India & China to buoy world eco this yr: IMF

India & China to buoy world eco this yr: IMF
The Times of India, January 30, 2009, Page 1

Global Growth to be lowest since WW-II

TIMES INSIGHT GROUP

China and India—the only sizeable economies likely to record growth rates of over 5%—will prevent the world from recording negative growth in 2009, said the International Monetary Fund (IMF) on Wednesday. Even so, at 0.5%, the world economy will register its slowest growth rate since the Second World War.

The IMF’s update to its World Economic Outlook is a sharp downward revision from the 2.2% growth in global output it had projected as recently as November last year. It now estimates the Chinese economy will grow at 6.7% rather than the 8.5% anticipated in November, while the forecast for India has been pared from 6.3% to 5.1%.

The advanced economies are projected to record a 2% decline in output. Ironically, while the US—where the current global crisis originated—will suffer a decline of only 1.6%, the UK will see its economy shrink by 2.8%, Japan by 2.6% and Germany by 2.5%. The Euro area will fare worse with a 2% drop in output in 2009.

For 2010, the Fund foresees an impressive global recovery to 3% growth, with China’s 8% and India’s 6.5% once again leading the way. While the US will bounce back to grow by 1.6%, the Euro area and the UK will grow by 0.2%, and Japan by a somewhat better 0.6%.

Pranab-bank meet may lead to more rate cuts

Pranab-bank meet may lead to more rate cuts
Business Standard, January 30, 2009, Page 1

Banks say cost of funds still high, sectoral cuts possible

NILADRI BHATTACHARYA &SIDHARTHA
Mumbai, 29 January

In a possible precursor to further rate cuts, Finance Minister Pranab Mukherjee’s meeting with public sector bank chiefs Monday will review their benchmark prime lending rates (BPLR) and interest rates on loans for automobiles, homes, small and medium enterprises (SMEs) and non-banking finance companies (NBFCs).

The government has indicated that it would like interest rates to be reduced next month, just before elections are announced. Bankers, however, have said a rate cut is only possible in March, a source said.

“If the government wants, we can look at extending additional or special lines of credit to certain sectors, where all public sector banks can participate,” a senior executive at astate-owned entity said.

Banks contend that the cost of funds is still high, even though it has been falling through successive rate cuts by the central bank in 2008.

Cutting lending rates will also mean cutting deposit rates and bankers fear losing out to small savings schemes such as post office deposits and public provident fund as a result, which could eventually hamper resource mobilisation to feed credit growth. Small savings schemes offer 8 per cent plus tax benefits. In contrast, banks have reduced interest rates on deposits and only those with a maturity of four years or more come with tax breaks. For instance, State Bank of India offers up to 9 per cent.

Since November, public sector banks have reduced lending rates by up to 150 basis points, against 50 basis points by their private sector competitors. Deposit rates have fallen by up to 300 basis points.

Following the latest round of reductions in deposit rates earlier this month, banks have seen resource mop-up drop to Rs 11,300 crore during the fortnight ended January 16 from nearly Rs 70,000 crore in the previous fortnight.

Finance ministry officials have already held discussions with bankers to assess the flow of credit to various sectors.

Mukherjee is also scheduled to discuss the impact of the stimulus package and the utilisation of refinance to National Housing Bank (Rs 5,000 crore) and the small industries lender Sidbi (Rs 9,000 crore).

The government also wants to assess how banks have fared in extending credit to NBFCs and for commercial vehicle finance. Credit flow to housing, real estate, SMEs and infrastructure and the experience with non-performing assets in these segments is also on the agenda. Banks have been asked to report on their progress on restructuring stressed assets, since the process has to start latest by January 31.

In recent months, banks have scaled down credit to certain segments such as housing, NBFCs and small scale industry owing to a fear of defaults and a drop in demand ( see table ).

LATESTRBI data shows that in the fortnight-ended January 16, lending by scheduled commercial banks, including regional rural banks, was estimated at Rs 13,837 crore against Rs 14,469 crore in the previous fortnight.

With banks going slow on lending, there has been a rise in the statutory liquidity ratio (SLR) holdings from 25.8 per cent in mid-October to 28.9 per cent in early January.

