Steel prices, margins under pressure as output grows

Steel prices, margins under pressure as output grows
Hindustan Times, February 24, 2009, Page 27

When the steel production in the country looks to inch upwards, consumption of the commodity continues to remain sluggish. It is just reversal of the first half of the last year when consumption had outgrown production. While the mismatch then had led to all time high steel prices, the current gap is likely to put prices and margins of steel companies under even more pressure.

In the April-January 2008-09 period, finished steel production grew by 1.1 per cent even as consumption declined by 2 per cent largely on account of slow off take by infrastructure and real estate sectors. During the period, both exports and imports declined by 25 and 16 per cent and the stock almost tripled to 1.3 million tonne to 0.3 mt last year.

“In the short term scenario, profitability and prices will be under pressure,” said Naveen Vohra, partner, Ernst and Young. “Though production has stabilised, there will not be any growth in the first half of this year. There has been a price correction over July-August 2008 levels, but there may be some more correction in the offing.”

Prices of major varieties of steel — hot rolled and cold rolled coils — have fallen by over 30 per cent between July and December 2008. HR coil prices at Rs 34,944 per tonne have in fact fallen below the December 2007 level of Rs 35,100 per tonne.

Falling prices have also hit profitability of steel companies with Steel Authority of India Ltd and Tata Steel registering a 56 per cent dip in profits in the Sept-December 2008 period, while Jindal South West incurred a loss during the same period.

“Currently there is some demand in products used in the real estate and infrastructure, but not much demand for flat products used in consumer durables and automobiles,” said PK Rastogi, steel secretary. “The mismatch is such that while between April-Sept 2008, production grew at 4.3 per cent, consumption grew at 5.6 per cent, while between Oct-Dec production declined by 8 per cent but consumption went down by 13 per cent.”

Home loan frauds haunting public sector banks

Home loan frauds haunting public sector banks
The Hindu Business Line, February 24, 2009, Page 1

HITTING THE ROOF.
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Humongous amount
Bankers say that if one considers the PSBs home loan push in 2007, 2008 and 2009, the home loan fraud could now be in the region of Rs 1,000 crore.
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K. Ram Kumar, Mumbai, Feb. 23

When the economy is in fine fettle, banks develop the proclivity to let their guard down.

The proof: between 2002 and 2006, when the Indian economy was shining bright, 28 public sector banks (PSBs), according to Reserve Bank of India’s reply to an application made under the Right to Information Act, cumulatively reported home loan frauds amounting to Rs 599 crore.

This figure, however, does not reveal the full picture as details pertaining home loan frauds in the new generation private sector banks are not available. The rot in these banks could be deeper considering that they went overboard during the period; peddling home loans to all and sundry with the promise of soft interest rates and high loan-to-value ratio, which sometimes exceeded 100 per cent of the property value.

Bankers say that if one considers the PSBs home loan push in 2007, 2008 and 2009, the home loan fraud could now be in the region of Rs 1,000 crore. The situation would be worse in the case of private sector banks, which of late are going slow on home loans.

Banks have reported that frauds have been committed in home/mortgage loans using fake title deeds/inflated valuation reports.

Builder-borrower-advocate-chartered accountant nexus is believed to be the root cause of banks falling prey to home loan frauds. In view of this problem, the Indian Banks’ Association has come out with a procedure for lodging complaints with the Institute of Chartered Accountants of India and State Bar Councils on malpractices/professional misconduct committed by erring chartered accountants/advocates in their dealing with banks.

What is baffling bankers is that the same flat is sold by some unscrupulous builders many times over, with the banks left holding the empty bag. For instance, a flat in Navi Mumbai was financed by around 20 banks involving a fraud of Rs 1 crore. Then, there is the case of a single borrower duping 27 banks to the tune of Rs 8 crore for buying flats across Mumbai.

“Bank officers are facing the music on the home loan front because of the dereliction of duty by some advocates and chartered accountants. Officers strictly go by their advice while sanctioning/disbursing loans. When a fraud comes to light, bank officials are either chargesheeted or summarily dismissed or put behind bars. However, no action is taken against the professionals,” said Mr. S Nagarajan, Deputy General Secretary, All India Bank Officers’ Association.

