Possible Nakheel default to affect $5.25 billion debt
Business Standard, December 14, 2009, Page 8
Bloomberg / Dubai
Investors are waiting to see if the Dubai state-controlled developer will pay the maturing $3.52 billion Islamic bond, known as sukuk, on Monday
Nakheel PJSC’s possible non-payment of its Islamic bond due on Monday will trigger cross defaults on two other securities, bringing the total of affected debt to $5.25 billion, bond documents show.
Investors are waiting to see if the Dubai state-controlled developer will pay the maturing $3.52 billion Islamic bond, known as sukuk. The Dubai government said on November 25 state-run holding company Dubai World is seeking a “standstill” agreement on its debt, including for the Nakheel unit.
The cross default would trigger if “the Nakheel Holdings Group, Nakheel World or the guarantor shall fail to make any payment”, at the expiration of the grace period, the bond documents said. Monday’s deadline is followed by a 14-day grace period to remedy the default and to prevent bondholders from starting legal proceedings.
Nakheel’s other two bonds are a 3.6 billion-dirham ($980 million) floating-rate note due in May next year and a 2.75 per cent $750 million sukuk maturing in January 2011.
“The chances of a full payment at this point are very slim,” said Nish Popat, head of fixed income at ING Investment Management Dubai Ltd. “There is a lack of clarity on how the standstill initiative is progressing. Investors are just waiting and speculating.”
Nakheel’s bond maturing on Monday rose 1 per cent to 53 cents on the dollar on December 11, on speculation that the developer may seek to avoid a default. The bond has dropped more than 50 per cent since the November 25 announcement. Dubai World began talks to restructure $26 billion of debt.
Nakheel’s bond repayment is the biggest maturity for a Dubai entity since the global credit markets froze after the September 2008 collapse of Lehman Brothers Holdings Inc. Nakheel accumulated debt during a six-year real-estate boom in Dubai, when the sheikhdom borrowed $10 billion and its state-controlled companies $70 billion to help diversify its the economy.
BNP Paribas SA and EFG-Hermes Holding SAE analysts said last week Nakheel may repay bondholders as much as 70 cents on the dollar and issue new securities to restructure the remainder of the debt.
While Dubai’s government owns 100 per cent of Dubai World, it hasn’t guaranteed the company’s debt and creditors must help it restructure, Abdulrahman Al Saleh, director general of Dubai’s Department of Finance, said on November 30.
Monday, December 14, 2009
Possible Nakheel default to affect $5.25 billion debt
Nakheel looks set to default
Nakheel looks set to default
The Economic Times, December 14, 2009, Page 12
Haris Anwar DUBAI
NAKHEEL’S possible non-payment of its Islamic bond due on Monday will trigger defaults on two other securities, bringing the total of affected securities to $5.25 billion, bond documents show.
Investors are waiting to see if the Dubai state-controlled developer will pay the maturing $3.52 billion Islamic bond, known as sukuk. The Dubai government said on November 25 that state-run holding company Dubai World is seeking a “standstill” agreement on its debt, including for the Nakheel unit. The default would be triggered by failure of Nakheel or the guarantor, Dubai World, to make payment at the end of a grace period, the documents said. Nakheel has two weeks to remedy a default and prevent bondholders from starting legal proceedings. Nakheel’s other two bonds are a 3.6 billion-dirham ($980 million) floating-rate note due in May and a 2.75%, $750 million sukuk maturing in January 2011. “The chances of a full payment at this point are very slim,” said Nish Popat, head of fixed income at ING Investment Management Dubai. “There is a lack of clarity on how the standstill initiative is progressing. Investors are just waiting and speculating.”
Nakheel’s bond maturing tomorrow rose 1% to 53 cents on the dollar on December 11, on speculation the developer may seek to avoid a default. The bond has dropped more than 50% since the November 25 announcement. Dubai World began talks with banks this month to restructure $26 billion of debt.
Nakheel’s bond repayment is the biggest maturity for a Dubai entity since the global credit markets froze after the September 2008 collapse of Lehman Brothers Holdings.
The 2009 sukuk redeems at $115.52, increasing the Nakheel’s total payment to $4.1 billion. The amount includes a 6% premium to bondholders in case the developer is unable to do an initial public offer during the life of the bond, and the remaining part of the annual coupon. Nakheel accumulated debt during a six-year real-estate boom in Dubai, when the sheikhdom borrowed $10 billion and its state-controlled companies $70 billion to help diversify its the economy. BNP Paribas and EFG-Hermes Holding analysts said last week Nakheel may repay bondholders as much as 70 cents on the dollar and issue new securities to restructure the remainder of the debt.