But data also revealed that public sector banks seen a 28.6 per cent rise in credit flow for the year up to January 2 this year, against 19.8 per cent in the year up to January 4, 2008. In contrast, the growth in credit flow from private and foreign banks has dropped sharply despite demand shifting from equity and overseas markets to the Indian banking system.

Govt clears infra projects worth Rs 34,000 crore

Govt clears infra projects worth Rs 34,000 crore
Business Standard, January 30, 2009, Page 2

BS REPORTER
New Delhi, 29 January

In a major push to the infrastructure sector, the Cabinet on Wednesday cleared projects worth around Rs 34,000 crore, including the Chennai Metro project.

Apart from that, foreign direct investment (FDI) worth Rs 957 crore in Krishnapatnam Port Company Ltd, which is currently developing the Krishnapatnam port in Andhra Pradesh, was also approved.

The Union Cabinet yesterday gave its approval to Phase Iof the Chennai Metro project, covering a length of around 45 km. The total cost of the first phase has been estimated at Rs 14,600 crore. On the lines of Delhi Metro, this project will be entirely funded by the Centre and Tamil Nadu government on 50:50 basis.

The Cabinet also approved the Delhi Metro Railways (Amendment) Bill, 2009, to amend the Delhi Metro (Operation and Maintenance) Act, 2002, and the Metro Railways (Construction of Works) Act, 1978. “The requirement to move this Bill arose because without a proper legal framework the construction work of the extension to Gurgaon and Noida can be stalled any time or legally challenged. Since these extensions are to be completed before the Commonwealth Games, 2010, there is an urgency to provide an appropriate legal cover for these extensions,” said an official statement.

OTHER DECISIONS
· Additional market borrowing of Rs 30,000 crore for states by March. The states will continue to get incentives associated with prudential norms even if their fiscal deficit is 3.5 per cent as against the mandated 3 per cent
· All Prasar Bharati employees working in All India Radio and Doordarshan and recruited on or before October 5, 2007, to be considered as central government employees on deemed deputation
· Redevelopment plan for Lady Hardinge medical college approved
· India to join International Renewable Energy Agency
· Rs 125 crore financial relief to ITI Ltd
· India-Albania double taxation avoidance agreement
· Continuation of National Vector Borne Disease Control Programme
· Revision of basic guidelines for urban poor under the Integrated Housing and Slum Development Programme
· Approval to National Commission for Heritage Sites Bill, 2009
· Modifications in guidelines of centrally-sponsored Swarna Jayanti Shahri Rozgar Yojana
· Budgetary support of Rs 71.84 crore for nine sick, lossmaking companies under the Department of Heavy Industry

AFFORDABILITY, the new realty mantra

AFFORDABILITY, the new realty mantra
The Economic Times, ET Realty, 30 January 2009, page 29

Gurgaon, which till recently was catering greatly to high-end customers, has now started moving towards a more affordable range of housing, complete with infrastructural development. ET Realty reports

Prabhakar Sinha

With real estate market facing considerable slowdown, a new trend of building affordable houses is emerging in the National Capital Region of Delhi. After Ghaziabad, Indirapuram, Noida, Greater Noida and Faridabad, a number of projects in the range of Rs 20 lakh to Rs 30 lakh for an apartment, have been launched in Gurgaon.

So far, Gurgaon has been known for its luxury apartments. In the last two years, the township witnessed the development of apartments in the price range of Rs 3,500 to Rs 10,000 per sq ft. On top of this, the size of most of the apartments used to be upwards of 1,800 sq ft. Thus, the cheapest apartment available in the area was priced around Rs 60 lakh. This affected demand in the residential real estate sector here. At the same time, as most builders were into the construction of premium apartments, these properties are in oversupply and witnessing correction in prices.

With capital values ranging approximately in the Rs 5,000-8,000/sq ft in residential apartments such as Beverly Park I & II, Heritage City, Garden Estate, etc, the cheapest apartment in this area is available for around Rs 1 crore. Golf Course Road also gained prominence with developers planning large projects catering to the luxury and premium segment customers.