The sub-registrar’s office, according to Mr. Rajan Chandorkar, President, AIBOA (Maharashtra), registers ‘sale agreements’ without even verifying whether the property in question has been sold earlier. In 2006, the number of fraud cases reported was 620 aggregating Rs.167.43 crore.

“6th International Exhibition on Building Materials and Construction Technologies”

FICCI and Builders Association of India organizes “6th International Exhibition on Building Materials and Construction Technologies” between Feb 25 – 27 at Pragati Maidan, New Delhi.

Real Estate Intelligence Report, Monday, February 23, 2009

REALTORS landlocked

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REALTORS landlocked
The Economic Times, February 22, 2009, Page 1

DLF, Unitech, Emaar MGF, Omaxe, BPTP freeze land acquisitions as values dip

Neha Dewan & Aman Dhall NEW DELHI

THERE was a time when real estate biggies were literally banking on land. Huge land banks were considered an invaluable asset to flaunt aggressively when selling projects or raising money. But today things have changed and the benchmark of the valuation of these companies — the land bank — is coming back to haunt them. Leading real estate developers across the country — DLF, Unitech, Emaar MGF, Omaxe, BPTP and Hiranandani Developers — have all put a freeze on their ambitious and aggressive land acquisition spree. Also, in some cases they are even trying to give back the land they had acquired. The unproductive nature of land banks coupled with erosion in notional value means that the most prized possession of real estate majors is languishing in the slowdown.

SundayET dug out some data on land banks of the top real estate companies and found that the current kitty of DLF stands at approximately 13,055 acres while that of Unitech is around 14,000 acres. Omaxe has 3,700 acres as its land holding while BPTP has 2,000 acres. According to a real estate consultant, who didn’t wish to be named, value of land prices have dropped by almost 30% since July last year, when they had peaked. By that estimate, assuming a correction of 30%, DLF’s land value stands at Rs 1,272 cr against Rs 1,817 cr standing in its balance sheet in March ‘08. Similarly, Unitech’s land value is priced at Rs 316 cr at current market prices, as compared to its value of Rs 451 cr in March’08.

Most developers, however, are not willing to concede that land banks have lost lustre. Says Sanjay Chandra MD of Unitech Group: “It depends on how you have acquired the land. We didn’t participate in open auctions. Most of our land is directly acquired from either land owners or from government auctions. Hence the cost is on the lower side. We are not burdened with any of the land parcels as the FSI cost of all our land bank is sub Rs 200 per sq ft.” But denials apart, developers such as DLF, Unitech and BPTP are shying away from mega land deals signed during the real estate boom. This asset class is, in fact, especially pinching those developers who acquired land at various auctions at heavily escalated costs.

BPTP, which hogged the limelight for the costliest land deal in Noida, surrendered a part of the land parcel earlier this month. Last year, the developer had bagged a 95-acre plot at Noida in an auction for a princely sum of Rs 5,006 cr. However, foreseeing difficulties in executing the project, the developer only retained part of the land. The case is similar with other developers, many of whom have withdrawn from key projects which would have ensured availability of large tracts of land for them. For instance, DLF recently gave up the Rs 5,000 cr Dankuni project in West Bengal and a multi-crore convention centre project in Delhi’s Dwarka.

Others like Omaxe are looking at a shift in strategy of the current situation. “Currently, we have around 3,700 acres of land. Now we are not acquiring more land, so the strategy is to develop the acquired land first,” says Omaxe Group chairman and managing director Rohtas Goel. Valuation of land is not the only problem. It’s also got to do with availability of funds for developing the land.

Identify unused land in cities: Centre

Identify unused land in cities: Centre
The Economic Times, February 22, 2009, Page 6

Neha Dewan NEW DELHI

IN Abid to push the agenda of affordable housing, state governments have now begun the process of identifying vacant land in key cities which would be handed over to local development authorities for building houses. This follows a directive in this regard from the Centre to states, with the idea of making governments more active in house building in the future.