“Such an outcome would be beneficial for both parties involved,” EFG’s Dubai-based strategist Fahd Iqbal wrote in a research report. “Creditors would receive a portion of their money back with a promise for the remainder to be delivered at a later stage while Dubai World, along with other government- related parties, would have continued access to capital markets.”
While Dubai’s government owns 100% of Dubai World, it hasn’t guaranteed the company’s debt and creditors must help it restructure, Abdulrahman Al Saleh, director general of Dubai’s Department of Finance, said on November 30. Dubai World may need more than six months to complete its debt restructuring, Al Saleh told the Al Arabiya TV channel on December 8.
Nakheel, the developer of palm-tree shaped islands off the Dubai coast, had a first-half loss of 13.4 billion dirhams as real-estate prices crashed in the Gulf business hub. — Bloomberg
DAL to merge with DLF in cash-equity deal
DAL to merge with DLF in cash-equity deal
The Financial Express, December 14, 2009, Page 1
Rajat Guha, New Delhi
Country’s largest real estate firm DLF is set to merge the real estate investment trust DLF Assets Ltd (DAL) into itself. The move is aimed at repaying some of DAL’s debt and bring the commercial properties under DLF to generate an annual income of around Rs 600 crore in the form of lease rentals from 2009-10. DAL currently earns around Rs 325 crore from lease rentals.
DAL, which is promoted by DLF promoters K P Singh and son Rajeev Singh, buys commercial property from DLF and collects lease rentals from it. Sources said for the merger, DLF would have to buy the assets of DAL for around Rs 6,500-7,000 crore. The DLF board is meeting on Tuesday to take a final call on the matter. The company has appointed Citibank, Ernst & Young and Grant Thornton India as advisors. When contacted a DLF spokesperson declined to comment.
The DLF-DAL deal will be a combination of cash and equity. Sources close to the development said an all-cash deal would involve a tremendous cash outgo, which would be difficult for DLF in the current scenario given its debt burden. Hence, the promoters are planning to go in for a major share swap between DLF’s cyber city in Gurgaon and DAL. The share swap ratio has been finalised and would be discussed in the Tuesday’s board meeting. In addition, around $700 million invested by the PE firm Symphony Capital and some debt from other lenders will be transferred to DLF Ltd’s books.
Analysts view the option of equity-cash mix an ideal way to close the deal as it is not prudent on the part of promoters to further dilute their stake in DLF. The Singh family had last diluted its stake by around 10% in DLF to raise Rs 3,800 crore to pay hedge fund DE Shaw, an initial investor in DAL.
The DLF-DAL merger would also help scale up DAL’s valuation ahead of its listing on Singapore Stock Exchange in April 2010. As fist reported by FE, the promoters expect to mop up around $1.2 billion through the listing for which the backing of DLF is seen as a must.
The company has decided to file for the listing in January. Citibank is advising the company on the listing.
DAL had acquired four special economic zones (SEZs) from DLF Ltd with a built-up area of 4.5 million square ft, and has increased it to 9.5 million sqft and plan to further increase it to 19 million sqft when fully ready. As reported by FE last week, DE Shaw has finally redeemed its investment in DAL, with DLF buying out its stake, a move that would facilitate the merger process and the eventual listing.
DAL had earlier raised $1.1 billion from DE Shaw and Symphony Capital through optionally convertible preference shares with a coupon rate of 4 to 6 %.
Realty IPOs: Bubbles that make little sense for serious investors
The Economic Times, December 14, 2009, Page 8
OF ALL the bubbles that were floating around back in the heady days of 2007 and 2008, the one that was the biggest is still hanging around, being maintained by a determined (or perhaps desperate) set of people. At that time, it was clear to most of us that India’s real estate sector was a massive bubble. The froth was equally visible in the prices of real estate itself as well as the way real estate scrips were doing on the stock markets. And then came the crash and everything collapsed around the world. This is a crash that is still continuing — Dubai’s real estate disaster is still said to be only half done. And without a doubt, there are many more zombie developers around the world who are still staggering around in the hope that one day things will turn around.
In India, we now seem to have entered a phase where many of these zombies are now planning to try and revive themselves with IPOs. The coming months will see a spate of issues from real estate developers. Currently, we are seeing an elaborate PR and advertising exercise that is aimed at convincing investors that there is a real estate ‘revival’ on the way. The reality is that nothing could be further from the truth. It is true that at the ground level, people are buying more houses than they were a year ago. Companies too are renting and buying more offices. However, there is a complete disconnect between the supply that exists and the actual demand. There is an even bigger disconnect between the prices which these consumers are willing to pay and the prices that the developers need to realise to make their projections justified.