In fact, there has been a deluge of luxury residential projects on the Golf Course Road, and this coupled with wide roads leading to efficient connectivity, large corporations chose to be located in this area. Golf Course Road thus gained the tag of "the address" in Gurgaon, with excusive luxury projects such as Aralias, Magnolias, Exotica, Central Park 1 being located on this stretch. Capital values in these projects range between Rs 6,500 and Rs 10,000 per sq ft. But as the premium segment of apartments are in oversupply, this has witnessed some correction in prices in the last two months. According to a Cushman & Wakefield report, approximately 8-10% correction has been recorded in these areas in the recent past, although downside is limited due to high occupancy levels and a broad end user base. To revive demand and real estate activities in the area, realtors have now changed their strategy, focusing their projects on affordable housing segment in Gurgaon, as well as Manesar. Various projects have been announced on the Rajiv Chowk-Manesar stretch along NH-8, in the this segment owing to lower land costs - some projects cater to the high-end segment as well. As areas like MG Road and Golf Course Road started to saturate with realty development, growth shifted along NH-8 with a slew of projects launched in these new sectors. With the master plan also emphasizing on these new sectors and with infrastructural initiatives in the form of Metro, ISBT, KMP expressway, Northern and Southern Periphery Road, one can be assured of strong connectivity to other parts of Gurgaon and Delhi, says the report. The capital values of projects along this stretch are in the range of Rs 2,000-Rs 3,500 per sq ft. With apartment sizes varying between 1,200 sq ft and 1,800 sq ft, their prices range from Rs 24 lakh to Rs 40 lakh. The report states that prices are not only attractive for end users, but also for long-term investors. As Gurgaon grows and projects on this stretch come up, one can expect capital values to appreciate in the long term. A number of builders like Pal Group, Falcon Realty, ILD Group, Bestech Group and Raheja Developers have launched a number of projects in the affordable range in the Gurgaon-Manesar region. A number of affordable housing projects are coming up in Sector 37 and 71 of Gurgaon.

Falcon group has launched studio apartments at Rs 5.5 lakh in Global Eqi-city on NH-58; one-bedroom apartment with hall and kitchen on 650 sq ft of covered area for Rs 10 lakh and two-bedroom apartment on 950 sq ft for Rs 15 lakh. Similarly ILD group has launched Spire Green in Sector 37, priced Rs 26 lakh onwards. Pal group has launched the Pal City Park in Sector 95 in Gurgaon for Rs 26 lakh. Similarly, Bestech group and Sidharth Buildtech have launched projects in Sector 71 and 95, respectively, for around Rs 30 lakh. Raheja group has already launched a low-cost apartment project in Sector 92 at around Rs 27 lakh. Big builders like DLF and Unitech are also planning to launch affordable houses in Gurgaon.

UP calls projects pre-bid meet today

UP calls projects pre-bid meet today
The Financial Express, January 30, 2009, page 9

Lucknow: To attract the private sector towards infrastructure development in the state, a high-level delegation of the Uttar Pradesh government, led by chief secretary Atul Kumar Gupta, will hold a pre-bid meet in New Delhi on Friday.

The objective is to facilitate a constructive interaction among the top-rung industrialists, their associations, business people and potential investors with senior state government officials.

The four departments that have been identified as thrust areas are tourism, transport, technical education and housing and urban rejuvenation.

The team of high-level government officials who have been dispatched include the industrial and infrastructure development commissioner VK Sharma, principal secretary, finance, Anup Mishra, principal secretary, infrastructure, VN Garg, and principal secretary, chief minister, Ravindra Singh, along with other senior government officials from various departments.

Unitech’s Chandra may exit Orissa Sponge for Rs 40 cr

Unitech’s Chandra may exit Orissa Sponge for Rs 40 cr
The Economic Times, January 29, 2009, p13

Sanjeev Choudhary & Pramugdha Mamgain

NEW DELHI : THE family of Ramesh Chandra, chairman and promoter of cash-strapped real estate firm Unitech, may raise Rs 40 crore by selling its shares in Orissa Sponge Iron & Steel to Bhushan Steel while scrambling to make ends meet in a sector that is seeing a sharp reversal of fortune. Bhushan Steel already owns 6% in Bhubaneswar-headquartered Orissa Sponge.

