HF cut home loan rates

SBI, LIC HF cut home loan rates
The Financial Express, July 1, 2009, Page 1

fe Bureau, Mumbai

State Bank of India, the country’s largest lender, on Tuesday launched two new home loan products—SBI Easy Home Loan and SBI Advantage Home Loan—for buyers in the sub-Rs 30-lakh and over Rs 30-lakh category, with processing fee for both waived until September 30, while home mortgage lender LIC Housing Finance has reduced the interest rates for its existing borrowers.

Aiming at 20% jump in its home loan portfolio, SBI also extended the benefit of reduced rates to its boroowers up to the fourth year.

In SBI Easy Home Loan, the interest rate charged on daily reducing balance would be 8% per annum for the first year and 9% fixed for the second and third years. From the fourth year onwards, the customer can choose between a floating rate of 2% below the State Bank Advance Rate (SBAR) and a fixed rate of 1% below SBAR with a five-year reset.

The indicative EMI for the first year would be Rs 836 and for the next two-years Rs 898 for a loan tenure of 20-years. SBAR is 11.75% with effect from June 29.

SBI Advantage Home, targeted at premium home buyers (above Rs 30-lakh), will have an 8% fixed interest for the first year and 9.5% for the second and third years.

Both the schemes will be valid until September 30, 2009 and depending on the response, the bank will decide whether to extend them.

The bank has a home loan portfolio of over Rs 56,000 crore. The growth rate last year was 21% and SBI was the largest originator of home loans with a growth of Rs 9,370 crore. The earlier scheme called SBI Special, launched on December 16, 2008, under the umbrella of IBA, to stimulate growth in the affordable housing sector was scheduled to close on Tuesday, June 30. Talking to FE, a senior official of the bank said that after the launch of the two schemes, the bank is looking at increasing its home loan segment by 20% by the fiscal-end.

Also, the official said the bank is targeting a credit offtake of Rs 1,000-1,500 crore in the home finance segment.

Commenting on latest rate reduction, RR Nair, director & chief executive, LIC Housing Finance, said that the company’s existing PLR is 12.55% and the rate after the reduction will be 9.5% to 10%.

Nearly 98% LIC Housing Finance borrowers have opted for a floating rate of interest.

Steel companies mull 2-5% price hike on demand recovery

Steel companies mull 2-5% price hike on demand recovery
The Economic Times, July 1, 2009, Page 7

Sumit Chaturvedi & Subhash Narayan, ET NOW

STEEL prices could go up by 2-5% in July, with some of the country’s largest steel producers such as SAIL, Ispat and Jindal contemplating price hikes. Prices are likely to go up in the range of Rs 500-1,000 per tonne for various products. Some steelmakers had raised prices by Rs 500-1,000 a tonne in May and June. Steel prices had fallen sharply last year due to the effects of the global economic downturn. There has also been a rise in raw material prices.

The country’s largest steelmaker, SAIL, is likely to increase prices of certain grades by Rs 500-750 per tonne. Ispat Industries is also looking at increasing the price of hot rolled coil (HRC) by Rs 700-1,000 per tonne, while JSW, Essar and Tata Steel are reviewing the situation and would take a call in the first week of July.

“I don’t think there is any possibility of a substantial increase in prices, but small adjustments can always be made. For spot customers, we will look at prices afresh in the first week of July,” SAIL chairman

SK Roongta said. “It (price increase) is an ongoing process. Some small adjustments to the tune of Rs 500-750 per tonne, that’s about 1-2%, keep on happening,” he added. SAIL had made minor changes in prices and withdrew discounts in May and June.

“We take a call in the beginning of month on price rise. In any case, price variations is only for spot customers, who constitute 20-25% of our customer base,” said a Tata Steel spokesman. An executive with Ispat Industries said the company may raise prices by Rs 700-800 per tonne or more in July as the company had not increased prices either in May or June. “We are reviewing the situation and nothing has been finalised as of now,” said a spokesman for Essar Steel.

The benchmark HRC prices are hovering around Rs 27,000-30,000 a tonne. This is still slightly higher than international prices. The gap has, however, now narrowed as steel prices have moved up marginally in some other countries too.

Domestic companies want to take advantage of a pickup in demand in the domestic market, which is mainly coming from increased steel consumption in sectors such as infrastructure, rural housing and automobiles.

“While the domestic demand has maintained its pace, increasing steel price may be difficult as prices have fallen by $50 a tonne in China,” said an executive with a private sector steel company.

India is the only major economy expected to show a growth in steel consumption (2%) in 2009, according to the latest forecast of World Steel Association (worldsteel).