At a time when private developers are facing acute cash crunch, government's plan to develop such land could actually help in bringing the overall costs down. It will also help generate surplus resources to boost the demand for housing.

"The states are already in the process of identifying such unused land, and we will soon know the total number of hectares. This exercise will also find out what priority should be given to such land. The objective is to see how best can housing be encouraged so that demand is bolstered again," Union urban development secretary M Ramachandran said.

While talking to SundayET, Mr Ramachandran further said that housing boards and development authorities might soon come back to play a major role. "We will soon be going back to an era where housing boards will occupy a central role again. Nearly 98% of the population cannot afford to buy houses from private builders. At what cost can the private sector accommodate this chunk of the population?

Although affordable housing has been initiated by most private developers, these may not be able to meet the bulk need in the low-cost housing bracket. However, if the state governments implement vacant land in city areas, it would imply more supply in the offing for the real estate sector. "Almost every city has land which is unutilized or is a nonperforming asset. If such a move is implemented, it will mean added supply or other infrastructure coming up within the respective cities which will be very beneficial," says Anshuman Magazine, CMD, CB Richard Ellis South Asia.

However, a large number of clearances would still be needed to acquire the vacant land, depending on the city's rules and regulations, land usage and the owner of the said land. "Every city has its own rules and regulations regarding transfer of land. In some cases there is also multiple ownership of land which takes more time in clearances," adds Mr Magazine.

Economic growth may pick up in second half of 2009-10’

Economic growth may pick up in second half of 2009-10’
The Hindu Business Line, February 21, 2009, Page 5

Our Bureau, Mumbai, Feb 20.

The Indian economy should grow at more than 7 per cent in the financial year 2009-10, said Dr Suresh Tendulkar, Chairman, Economic Advisory Council to the Prime Minister.

Though the growth may be weak in the first half of the next fiscal, it will pick up in the second half, ensuring that the economy grows at more than 7 per cent in 2009-10, he said.

He was delivering the keynote address at a seminar organised by the Maharashtra Economic Development Council.

In the current fiscal, the economy is expected to grow at around 7.1 per cent according to the estimates, he said.

The monetary and fiscal policies that have been introduced will work with a lag and their impact will be seen from the first quarter of 2009-10.

Fiscal consolidation should have taken place during the past five years when the economy was booming, he said. But it did not happen due to the subsidies regime that was followed.

Admitting that fiscal deficit is a problem, he said there is not much room for fiscal measures and the dependence would be much more on the monetary policy.

“Going ahead, we do expect a lower interest rate regime,” he said. It will take some time for banks to cut their lending and deposit rates and move towards lower interest rates, he said. Falling rates will help leverage consumption and lead to a pick up in investment demand. Therefore, the psychology of gloom and doom, which is impacting sentiments of bankers, investors and consumers, is not justified on the evidence available.

However, he cautioned that asset quality of banks may deteriorate in the current scenario though the rise in NPAs might not be significant.

Conceding that small and medium enterprises are facing a credit crunch, he said efforts are being made through a variety of channels to address their concerns.

Expect 100 bps repo rate cut: Economists

Expect 100 bps repo rate cut: Economists
Sunday Business Standard, February 22, 2009, Page 5

BS REPORTER Mumbai, 21 February

With inflation falling below 4 per cent and the government unable to boost spending or cut taxes due to fiscal deficit constraints, bankers and economists are expecting the Reserve Bank of India to cut the repo rate by around 100 basis points over the next few weeks to provide a fillip to economic activity.

“The fiscal headroom is very limited. Also, given that support from fiscal measures can remain limited on account of upcoming elections, more rate cuts from RBI are expected,” said Anubhuti Sahay, economist at Standard Chartered.

The expectations of a rate cut have gone up after RBI Governor D Subbarao said in Tokyo that there was room for further rate cuts. In recent months, exports and industrial output have shrunk, the services sectors, the main growth driver over the last five years, has witnessed aslowdown and investment demand is coming down.