Unitech had debts worth Rs 8,300 crore on its balance sheet in September 2008, of which it had to pay back Rs 2,500 by March 2009. The company claims to have whittled this figure down to Rs 600 crore but continues to search for fresh sources of funds. Ramesh Chandra’s family has been struggling to find a buyer for its 12.11% stake in Orissa Sponge after earlier negotiations with Korean steel major Posco came to naught. The Unitech spokesman declined to comment on the deal.

The Chandra family may get Rs 160-170 per share, which is 50% premium over Orissa Sponge’s current share price that closed at Rs 111.95 on the BSE on Wednesday. The scrip gained 21% within a week, and has almost doubled in price since December 8.

After the Chandra deal, Bhushan Steel will own 18% share in Orissa Sponge, and be compelled by Sebi rules to make an open offer to buy another 20% from the market.

“We are still in discussions with Unitech for acquiring the stake. If it happens, it will add to our existing sponge iron capacity in Orissa meant for captive use. Sponge iron will be converted to steel billets that are primarily used in construction,” said a top executive at Bhushan Steel, who did not wish to be named.

The Chandras own the shares in Orissa Sponge through its investment arm Prakausali Investments, which also owns 36% in Unitech. In 2006, the Chandras had 6% share in Orissa Sponge, but raised it to almost 15% in late 2007 in a Rs 21.40 crore deal. The family has been compelled to find ways to raise money after sales in the real estate sector plunged and led to slashed internal accruals. Raising money from investors has also not been easy because private equity is not flowing into the sector, while banks are reluctant to lend. Together, these factors have become a major hurdle for real estate firms and their expansion plans, said a person with knowledge of the development.

Since all potential sources of funding appear blocked, the company is looking at selling stake in Unitech and its projects, and hiving off its hotels to generate cash. In the last one year, the company’s share value has dropped more than 90%. The 40-year-old Orissa Sponge has iron ore and coal reserves and owns 2.5-lakh-tonne sponge iron and steel billet plants in Palaspanga, Orissa.

Institutes can thrive only if they have freedom: Barua

Institutes can thrive only if they have freedom: Barua
The Economic Times, January 29, 2009, p5

INDIA’S top B-School, the Indian Institute of Management, Ahmedabad (IIM-A), is waging three battles. Apart from fighting economic slowdown through innovative programmes, India’s premier institute fears losing its autonomy, if recommendations of a pan-IIM board are accepted. Also, it faces uneven competition from deep-pocket foreign B-Schools if allowed entry into India. IIM-A director Samir Barua spoke to Kumar Anand & Sushmita Mohapatra to assert that “government funding at the time of setting up the IIMs should not be a reason to shackle the institutes.” Excerpts:

How long do you think will recession last?
A minimum of two-quarters of 2009. But there is a likelihood of the slowdown continuing through 2009. Recovery from economic downturn may be seen earliest by January-March 2010 and the economy will take a year-and-half to be back on track. Markets would recover before the economy and the earliest sign of market recovery may be felt by early 2010. Factors like the general elections and monsoon will also hold back or boost the market. As far as Obama package is concerned, I think sentiments of Obama victory may not lead to any major improvement in the market conditions. He can make a difference by only coming up with plans that are radically different.

The RC Bhargava Committee (appointed by the Centre to study IIM functioning) has been critical about IIMs. How do you react to that?
The committee has made general statements regarding all IIMs, including the newly setup IIM-Shillong. Not a single statement (regarding enhancing brand image, improving the quantity and quality of research papers, etc) fits in for the top three IIMs (IIM-A, IIM-B and IIM-C). The report is not backed with adequate data. So, we do not get the right picture for IIM-A. Suggesting a uniform policy for all IIMs is, therefore, not right. Further, the credibility of the pan-IIM board as suggested by committee is questionable. Conceptually, it does not make sense. The committee suggests that this 15-member board will make policies while individual IIM boards will implement them. This will make it difficult to assess failure in governance (in measuring performance). We have written to the ministry that academic institutions will thrive only if given freedom to be different. They cannot be straitjacketed. With pan-IIM board having supremacy over other boards, it will take away the autonomy of the institute.