QIP run halts; GMR cancels $500m issue

QIP run halts; GMR cancels $500m issue
The Financial Express, July 1, 2009, Page 1

Akash Joshi, Mumbai

GMR Infrastructure has become the first Indian company to withdraw its plans to raise finance through the qualified institutional placements (QIP)—the most popular route through which companies are raising finances this year. The withdrawal has raised concerns about the possible oversupply of papers and pricing issues in the market. In the week before the Budget, around Rs 13,000 crore of such fund raising plans are in the queue, according to data with capital market firm KRIS.

Bangalore-based construction firm GMR Infra on Tuesday informed the Bombay Stock Exchange that it is withdrawing its proposed $500-million (about Rs 2,500 crore) QIP, blaming unfavourable market conditions. “The management committee of the board of directors of the company has decided to withdraw the QIP in light of existing market conditions.” The board had earlier decided to allot shares on June 29 to qualified institutional buyers pursuant to the shareholders’ nod earlier this month for raising up to Rs 5,000 crore.

An investment bank source familiar with the development confirmed that over-pricing of the placement and a flurry of issuances had caused the management to rethink. QIP is a method that allows a domestic listed company to raise capital from stock markets without needing to submit any pre-issue filings with market regulator, Sebi. The rules were put in place by Sebi in May, 2006. H owever, the rules were modified in August 208 to make the offer price more realistic, by changing the pricing period from six-month average price to two weeks’. A two week price average is considered to be more close to current market conditions and, therefore, more realistic.

However the success of DLF’s Rs 3,860-crore QIP issue and increased investor interest in the space caused a flurry of announcements. India Inc intends to raise around Rs 32,500 crore this year through QIPs.

Some key QIP issues to be opened this week are from real estate companies like Purvankara, Shobha Developers, HDIL, HCC and Dewan Housing and domestic FMCG company Emami. Last week, Unitech closed a QIP issue for Rs 2,800 crore.

An investment banker with a leading foreign bank said, “There are more then $1.5 billion that have been raised from the market over the past month. With already so much of money being raised, there is a question mark on the fate of another $2.7 billion planned to be raised next week.” To put that number in perspective, Indian companies had raised Rs 54,000 crore through public issues in 2007-08 and around Rs 25,000 crore through the QIP route the same year when the going was good. But in the following financial year, they raised only around Rs 189 crore (till January 2009) even after the rules were changed.

Companies are redoing their math as the Budget draws near. Since the new norms say the QIP price will be calculated at a two-week average price against the earlier six-month average, they would prefer to ride out the Budget and its impact on the stock markets before moving in. But investors have different perspective. “Now, in case investors expect the market to fall after the Budget, they’d rather wait,” says Udayabhanu Thakur, associate VP, investment banking, SREI Capital Market.

An analysis of pre- and post-Budget market movement suggests that over the past 18 years, the market has corrected 14 times post-Budget. Excluding the outlier of 1992, the average fall is 4.3%.”This time as well given the higher expectations and strong rally subsequent to the election results, a post-Budget correction appears likely,” say analysts at Religare Hichens Harrison.

In the case of GMR Infrastructure, its share price has nearly doubled over the past six months. An investment banking source said that would indicate a price near the Rs 160-mark but the two-week average as on Monday when the issue opened was around Rs 143.43, almost 10% less.

The BSE Realty index fell by 7.4% on Tuesday, while the Sensex by 1.9%. Overall, the realty & construction sector was seen making a comeback as the QIP route has seen companies like Unitech and DLF raise more than billion dollars and take care of their debt and other financing obligations.

Doing business is tough in India

Doing business is tough in India
The Financial Express, July 1, 2009, Page 1

fe Bureau, New Delhi

It is the easiest to start a business in New Delhi, Jaipur and Hyderabad. But to close a business, the easiest places are Hyderabad, Ludhiana and Mumbai. Registering property is pretty easy in Gurgaon, Ahmedabad and Jaipur but enforcing the contract is mighty difficult.

Such wide disparity in business practices across major Indian cities is the reason why the country is placed at a dismal 122 out of a 180-nation ranking for doing business. The World Bank--International Finance Corporation and Confederation of Indian Industry survey is the first of a series of sub-national reports, ‘Doing Business in India’. This impacts the cost of credit, too. “If banks cannot protect their credit, they lend less and at a higher rate”, the report notes. Regulatory reforms have been uneven across the country, according to Penelope Brook, acting vice-president of the World Bank Group’s Financial & Private Sector Development. “In India, where more than 90% jobs are in the informal sector, regulatory reforms can help businesses operate efficiently in the formal sector. Reforms that cut red tape, clarify property rights and streamline regulatory compliance can yield big payoffs for firms and workers.”

