Wednesday, January 20, 2010
Unitech withdraws $700-m FCCB plan
Unitech withdraws $700-m FCCB plan
Financial Express, January 20, 2010, Page 4
Rajat Guha, New Delhi
The country's second largest real estate developer Unitech has withdrawn its plans to raise $700 million through foreign currency convertible bonds (FCCBs) amidst strong signals from the government that the current norm prohibiting developers to repatriate profits from investments for a period of three years would not be relaxed.
The Delhi-based company’s plan to raise money via these debt instruments was based on the hope that the government would waive off the three-year lock-in period for foreign capital. The funds that were expected to be raised would have been used by the company to develop integrated townships. Currently, under the government's external commercial borrowings (ECB) norms that also govern FCCBs, there's a three-year lock-in before which one cannot redeem the bonds.
Although the department of industrial policy and promotion (DIPP), the key FDI policy making body, had supported Unitech's proposal, the finance ministry and the Reserve Bank of India opposed relaxation of the lock-in norm, a senior government official, who has dealt with the proposal said.
Unitech had earlier argued with the government that FCCBs should be treated as debt till the time of conversion and they would be issued to portfolio investors. FCCBs are bonds that allow the bondholder to redeem the bonds after the maturity period or convert them into equity at a predetermined price. Until then, they carry a nominal rate of interest.
In January 2009, as part of the second stimulus package the government allowed real estate companies to raise funds via ECB for integrated township project.
But except Unitech, no other realty company has approached the government so far seeking permission to raise funds through this route.
Foreign direct investment (FDI) in construction is allowed through the automatic route but with riders. The government had imposed the lock-in in real estate to prevent an asset bubble. A Unitech executive said the company has given up its plans to raise money through FCCBs as there was no immediate need for funds.
Last year, Unitech was on a fund-raising spree. It raised Rs 4,000 crore through two rounds of QIPs. Part of these funds were utilised to retire its debts.
Financial Express, January 20, 2010, Page 4
Rajat Guha, New Delhi
The country's second largest real estate developer Unitech has withdrawn its plans to raise $700 million through foreign currency convertible bonds (FCCBs) amidst strong signals from the government that the current norm prohibiting developers to repatriate profits from investments for a period of three years would not be relaxed.
The Delhi-based company’s plan to raise money via these debt instruments was based on the hope that the government would waive off the three-year lock-in period for foreign capital. The funds that were expected to be raised would have been used by the company to develop integrated townships. Currently, under the government's external commercial borrowings (ECB) norms that also govern FCCBs, there's a three-year lock-in before which one cannot redeem the bonds.
Although the department of industrial policy and promotion (DIPP), the key FDI policy making body, had supported Unitech's proposal, the finance ministry and the Reserve Bank of India opposed relaxation of the lock-in norm, a senior government official, who has dealt with the proposal said.
Unitech had earlier argued with the government that FCCBs should be treated as debt till the time of conversion and they would be issued to portfolio investors. FCCBs are bonds that allow the bondholder to redeem the bonds after the maturity period or convert them into equity at a predetermined price. Until then, they carry a nominal rate of interest.
In January 2009, as part of the second stimulus package the government allowed real estate companies to raise funds via ECB for integrated township project.
But except Unitech, no other realty company has approached the government so far seeking permission to raise funds through this route.
Foreign direct investment (FDI) in construction is allowed through the automatic route but with riders. The government had imposed the lock-in in real estate to prevent an asset bubble. A Unitech executive said the company has given up its plans to raise money through FCCBs as there was no immediate need for funds.
Last year, Unitech was on a fund-raising spree. It raised Rs 4,000 crore through two rounds of QIPs. Part of these funds were utilised to retire its debts.
Tourism ministry seeks 5-yr tax holiday extension for Games hotels till July 31
Tourism ministry seeks 5-yr tax holiday extension for Games hotels till July 31
Financial Express, January 20, 2010, Page 14
Surabhi Agarwal, New Delhi
To speed up the development of hotel rooms before the Commonwealth Games due in October, the tourism ministry has urged the finance ministry to extend the benefits of the five-year tax holiday for budget hotels under construction in the national capital region (NCR) up to July 31, 2010, instead of the earlier deadline of March 31, 2010.
“Looking at the macro-economic situation over the past year, most of the hotels will take a little longer to complete.
Extending the tax holiday would be an incentive for hotels to speed up the process of development and start operations soon, adding to the country’s preparedness for the Games,” a tourism ministry official told FE.
The five-year tax holiday for budget hotels was introduced to attract hospitality chains to build more hotels in the NCR region. However, the economic downturn put a spanner in the development of a majority of properties raising concerns of a shortage of rooms during the Games, which are expected to attract around 1,00,000 tourists from across the world. According to estimates, there is a requirement of around 40,000 rooms in the NCR region to host the guests.