Since October, RBI has responded through a series of rate cuts and has reduced the repo rate – or the rate at which it lends to banks by 350 basis points – while the reverse repo rate – the rate at which it accepts surplus funds from banks –has been lowered by 200 basis points. Similarly, through a400-basis-point reduction in the cash reserve ratio (CRR) –or the proportion of deposits that banks set aside – the central bank has injected Rs 1,60,000 crore into the system.

At its current level of 4 per cent, the CRR is 350 basis points lower than the level when inflation was last under 4 per cent, which was in December 2007. Similarly, the repo rate is at 5.5 per cent, while it was at 7.5 per cent in December 2007. At 4 per cent, the reverse repo rate is 200 basis points lower than the December 2007 level of 6 per cent.

The liquidity situation too is comfortable with banks parking over Rs 40,000 crore with RBI on Wednesday. In contrast, in December there was negligible surplus with banks as they were lending heavily to meet the credit demand of an economy growing at 9 per cent.

This year, the economy is projected to grow by 7.1 per cent this year, and by around 7 per cent next year. In January, the credit flow of scheduled commercial banks fell by Rs 22,000 crore on a year-on-year basis.

Through fresh rate cuts, the central bank will provide banks the right cues to lower lending rates. So far, banks have responded through a reduction in their prime lending rate by 50-200 basis points, with private and foreign banks being at the lower end of the band.

“Interest rates would be soft with inflation numbers showing a fall and the cost of funds for banks remaining low,” said Dena Bank Chairman and Managing Director D L Rawal.

The fall in inflation due to the easing of commodity prices gave RBI room for rate cuts, said IDBI Gilts Managing Director NS Venkatesh, while indicating that the central bank will announce a cut in the first week of March after factoring in the extent of growth moderation. He expected RBI to lower the repo rate by 100 basis points.

Suresh Tendulkar, chairman of the Prime Minister’s Economic Advisory Committee, did not put any number to where interest rates are headed but said, “Moving ahead, the system is likely to see a lower interest rate regime.” “Given upcoming elections, the entire onus on stimulating growth now rests on monetary policy and we expect an additional easing of 100-150 basis points,” said Citi India economist Rohini Malkani.

Standard Chartered’s Sahay said that the repo rate would bottom at 4 per cent, the reverse repo rate at 3.00 per cent and CRR at 3.50 per cent by mid-2009. Over the next few weeks, she said, RBI would lower the repo rate by 100 basis points, while the reverse repo rate could be cut by 50 basis points. “Though, it cannot provide push, it can perhaps work to see that growth is not stalled,” Venkatesh said.

THE STORY SO F THE STORY SO F AR AR
Actual/potential release of primary liquidity since mid-September 2008

Measure/Facility Amount (Rs.crore)
Cash reserve ratio (CRR) reduction 1,60,000
MSS unwinding 63,045
Term repo facility 60,000
Increase in export credit refinance 25,500
Special refinance facility for SCBs (Non-RRB) 38,500
Refinance facility for Sidbi/NHB/Exim Bank 16,000
Liquidity facility for NBFCs through SPV 25,000
Total 3,88,045

Memo: Statutory liquidity ratio (SLR) reduction is Rs 40,000 crore
Source: Reserve Bank of India

And now, de -globalisation

WEEKEND RUMINATIONS TN Ninan

And now, de -globalisation
Business Standard, February 21, 2009, Page 11

The world has seen several phases of globalisation, starting with the first migration of homo sapiens from Africa some 70,000 years ago. The last bout of globalisation began in 1870, when there was a burst of trade and human migration; that ended with World War I in 1914. In language that was a foretaste of recent years, people talked at the time of “the annihilation of distance”, before the trade and other barriers went up.

The current phase of globalisation acquired momentum in the 1980s. Trade grew twice as fast as global GDP between 1990 and 2005, reaching 30 per cent of the latter. In the same period, the stock of global foreign direct investment grew almost five times as fast as world GDP. Private, cross-border capital flows two years ago reached a stratospheric $929 billion. And people talked once again of the “death of distance”.