You seem to be critical about the entry of global institutions in the Indian market. Isn’t IIM-A strong enough brand to take on global institutions?
The Centre is keen on passing the Foreign University Entry and Operation Bill that will allow the entry of the foreign universities to offer education in India. As per the bill, these institutes will enter India as deemed universities and will be at par with private B-schools, with endowments as high as 3,000 times that of IIM-A. With the strength of international brands and deep pockets, they will pay faculty more and introduce scholarship programmes to attract talented students.

Do you think slowdown will affect the upcoming IIM-A placement season?
The slowdown will impact placements across B-schools in the country. But since IIM-A is on the top of the B-school pyramid, it will be affected the least. We think sectors like manufacturing, media and insurance will gain from the loss of financial sector that usually picked up huge chunk of students from IIM-A. Our management development programme (MDP) will get impacted due to recession. It is around this time of the year that corporate houses decide on their training spends, and in the current scenario, this is likely to face the first cut.

Realty body skeptical of package benefits

Realty body skeptical of package benefits
The Economic Times, January 29, 2009, p17

CHENNAI: The Centre’s stimulus package to help the crisis-hit realty sector may not be of much use for both developers and buyers in several cities as most of the housing projects were not expected to take off before the deadline for the scheme, says an industry body. The stimulus package would definitely lift the overall sentiment, especially in the Rs 5 lakh to Rs 20 lakh budget range. However, the lower interest rates extended for loans up to Rs 20 lakh are valid only till June 2009, Confederation of Real Estate Developers' Association of India Tamil Nadu chapter secretary T Chittybabu said. “Even if the developers were to announce projects to suit budget (housing) of Rs 5 to 20 lakh, approvals from the Chennai Metropolitan Development Authority or local bodies would mean buyers and developers cannot meet the June 30 deadline.”

HDIL profit declines by 32% while revenue declined by 35%

HDIL’s growth slows due to real estate woes

HDIL’s growth slows due to real estate woes
The Hindu Business Line, January 29, 2009, p11

Vidya Bala BL Research Bureau

Substantial correction in prices of transferable development rights (TDR), cut back on land purchase by developers and TDR sales that are yet to be booked led to a decline in revenues and profits for Housing Development and Infrastructure Company (HDIL) in the third quarter of FY-09.

For the quarter, HDIL’s sales declined by 36 per cent to Rs 314 crore compared with the December quarter last fiscal, while net profits declined 31 per cent to Rs 184 crore.

But for a write-back of tax credit received by the company, the net profits would have declined sharply by 72 per cent.

However, the positive aspect of HDIL’s business is that the massive airport slum rehabilitation project appears to be on track, what with the company already selling some of the TDRs generated from the project.

HDIL earns a substantial part of its revenue from sale of TDRs/FSIs that it generates by developing slump rehabilitation projects.

Despite huge working capital requirements, all the other slum rehabilitation projects are also on track, thus providing assurance of TDRs from the same.

PRICE CORRECTION
The company’s management has stated that TDRs are quoting at Rs 1,000-1,200 a square feet at present.

This is a sharp correction to the Rs 2,000-2,500 a sq ft about two quarters ago.

To recollect, TDR prices started correcting after the Supreme Court ruling (on redevelopment of land) in September, which allowed more areas under redevelopment.

This was expected to increase supply of land and reduce high TDR prices.

The company holds one million sq ft of TDRs that it can cash in on.

Another aspect that has to be noted while reading into HDIL’s results is that unlike most construction companies, HDIL follows completed project method of accounting (a relatively conservative approach to percentage completion method) as it generates TDRs only on completion of rehabilitation work.

This essentially means that HDIL would have huge development costs (added to inventory) followed by periods of lumpy revenues.

However, TDRs once generated can be relatively quickly converted to cash by selling them in the market.

NO RESPITE ON COST
Lower realisations could have led to operating profit margins dipping to 30 per cent from 56 per cent a year ago.

The margin, nevertheless, remains good enough for a real estate business.

Cost of construction and development as a percentage of sales and work-in-progress witnessed only a marginal decline suggesting that commodity price declines is yet to provide relief.

A massive jump in interest costs from less than a crore over a year ago to Rs 14 crore for the latest ended quarter also suggests that the company is yet to benefit from lowering interest rates.