The tourism ministry has also urged the finance ministry for “non-inclusion of interstate passenger tax, state road tax and toll tax in GST as a result of which seamless travel and uniform road tax would not be possible”. Stamp duty, vehicular tax and toll taxes are part of the exemptions demanded by the empowered committee of state finance ministers, which is negotiating the GST rate and structure with the centre. States receive a consolidated Rs 10,000 crore annually from vehicles, according to the estimate of the 13th Finance Commission task force on GST.
The ministry has also demanded the restoration of Budget grant to Rs 1,000 crore, which was reduced to Rs 950 crore in the revised estimates of 2009-10. The ministry has also reiterated its demand for the revival of 80HHD of the income tax act of the tourism sector, which allowed the 50% of the profits earned from the services provided to the foreign tourists was exempted from tax and further 50% of the profit was also exempted if it was invested in the tourism sector.
“This benefit was discontinued from the financial year 2005-06 and the revivals of the benefits would set a path of growth for building up much needed tourism infrastructure in the country,” it said. The ministry has also asked for grant of infrastructure status to hotels along with deemed export status for earnings of inbound tour operators, demands which were not met in the last Budget.
In order to give a boost to the cruise tourism in the country, which is still in its infancy in the country, the ministry has asked to bring cruise tour operators at par with the other tour operators by extending 75% abatement of service tax. While approved tour operators are subject to only 2.58% of the service tax on packages, the cruise tourist packages are taxed at 10.3%.
Financial Express, January 20, 2010, Page 14
Surabhi Agarwal, New Delhi
To speed up the development of hotel rooms before the Commonwealth Games due in October, the tourism ministry has urged the finance ministry to extend the benefits of the five-year tax holiday for budget hotels under construction in the national capital region (NCR) up to July 31, 2010, instead of the earlier deadline of March 31, 2010.
“Looking at the macro-economic situation over the past year, most of the hotels will take a little longer to complete.
Extending the tax holiday would be an incentive for hotels to speed up the process of development and start operations soon, adding to the country’s preparedness for the Games,” a tourism ministry official told FE.
The five-year tax holiday for budget hotels was introduced to attract hospitality chains to build more hotels in the NCR region. However, the economic downturn put a spanner in the development of a majority of properties raising concerns of a shortage of rooms during the Games, which are expected to attract around 1,00,000 tourists from across the world. According to estimates, there is a requirement of around 40,000 rooms in the NCR region to host the guests.
The tourism ministry has also urged the finance ministry for “non-inclusion of interstate passenger tax, state road tax and toll tax in GST as a result of which seamless travel and uniform road tax would not be possible”. Stamp duty, vehicular tax and toll taxes are part of the exemptions demanded by the empowered committee of state finance ministers, which is negotiating the GST rate and structure with the centre. States receive a consolidated Rs 10,000 crore annually from vehicles, according to the estimate of the 13th Finance Commission task force on GST.
The ministry has also demanded the restoration of Budget grant to Rs 1,000 crore, which was reduced to Rs 950 crore in the revised estimates of 2009-10. The ministry has also reiterated its demand for the revival of 80HHD of the income tax act of the tourism sector, which allowed the 50% of the profits earned from the services provided to the foreign tourists was exempted from tax and further 50% of the profit was also exempted if it was invested in the tourism sector.
“This benefit was discontinued from the financial year 2005-06 and the revivals of the benefits would set a path of growth for building up much needed tourism infrastructure in the country,” it said. The ministry has also asked for grant of infrastructure status to hotels along with deemed export status for earnings of inbound tour operators, demands which were not met in the last Budget.
In order to give a boost to the cruise tourism in the country, which is still in its infancy in the country, the ministry has asked to bring cruise tour operators at par with the other tour operators by extending 75% abatement of service tax. While approved tour operators are subject to only 2.58% of the service tax on packages, the cruise tourist packages are taxed at 10.3%.
CRR rate likely to go up, says Tendulkar
CRR rate likely to go up, says Tendulkar
Financial Express, January 20, 2010, Page 15
fe Bureaus, Mumbai
Suresh Tendulkar, director of the central board of Reserve Bank of India (RBI), on Tuesday said the country will record a GDP growth of 7.5-8% for a remarkable period of time.
Commenting on the government’s move on the stimulus packages exit , Tendulkar said it is a tough call for the government as all sectors of the economy have not been equally benefited from the measures.
However, he feels there may be hike in cash reserve ratio (CRR) in the forthcoming policy of RBI on January 29 to withdraw excess liquidity in the system.
Tendulkar was here to address a seminar at SME Chamber of India on Tuesday,
Tendulkar, who is also the former chairman of Prime Minister’s Economic Advisory Council, said that while auto sales have picked up fast, Nano has given a further twist as it has inspired some of the other multinational auto companies to enter the small car segment.
According to him, GST is on the anvil though date and time for the same was yet to be finalised. “Once it happens, it is going to be a game changer for the taxation differentials in the entire sub-continental market. But, rules and procedures need to be stabilised. Revenue maximisation is going to remain an issue,” he said.
Financial Express, January 20, 2010, Page 15
fe Bureaus, Mumbai
Suresh Tendulkar, director of the central board of Reserve Bank of India (RBI), on Tuesday said the country will record a GDP growth of 7.5-8% for a remarkable period of time.