The question today is whether this latest bout of globalisation too has ended. Certainly, one participant at the World Economic Forum’s annual meeting at Davos came back this year with the clear message that the world is now a de-globalisation phase. The numbers coming out support his thesis. The International Monetary Fund says that global trade is expected to shrink 3 per cent this year, for perhaps the first time in 60 years. The Institute of International Finance forecasts that global private capital flows will collapse by as much as 80 per cent, to $165 billion, as capital is sucked in by the big economies. American and European banks will need to re-capitalise by half a trillion dollars, just to maintain their present rate of capital adequacy, low to begin with.

Fewer people will cross national boundaries. When it comes to migrants looking for work, the US stimulus law has put curbs on the employment of people under the H1-B programme, which already has onethird of the cap that it used to. Britain has tightened its immigration rules for foreign workers, with inflows expected to drop 10 per cent; low-skilled workers from outside Europe have been banned. As for tourist traffic, Thailand as a bellwether destination expects a 20 per cent drop this year.

With less trade, reduced capital mobility and fewer people crossing borders, three key elements of globalisation have been reversed; the only one that remains is the mobility of technology—which no one has measured yet to see what is happening.

This reversal could be a passing phase, of course. After all, the structure that brought in trade globalisation is still in place—large companies have integrated production globally, tariffs in the developing countries have dropped by two-thirds since 1983, transport costs are low, and innovation continues to create the scope for new trade. But the incipient signs of protectionism are everywhere (including in India, which has moved against Chinese toys and aluminium). The existing structures could conceivably begin to give way if the downturn gets long and deep enough. The US economy is expected to shrink 1.6 per cent this year, and the eurozone’s by 2 per cent. Japan’s is shrinking at the astonishing annual rate of 12.7 per cent. These trends will result in the loss of 51 million jobs this year (says the International Labour Organisation); imagine millions of migrant Indian workers in the Gulf returning home.

Countries like China which have enjoyed export-led growth will be hit hard. States like Singapore, which built their prosperity on the back of the global movement of goods, money and people, are in shock. And so, once more, India might benefit from not having globalised as much as the others. As the old company ad line said, “the best means of growth come from within”.

Real estate market looking positive: Sobha Developers

Real estate market looking positive: Sobha Developers
The Hindu Business Line, February 22, 2009, Page 2

Signs of improvement in sales seen.

Anjana Chandramouly, Bangalore, Feb 21

With interest rates falling and market sentiments getting better, Sobha Developers claims the real estate market is looking positive with its sales now showing signs of improvement.

“Our December-January sales have been far better than October and November,” said Mr J.C. Sharma, Managing Director, Sobha Developers.

According to him, out of 10 million sq ft of ongoing projects across the country, only less than 1 per cent is unsold property.

“With interest rates falling and market sentiments improving, we have been able to increase our market share,” he added. What more, the company plans to “launch a couple of residential projects in Bangalore in the next two quarters. That shows our optimism,” said Mr Sharma. Though refusing to give further details, he said the launch would be “much before 2009-end”.

Looking for partners
There have been a few lessons learnt in these bad times, he said. According to him, the company has stopped buying land, “instead we sold some of our lands”, he added. The company’s land-bank now stands at about 3,000 acres. “We are looking for partners for some of our lands, while for some we are looking at outright sales,” said Mr Sharma.

“We have also improved on efficiency at the project and fixed cost levels, and have started looking at volume benefits. Our operating margins this year would be 30 per cent,” he added.

Mr Sharma said that the company’s cash flows have improved now, but declined to divulge further details. The company is in talks with institutions to re-align its Rs 1,800-crore debt. “In view of our revised cash flow position. If that happens, we hope this issue will not have any adverse impact on our operations,” said Mr Sharma.

Showcasing projects
To cash in on changing consumer sentiments, the company is organising ‘Sobha Home Mela’ on February 21 and 22 showcasing about 18 exclusive company projects. “About 1,500 apartments are on display,” said Mr Sharma.

The projects include villas, row houses, luxury apartments, semi-luxury apartments and plots. Company officials at the mela said first-time customers can book a flat by paying Rs 50,000 through a credit card.