The 17 cities studied by the report shows that even the best the performances are way beyond global benchmarks. For instance, although Hyderabad has the highest recovery rate in insolvency cases at 15.9 cents to a dollar (as against Japan’s 99.5 cents to the dollar), it still takes seven years to close a business against the OECD average of less than two years. Creating single access points for all tax registrations and social security requirements, making on-line start-ups fully functional, creating a one-stop shop for all pre- and post-registration requirements are some of the recommendations identified by the report to make the business process in India smoother. The World Bank-IFC report says India can climb up to rank 67, leaving behind regional leader China, if it implements the report’s recommendations.

Immediate steps to be taken include implementing the proposed amendments to the Companies Act, expanding creditors’ rights and developing adequate licensing and training programess for insolvency practitioners. The report commends Andhra Pradesh and Orrisa for simplifying the processes for entrepreneurs by consolidating registration for both value-added tax and profession tax at the commercial tax offices.

RBI allows SEZ developers to raise overseas loans

RBI allows SEZ developers to raise overseas loans
The Financial Express, July 1, 2009, Page 2

fe Bureau, New Delhi

The Reserve Bank of India (RBI) on Tuesday, allowed special economic zone (SEZ) developers to raise overseas loans. Notifying the relaxation in the external commercial borrowings (ECB) policy, it has also eased the borrowing rules for non-banking financial companies (NBFCs) and extended the permission to integrated township developers to access the ECB window till December 2009.

"It has now been decided to allow SEZ developers also to avail of ECB under the approval route for providing infrastructure facilities, as defined in the ECB policy, within the SEZ. However, ECB shall not be permissible for development of integrated township and commercial real estate within the SEZ," RBI said in a notification. This move will now allow SEZ developers to raise funds at a cheaper rate.

RBI has also specified that corporates, which have violated the ECB policy and are under investigation by RBI and the directorate of enforcement, will not be allowed to access the automatic route for ECB. FE had first reported about RBI granting permission to”SEZs raise overseas loans", in its edition dated June 9, 2009. Currently, RBI allows NBFCs exclusively engaged in infrastructure financing to raise ECBs from multilateral, regional financial institutions and government-owned development financial institutions. However, this was subjected to a restrictive condition that the direct lending portfolio of these lenders vis-à-vis their total ECB lending to NBFCs, at any point of time, should not be less than 3:1. ratio of 3:1.

The RBI has now dispensed with this condition with effect from 1 July, 2009. The NBFC borrowing proposals will, however, continue to be examined by the RBI under the approval route, as hitherto.”The modifications to the ECB guidelines will come into force with immediate effect. All other aspects of the ECB policy, such as $500 million limit per company per financial year under the automatic route, eligible borrower, recognised lender, end-use, all-in-cost ceiling, average maturity period, prepayment, refinancing of existing ECB and reporting arrangements remain unchanged," the RBI noted.

DLF to sell 5-star plot in Gurgaon

DLF to sell 5-star plot in Gurgaon
The Economic Times, July 1, 2009, Page 4

Ravi Teja Sharma NEW DELHI

DLF, India’s largest real estate developer, is selling its prime 2-acre five-star hotel plot in the Cyber City area of Gurgaon to Duet Group’s India-specific real estate fund Duet India Hotels. The developer had earlier said that in view of improved market conditions, it will not be selling its core assets but will still sell non-core assets, which include hotel plots.

Sources close to the development said the plot is expected to be sold for Rs 110-115 crore. DLF though was expecting to get around Rs 125 crore for the plot, which offers 1.53 lakh sq ft of FSI at a rate little over Rs 8,000 per sq ft.

The plot offers a good catchment area for a fivestar hotel because of the number of MNCs located in the area. It will also offer huge potential for F&B business. Duet is also talking to DLF to buy another hotel plot on the Golf Course Road in Gurgaon.

DLF has a JV with Hilton Hotels under which it has land at 4 locations – Kolkata, Trivandrum, Mysore and Chennai. The plan to sell non-core hotel assets does not include these plots of land.

The developer has plots in Jamnagar, Kochi and Delhi, apart from the ones in Gurgaon, which it is looking at selling. Duet India Hotels is a $166.5-million real estate specific PE fund that focusing on commercial integrated business hotel development in CBD and SBD locations in India.

Akruti City net down 11% at Rs 265 crore

Akruti City net down 11% at Rs 265 crore
The Economic Times, July 1, 2009, Page 6

MUMBAI: Real estate firm Akruti City on Tuesday reported a 11.54% decline in its consolidated net profit of Rs 264.73 crore for the year ended March 31, 2009, over the same period last year. The company had a net profit of Rs 299.27 crore in the same period ended March 2008. Total income of the company decline to Rs 435.16 crore for the period ended March 2009, against Rs 446.69 crore in the same period ended March 2008. Shares of Ackruti City were trading at Rs 514 on the BSE, down 1.73% from the previous day’s closing price.