Commenting on the government’s move on the stimulus packages exit , Tendulkar said it is a tough call for the government as all sectors of the economy have not been equally benefited from the measures.
However, he feels there may be hike in cash reserve ratio (CRR) in the forthcoming policy of RBI on January 29 to withdraw excess liquidity in the system.
Tendulkar was here to address a seminar at SME Chamber of India on Tuesday,
Tendulkar, who is also the former chairman of Prime Minister’s Economic Advisory Council, said that while auto sales have picked up fast, Nano has given a further twist as it has inspired some of the other multinational auto companies to enter the small car segment.
According to him, GST is on the anvil though date and time for the same was yet to be finalised. “Once it happens, it is going to be a game changer for the taxation differentials in the entire sub-continental market. But, rules and procedures need to be stabilised. Revenue maximisation is going to remain an issue,” he said.
Non-salaried too can get hassle-free home loans
Non-salaried too can get hassle-free home loans
The Economic Times, January 20, 2010, Page 10
While banks may not chase self-employed pros with home loan packages, they too can get funds for house purchases with proper paper work, says Preeti Kulkarni
SALARIED individuals have banks chasing them all the time for home loans as this segment of borrowers is best placed to deal with equated monthly instalments. Lenders have no hesitation in ‘pre-approving’ those holding decent positions in large companies.
But generally speaking, for the self-employed, the sanction process is not as standardised and straightforward as it is for the salaried. Lenders will not extend a loan unless they are fully convinced that the borrower is in a position to meet his/her monthly obligations. Here are some measures that professionals, self-employed and businessmen could take to ensure that their home loan sanction goes through smoothly.
First, a disclaimer. Not all professionals and businessmen find it difficult to raise a home loan. Some may encounter a simpler process and speedy loan disbursal vis-à-vis their salaried counterparts.
“Typically a salaried borrower would look for a loan worth 80% of the home value while self-employed borrowers tend to seek a loan for 55-60% of the property value, which means that loan-to-value (LTV) ratio is better,” says Kamlesh Rao, executive V-P — personal finance & mortgage of Kotak Mahindra Bank. In some cases, this factor could work to self-employed individuals’ advantage.
DOCUMENTATION
In addition to documents for fulfilling the know-your-customer (KYC) norms, a common requirement in all home loans is the proof of income. While for employees, a salary statement and Form 16 document submitted to the I-T department are proof enough, the self-employed need to provide some alternative proof. “A self-employed person could be earning income from a number of sources — his business could be paying him a dividend, or it could pay him a salary, or he might even be receiving interest on the capital he has deployed. The one common document that will show the income from all sources is the computation of income statement submitted to the I-T department,” says an HDFC spokesperson. Banks, therefore, insist on this document along with I-T returns for the last three years. In addition, they will also ask for balance sheet and profit & loss statements duly certified by a chartered accountant. If the loan is sought before the returns are filed, you will be asked to furnish the current year’s provisional statements and advance tax challans if any.
THE PROCEDURE
The key to getting your loan sanctioned is convincing the banker about the robustness of your business and cash flow. Typically, banks insist on a personal discussion with the proprietors to get their insights on the business model, actual margins, business mix and so on. “The ability of the lending bank to be able to plot the actual cash flow versus what their financials reflect is critical. We also look at the net worth of the applicant,” adds Mr Rao.
While assessing the repayment capacity of loan-seekers, banks take into consideration the actual cash profits made by the business, as this will be used for servicing the loan. Other factors that are considered, include properties owned by the applicants, their track record with their personal banker and so on — their repayment record as far as overdraft and working capital is concerned also counts.
Unlike salaried home loan-seekers, whose EMI servicing capacity is considered to be 50% of the net salary, there is no thumb rule in this case. Documentation alone is not adequate.
Therefore, the clarity of thoughts you display at the personal discussion to convince the bank about your credentials and the business prospects could go a long way in getting the loan approved. Furthermore, the line of business you operate in could also play a role. Those with businesses associated with sectors such as exports and textiles, which are cyclical in nature, could be at a disadvantage if the industry is passing through a rough phase.
SELF-EMPLOYED PROFESSIONALS
While the documentation for this category of home loan seekers would be similar, the process is less complex in comparison. This is because in case of most professionals, their earnings are reflected in their financial statements, thereby leaving little scope for any ambiguity. In contrast, many self-employed non-professionals could be conducting a major part of their dealings in cash.
Besides, banks draw comfort from the fact that in the event of any adverse impact on the business, the qualified professionals — like chartered accountants, doctors or engineers can always land a well-paying job.
HOME A ‘LOAN’
If you are a qualified professional
You stand better chance of getting a home loan if you are well-qualified and easily employable Lenders will look at who your clients are to ascertain steady income Your credit history and income tax records for the last three years are important Check if you need to submit the registration certificate for deduction of profession tax and the certificate of practice
If you own a proprietary concern
Ensure that you have your computation of income statement, along with tax returns Same goes for the registration certificate under Shop and Establishment Act and Factories Act Bank account statements, as well as profit & loss and balance sheet statements will be required too If you are engaged in an activity that is going through a downturn, lenders will be cautious Again, a good client list will impress the lender Give an accurate picture of your networth
If you are a part of a partnership
Have an up-to-date deed of partnership that provides for all situations Banks will ask for identity of partners I-T returns, again, forms a key document Like in case of proprietary firms, bank account, profit & loss and balance sheet statements will have to be submitted. Clear communication on your firm's goals, business mix, margins, etc, during the discussion with bank officials is critical.
The Economic Times, January 20, 2010, Page 10
While banks may not chase self-employed pros with home loan packages, they too can get funds for house purchases with proper paper work, says Preeti Kulkarni
SALARIED individuals have banks chasing them all the time for home loans as this segment of borrowers is best placed to deal with equated monthly instalments. Lenders have no hesitation in ‘pre-approving’ those holding decent positions in large companies.
But generally speaking, for the self-employed, the sanction process is not as standardised and straightforward as it is for the salaried. Lenders will not extend a loan unless they are fully convinced that the borrower is in a position to meet his/her monthly obligations. Here are some measures that professionals, self-employed and businessmen could take to ensure that their home loan sanction goes through smoothly.
First, a disclaimer. Not all professionals and businessmen find it difficult to raise a home loan. Some may encounter a simpler process and speedy loan disbursal vis-à-vis their salaried counterparts.
“Typically a salaried borrower would look for a loan worth 80% of the home value while self-employed borrowers tend to seek a loan for 55-60% of the property value, which means that loan-to-value (LTV) ratio is better,” says Kamlesh Rao, executive V-P — personal finance & mortgage of Kotak Mahindra Bank. In some cases, this factor could work to self-employed individuals’ advantage.
DOCUMENTATION
In addition to documents for fulfilling the know-your-customer (KYC) norms, a common requirement in all home loans is the proof of income. While for employees, a salary statement and Form 16 document submitted to the I-T department are proof enough, the self-employed need to provide some alternative proof. “A self-employed person could be earning income from a number of sources — his business could be paying him a dividend, or it could pay him a salary, or he might even be receiving interest on the capital he has deployed. The one common document that will show the income from all sources is the computation of income statement submitted to the I-T department,” says an HDFC spokesperson. Banks, therefore, insist on this document along with I-T returns for the last three years. In addition, they will also ask for balance sheet and profit & loss statements duly certified by a chartered accountant. If the loan is sought before the returns are filed, you will be asked to furnish the current year’s provisional statements and advance tax challans if any.
THE PROCEDURE
The key to getting your loan sanctioned is convincing the banker about the robustness of your business and cash flow. Typically, banks insist on a personal discussion with the proprietors to get their insights on the business model, actual margins, business mix and so on. “The ability of the lending bank to be able to plot the actual cash flow versus what their financials reflect is critical. We also look at the net worth of the applicant,” adds Mr Rao.
While assessing the repayment capacity of loan-seekers, banks take into consideration the actual cash profits made by the business, as this will be used for servicing the loan. Other factors that are considered, include properties owned by the applicants, their track record with their personal banker and so on — their repayment record as far as overdraft and working capital is concerned also counts.
Unlike salaried home loan-seekers, whose EMI servicing capacity is considered to be 50% of the net salary, there is no thumb rule in this case. Documentation alone is not adequate.
Therefore, the clarity of thoughts you display at the personal discussion to convince the bank about your credentials and the business prospects could go a long way in getting the loan approved. Furthermore, the line of business you operate in could also play a role. Those with businesses associated with sectors such as exports and textiles, which are cyclical in nature, could be at a disadvantage if the industry is passing through a rough phase.
SELF-EMPLOYED PROFESSIONALS
While the documentation for this category of home loan seekers would be similar, the process is less complex in comparison. This is because in case of most professionals, their earnings are reflected in their financial statements, thereby leaving little scope for any ambiguity. In contrast, many self-employed non-professionals could be conducting a major part of their dealings in cash.
Besides, banks draw comfort from the fact that in the event of any adverse impact on the business, the qualified professionals — like chartered accountants, doctors or engineers can always land a well-paying job.
HOME A ‘LOAN’
If you are a qualified professional
You stand better chance of getting a home loan if you are well-qualified and easily employable Lenders will look at who your clients are to ascertain steady income Your credit history and income tax records for the last three years are important Check if you need to submit the registration certificate for deduction of profession tax and the certificate of practice
If you own a proprietary concern
Ensure that you have your computation of income statement, along with tax returns Same goes for the registration certificate under Shop and Establishment Act and Factories Act Bank account statements, as well as profit & loss and balance sheet statements will be required too If you are engaged in an activity that is going through a downturn, lenders will be cautious Again, a good client list will impress the lender Give an accurate picture of your networth
If you are a part of a partnership
Have an up-to-date deed of partnership that provides for all situations Banks will ask for identity of partners I-T returns, again, forms a key document Like in case of proprietary firms, bank account, profit & loss and balance sheet statements will have to be submitted. Clear communication on your firm's goals, business mix, margins, etc, during the discussion with bank officials is critical.
Realty cos on a stronger wicket in Q3
Realty cos on a stronger wicket in Q3
The Economic Times, January 20, 2010, Page 21
Orbit May Lead With 220% YoY Spike In Net Sales, Mahindra Life May Post 28.7% Growth
Supriya Verma Mishra ET INTELLIGENCE GROUP
THE uptick in the quarterly sales of most listed players is perhaps an indication that housing demand may have picked up after a prolonged slump.
The improved show is also on account of the fact that qualified institutional buyers (QIB) have pumped in money which has helped boost liquidity levels for realty firms. By paring debt, these companies have been able to check interest outflows, making it easier to raise funds in the future.
All these are expected to be reflected in the upcoming December 2009 quarter results. On a quarter-onquarter(q-o-q) as well as year-onyear (y-o-y) basis, there should be an improvement in sales. In fact, it is not only just first-time buyers who are in the market, there is also an upswing in resale activity. Commercial and retail segments are seeing signs of a recovery but there’s nothing that firmly signals an upward trend.
The average of estimates of the ET Intelligence Group and four-brokerage houses show that the overall industry revenues are expected to grow by 59% on a y-o-y basis. On a q-o-q basis, industry’s revenues would grow at an average 16%.
“We expect the December quarter results to reflect the improving real estate sector outlook, aided by a lowbase impact, and a pick-up in residential sales,” said a Motilal Oswal report.
Out of all listed companies, Orbit Corporation is expected to lead the sector with a 220% y-o-y growth in net sales. This is because prices have inched up and more projects have reached the revenue-recognition stage. Another company, Mahindra Lifespaces Developers’ may also report a good set of numbers with a 28.7% y-o-y growth. This is on the back of booking of revenue from its Mumbai (Goregaon) and Faridabad (Haryana) projects. Though Unitech and Indiabulls Real Estate also launched new projects but not many of them have been able to cross the threshold level for revenue recognition.
DLF, the market leader, has undergone a restructuring activity whereby DLF Cyber City Developers (a 100% subsidiary of DLF) has been integrated with Caraf Builders in the ratio of 60:40. After the merger, DLF will hold a 60% stake in the integrated entity, while the residual 40% will be held by the promoters of DLF. This deal has provided a lot of clarity on the conflict of interest between promoter’s interests in DLF-DAL. This new entity may well open up the possibilities for an international listing.
Since several companies have new residential projects in the low-margin affordable category, operating margins are expected to be lower. Though, prices have risen, it could not compensate for the higher margin luxury residential projects. Thus, average EBIDTA for December 2009 is expected to decline by 2-5% to 45-52% as against 58% for September 2009. However, even as operating margins decline, net profit should be higher as realty firms have been able to access alternate sources of funds to lower their interest liability.
The overall PAT margins at 35-40% for the December quarter will be 300-350 basis points above the September 2009 average PAT margins of 32%. For example for Mumbai-based HDIL, a q-o-q upward movement of 25% in TDR prices will help improve margins. The low interest liability has resulted in higher net margins for Unitech but the shift towards affordable housing has had a pull-down effect. Other developers such as Anant Raj, IBREL and Phoenix Mills are expected to report PAT margins of over 30%.
After the gloom, the worst may be behind the real estate sector, primarily on account of its improved leverage position and a pick up in real estate demand. As is evident from the broader market mid-cap companies that are leading the growth momentum, mid-cap realty companies with a city-centric focus will be outperformers. Strong financials and faster delivery schedules will be the differentiators.
The Economic Times, January 20, 2010, Page 21
Orbit May Lead With 220% YoY Spike In Net Sales, Mahindra Life May Post 28.7% Growth
Supriya Verma Mishra ET INTELLIGENCE GROUP
THE uptick in the quarterly sales of most listed players is perhaps an indication that housing demand may have picked up after a prolonged slump.
The improved show is also on account of the fact that qualified institutional buyers (QIB) have pumped in money which has helped boost liquidity levels for realty firms. By paring debt, these companies have been able to check interest outflows, making it easier to raise funds in the future.
All these are expected to be reflected in the upcoming December 2009 quarter results. On a quarter-onquarter(q-o-q) as well as year-onyear (y-o-y) basis, there should be an improvement in sales. In fact, it is not only just first-time buyers who are in the market, there is also an upswing in resale activity. Commercial and retail segments are seeing signs of a recovery but there’s nothing that firmly signals an upward trend.
The average of estimates of the ET Intelligence Group and four-brokerage houses show that the overall industry revenues are expected to grow by 59% on a y-o-y basis. On a q-o-q basis, industry’s revenues would grow at an average 16%.
“We expect the December quarter results to reflect the improving real estate sector outlook, aided by a lowbase impact, and a pick-up in residential sales,” said a Motilal Oswal report.
Out of all listed companies, Orbit Corporation is expected to lead the sector with a 220% y-o-y growth in net sales. This is because prices have inched up and more projects have reached the revenue-recognition stage. Another company, Mahindra Lifespaces Developers’ may also report a good set of numbers with a 28.7% y-o-y growth. This is on the back of booking of revenue from its Mumbai (Goregaon) and Faridabad (Haryana) projects. Though Unitech and Indiabulls Real Estate also launched new projects but not many of them have been able to cross the threshold level for revenue recognition.
DLF, the market leader, has undergone a restructuring activity whereby DLF Cyber City Developers (a 100% subsidiary of DLF) has been integrated with Caraf Builders in the ratio of 60:40. After the merger, DLF will hold a 60% stake in the integrated entity, while the residual 40% will be held by the promoters of DLF. This deal has provided a lot of clarity on the conflict of interest between promoter’s interests in DLF-DAL. This new entity may well open up the possibilities for an international listing.
Since several companies have new residential projects in the low-margin affordable category, operating margins are expected to be lower. Though, prices have risen, it could not compensate for the higher margin luxury residential projects. Thus, average EBIDTA for December 2009 is expected to decline by 2-5% to 45-52% as against 58% for September 2009. However, even as operating margins decline, net profit should be higher as realty firms have been able to access alternate sources of funds to lower their interest liability.
The overall PAT margins at 35-40% for the December quarter will be 300-350 basis points above the September 2009 average PAT margins of 32%. For example for Mumbai-based HDIL, a q-o-q upward movement of 25% in TDR prices will help improve margins. The low interest liability has resulted in higher net margins for Unitech but the shift towards affordable housing has had a pull-down effect. Other developers such as Anant Raj, IBREL and Phoenix Mills are expected to report PAT margins of over 30%.
After the gloom, the worst may be behind the real estate sector, primarily on account of its improved leverage position and a pick up in real estate demand. As is evident from the broader market mid-cap companies that are leading the growth momentum, mid-cap realty companies with a city-centric focus will be outperformers. Strong financials and faster delivery schedules will be the differentiators.
PEs give realty IPO exits a miss
PEs give realty IPO exits a miss
Business Standard, January 20, 2010, Section II, Page 3
Raghavendra Kamath & Vandana / Mumbai
Better gains after listing, avoiding pricing pressure on stocks key reasons.
Private equity (PE) investors are holding on to their investments and not opting for an exit in at least four of the upcoming public issues of real estate companies. They are expecting better gains once these firms get listed.
Initial public offerings (IPOs) are considered as one of the main exit routes for PE investors.
Though offshore investors cannot exit real estate companies due to a mandatory three-year lock-in for foreign direct investment and one-year lock-in if they do not intend to sell during IPOs, some of the domestic and international investors are staying on in the hope that they can improve upon the returns once the property sector picks up in coming quarters.
Global hedge fund Och Ziff with investment in Bangalore-based Nitesh Estates, Morgan Stanley in Oberoi Realty, Indiareit’s domestic fund, which is making a partial exit in Mumbai’s Neptune Developers, HDFC Property Fund in Vascon Engineers are some of the investors staying on for the moment.
Morgan Stanley invested Rs 675 crore in Oberoi Realty in January 2007.
Though global investor Citigroup was planning to swap its entity-level investment in Delhi-based BPTP with investments in some of its realty projects, the plans had been put on hold for at least one year, said a source close to development. BPTP recently filed its draft red herring prospectus with capital markets regulator Securities and Exchange Board of India (Sebi).
Some investors have put conditions for the realty companies going for IPOs. For instance, as per the agreement between German investor Deutsche Bank, which held stake in the key subsidiary of Mumbai-based Lodha Developers, the latter has to go in for at least a Rs 2,000-crore IPO if it wanted to go public, as Deutsche had invested Rs 1,640 crore in the company and it wanted ample liquidity in the stock of Lodha once it got listed on the exchanges. It was also agreed that Lodha would give a minimum 13.65 per cent interest on the debentures subscribed by Deutsche, and later raise it to up to 22.50 per cent on improvement in market conditions.
“Funds having completed the three-year lock-in might be staying because they are looking at better business prospects for the company once it lists and gets cash flow to reduce the debt burden. A lot of funds think that the worst is over and prices may actually shoot up after the listing, considering the revival in real estate,” said Avinash Gupta, national head, financial advisory services at consulting firm Deloitte.
Adds Indiareit Fund Advisors Managing Director Ramesh Jogani, “Though we are in the business of investing and exiting with good gains, we also believe in the growth prospectus of the company.”
Ajay Piramal group-promoted Indiareit Fund holds 15.8 per cent stake in Neptune through its domestic (4 per cent) and offshore (11.8 per cent) funds, and is part-exiting from its domestic fund. It will sell 2.7 per cent from its domestic fund stake and retain the offshore investment.
In January 2007, Och Ziff, through its fund AMIF, invested $51 million (around Rs 230 crore) in Nitesh Estates for 25 per cent stake. The three-year lock-in is coming to an end.
Nearly 10 property developers have filed draft red herring prospectus (DRHP) to raise over Rs 15,000 crore from the capital markets.
Bankers said a part of the reason for a deferred exit was the revival in the stock markets. As a result, investors can offload their investments in the secondary market at any time. “Exits generally happen in a bad market. Funds exit from their investments either when there is a redemption pressure, or they do not think that future prospects of these IPOs are bright. It is no more an issue now. They can anyway exit through the secondary market route after the one-year lock-in,” said S Subramanian, head of investment banking at Enam Capital Markets.
Some bankers said that PE players were also avoiding pricing pressure in IPOs by staying on. “Since most of these players hold a reasonable stake, it would result in a downward pressure on pricing if they tender it at one go. They would rather do it in small tranches or through part-exits,’’ said a banker who did not want to be quoted.
Business Standard, January 20, 2010, Section II, Page 3
Raghavendra Kamath & Vandana / Mumbai
Better gains after listing, avoiding pricing pressure on stocks key reasons.
Private equity (PE) investors are holding on to their investments and not opting for an exit in at least four of the upcoming public issues of real estate companies. They are expecting better gains once these firms get listed.
Initial public offerings (IPOs) are considered as one of the main exit routes for PE investors.
Though offshore investors cannot exit real estate companies due to a mandatory three-year lock-in for foreign direct investment and one-year lock-in if they do not intend to sell during IPOs, some of the domestic and international investors are staying on in the hope that they can improve upon the returns once the property sector picks up in coming quarters.
Global hedge fund Och Ziff with investment in Bangalore-based Nitesh Estates, Morgan Stanley in Oberoi Realty, Indiareit’s domestic fund, which is making a partial exit in Mumbai’s Neptune Developers, HDFC Property Fund in Vascon Engineers are some of the investors staying on for the moment.
Morgan Stanley invested Rs 675 crore in Oberoi Realty in January 2007.
Though global investor Citigroup was planning to swap its entity-level investment in Delhi-based BPTP with investments in some of its realty projects, the plans had been put on hold for at least one year, said a source close to development. BPTP recently filed its draft red herring prospectus with capital markets regulator Securities and Exchange Board of India (Sebi).
Some investors have put conditions for the realty companies going for IPOs. For instance, as per the agreement between German investor Deutsche Bank, which held stake in the key subsidiary of Mumbai-based Lodha Developers, the latter has to go in for at least a Rs 2,000-crore IPO if it wanted to go public, as Deutsche had invested Rs 1,640 crore in the company and it wanted ample liquidity in the stock of Lodha once it got listed on the exchanges. It was also agreed that Lodha would give a minimum 13.65 per cent interest on the debentures subscribed by Deutsche, and later raise it to up to 22.50 per cent on improvement in market conditions.
“Funds having completed the three-year lock-in might be staying because they are looking at better business prospects for the company once it lists and gets cash flow to reduce the debt burden. A lot of funds think that the worst is over and prices may actually shoot up after the listing, considering the revival in real estate,” said Avinash Gupta, national head, financial advisory services at consulting firm Deloitte.
Adds Indiareit Fund Advisors Managing Director Ramesh Jogani, “Though we are in the business of investing and exiting with good gains, we also believe in the growth prospectus of the company.”
Ajay Piramal group-promoted Indiareit Fund holds 15.8 per cent stake in Neptune through its domestic (4 per cent) and offshore (11.8 per cent) funds, and is part-exiting from its domestic fund. It will sell 2.7 per cent from its domestic fund stake and retain the offshore investment.
In January 2007, Och Ziff, through its fund AMIF, invested $51 million (around Rs 230 crore) in Nitesh Estates for 25 per cent stake. The three-year lock-in is coming to an end.
Nearly 10 property developers have filed draft red herring prospectus (DRHP) to raise over Rs 15,000 crore from the capital markets.
Bankers said a part of the reason for a deferred exit was the revival in the stock markets. As a result, investors can offload their investments in the secondary market at any time. “Exits generally happen in a bad market. Funds exit from their investments either when there is a redemption pressure, or they do not think that future prospects of these IPOs are bright. It is no more an issue now. They can anyway exit through the secondary market route after the one-year lock-in,” said S Subramanian, head of investment banking at Enam Capital Markets.
Some bankers said that PE players were also avoiding pricing pressure in IPOs by staying on. “Since most of these players hold a reasonable stake, it would result in a downward pressure on pricing if they tender it at one go. They would rather do it in small tranches or through part-exits,’’ said a banker who did not want to be quoted.
FSI hike to boost Maha realty biz
FSI hike to boost Maha realty biz
Business Standard, January 20, 2010, Page 1
Sanjay Jog & Raghavendra Kamath / Mumbai
The Maharashtra government has decided to increase floor space index (FSI) to 3 from the current 2.5 for buildings which have come up between 1940 and 1960. The decision opens up the possibility for redeveloping 16,461 old buildings.
FSI is the ratio of total floor area of a building to the size of the plot. It indicates the maximum construction allowed on a plot in a particular area. That is, if the FSI is one and the plot size is 1,000 sq ft, the maximum construction allowed on that plot will be 1,000 sq ft. The state’s initial estimates state an additional FSI of 300 million sq ft will be available in phases. A senior government official, who did not want to be quoted, said the redevelopment would involve Rs 3 lakh crore under private public partnership.
“If we calculate the average FSI rate at Rs 10,000 per sq ft, it comes to Rs 3 lakh crore,” he added. Chief Minister Ashok Chavan said the government is keen to hasten the process.
Developers said the move would release more housing stocks in the market but prices are unlikely to reduce.
“It will be easier to convince the tenants. I expect more old buildings to come under redevelopment quickly. The true market potential of such buildings can be discovered now,’’ said Pujit Agarwal, managing director of Orbit Corporation, a redevelopment projects player.
Business Standard, January 20, 2010, Page 1
Sanjay Jog & Raghavendra Kamath / Mumbai
The Maharashtra government has decided to increase floor space index (FSI) to 3 from the current 2.5 for buildings which have come up between 1940 and 1960. The decision opens up the possibility for redeveloping 16,461 old buildings.
FSI is the ratio of total floor area of a building to the size of the plot. It indicates the maximum construction allowed on a plot in a particular area. That is, if the FSI is one and the plot size is 1,000 sq ft, the maximum construction allowed on that plot will be 1,000 sq ft. The state’s initial estimates state an additional FSI of 300 million sq ft will be available in phases. A senior government official, who did not want to be quoted, said the redevelopment would involve Rs 3 lakh crore under private public partnership.
“If we calculate the average FSI rate at Rs 10,000 per sq ft, it comes to Rs 3 lakh crore,” he added. Chief Minister Ashok Chavan said the government is keen to hasten the process.
Developers said the move would release more housing stocks in the market but prices are unlikely to reduce.
“It will be easier to convince the tenants. I expect more old buildings to come under redevelopment quickly. The true market potential of such buildings can be discovered now,’’ said Pujit Agarwal, managing director of Orbit Corporation, a redevelopment projects player.
Top developers to bid for mega road projects
Top developers to bid for mega road projects
Business Standard, January 20, 2010, Page 5
Top road developers will be allowed to bid for mega projects, which the Ministry of Road Transport and Highways plans to award soon.
"The norms for mega projects will be such that the country's top road developing companies can qualify on their own," said Road Secretary Brahm Dutt.
It was earlier believed that the norms for mega road projects would be made such that only international developers would qualify.
The ministry is working on new norms for mega projects worth Rs 45,000 crore, which were to be formulated by December and are expected to begin by March.
The length of one mega proj¬ect could go as long as 700 kIn, entailing investments worth around Rs 5,000 crore.
The concept of large road projects was suggested by foreign concessionaires in road shows abroad and was mooted to woo them to the country. The foreign developers wanted the size of the projects to be large enough to make it attractive for them to come to India.
The ministry also plans to develop a corridor for road projects.
"We are looking at corridor development for road projects so that the road between two major points is uniform. We are also working on renaming the highways to make it simpler," Dutt said.
To make the roads uniform, the ministry has decided not to award small projects.
"We have also decided that no project worth less than Rs 50 crore is awarded," Dutt added.
The ministry is also looking at developing real estate projects along the highways to make them lucrative.
"The Ganga Expressway, connecting eastern and wester borders of Uttar Pradesh, is being built by the concessionaire, without any investment from the state government. This proves that the mega road projects can be made lucrative if real estate projects are developed along them," Dutt said.
Business Standard, January 20, 2010, Page 5
Top road developers will be allowed to bid for mega projects, which the Ministry of Road Transport and Highways plans to award soon.
"The norms for mega projects will be such that the country's top road developing companies can qualify on their own," said Road Secretary Brahm Dutt.
It was earlier believed that the norms for mega road projects would be made such that only international developers would qualify.
The ministry is working on new norms for mega projects worth Rs 45,000 crore, which were to be formulated by December and are expected to begin by March.
The length of one mega proj¬ect could go as long as 700 kIn, entailing investments worth around Rs 5,000 crore.
The concept of large road projects was suggested by foreign concessionaires in road shows abroad and was mooted to woo them to the country. The foreign developers wanted the size of the projects to be large enough to make it attractive for them to come to India.
The ministry also plans to develop a corridor for road projects.
"We are looking at corridor development for road projects so that the road between two major points is uniform. We are also working on renaming the highways to make it simpler," Dutt said.
To make the roads uniform, the ministry has decided not to award small projects.
"We have also decided that no project worth less than Rs 50 crore is awarded," Dutt added.
The ministry is also looking at developing real estate projects along the highways to make them lucrative.
"The Ganga Expressway, connecting eastern and wester borders of Uttar Pradesh, is being built by the concessionaire, without any investment from the state government. This proves that the mega road projects can be made lucrative if real estate projects are developed along them," Dutt said.
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