As a potential investor in the real estate sector, you shouldn’t be reading any broker or analyst reports, nor should you be reading ads or articles in the media. Instead, you should be doing some research yourself. Just find out the officiallyquoted prices for some of these IPOing (or about to be IPOing) developers’ properties. And then, try and make some enquiries about the same properties pretending to be an actual buyer. Generally, you will discover that the real prices are a fraction of what is claimed publicly. Or in some cases, you may also discover that there are no real price quotes because no one is even pretending to sell properties because no one has any expectations of the underlying projects being executed in any realistic timeframe. Almost without exception, the coming realty IPOs are desperate rescue missions, which seek to use the collected funds to replace some of the masses of debt that they’ve taken on. And almost without exception, the IPO funds will do nothing for the basic commercial viability of the products that these companies are supposed to produce and sell.
All realty cos may get ECB access for townships
All realty cos may get ECB access for townships
The Economic Times, December 14, 2009, Page 19
As Of Now, Only Companies Which Are Purely Into Integrated Townships Of Specified Size Are Eligible For ECBs
G Ganapathy Subramaniam ET NOW
THE Reserve Bank is considering a proposal to allow real estate companys to access external commercial borrowings (ECBs) for integrated townships even if they deal with other types of real estate projects.
As of now, only companies which are purely into integrated townships of specified size are eligible to access ECBs as the RBI was keen to make sure that funds are not diverted to other projects.
Real estate companies have argued that setting up a special purpose vehicle (SPV) for integrated townships entails higher costs. Flagship companies have a credit rating which is obviously better than what a new SPV can get, they have emphasised.
To ensure that ECB funds are not diverted, real estate companies have said that ECB proceeds can be kept in a separate bank account and all accounting for this money can be done separately. A source in RBI confirmed the proposal from real estate companies on condition of anonymity, but declined to go into the details.
An escrow account for this purpose is what realty companies have proposed and they are willing to undertake strict accounting specifications to prove that ECB proceeds are used only for integrated townships.
RBI was not willing to consider any relaxation earlier, but the issue is under discussion now after the central bank re-imposed an all-inclusive interest ceiling for ECBs recently. Since SPVs cannot borrow at rates as fine as the parent entities, real estate companies have argued, integrated townships would be deprived of funding from this window. In the case of ECBs with tenure of three to five years, RBI has said that interest paid should not exceed 300 basis points above Libor.
“It is a win-win situation for real estate companies as well as overseas lenders,” said Anil Kumar, CEO and deputy MD of Ansal API. “Real estate companies can get long term funds at competitive cost and lenders will be able to do business with real estate companies even if they are not dealing exclusively with integrated townships,” he said.
ECB proceeds for integrated townships has been allowed to promote infrastructure development. The government has specified that such townships should be built on a minimum area of 100 acres. Detailed guidelines have been provided by the department of industrial policy and promotion (Dipp) through press notes meant to lay down guidelines for foreign direct investment (FDI) in real estate. “Ceiling on borrowing cost is a major factor for real estate players. Even though ECBs can be used for integrated townships, realty players have not been able to use this window,” said a senior executive from a leading real estate firm who did not wish to be quoted.
The RBI has recently decided to allow real estate companies to access ECBs till December 31, 2010 for integrated townships. Originally, this facility was available only till the end of 2009.
In 2007, when there were apprehensions that the economy was overheating, a number of restrictions were imposed on funds flowing into real estate. The RBI felt that a real estate bubble was building up. When the financial sector meltdown hit the global economy last year many of these restrictions were eased. With liquidity becoming abundant now and signs of economic revival visible, the government is looking at tightening the norms once again.
Nitesh Estates to raise Rs 700 cr
The Hindu Business Line, December 12, 2009, Page 3
To go the private equity route to fund Rs 1,350-cr Chennai project
Anjana Chandramouly, Bangalore
Real estate developer Nitesh Estates plans to raise about Rs 700 crore through the private equity route for its Chennai mixed-use development. This is in addition to the Rs 450 crore the company plans to raise by tapping the market.
Mr L. S. Vaidyanathan, Ex¬ecutive Director, Nitesh Estates, said, "We are looking at 1:1 debt-equity deal. We plan to raise Rs 700 crore of private equity for the Rs 1,350 crore Chennai project."
The company plans to dilute 74 per cent of its stake in the project, he told Business Line. The company was talking to a few private investors, "but nothing has been firmed up as yet," he added.
When launched, the Chennai Boat Club project would develop about one million sq ft of residential, commercial, retail and hospitality spaces. Nitesh Estates has signed a memorandum of understanding with Ritz-Carlton, said Mr Vaidyanathan.
The company, in fact, is developing the country's first Ritz-Carlton at Bangalore, which is expected to be ready by April 2011, he added.
The company has filed the Draft Red Herring Prospectus for its proposed initial public offering, through which it plans to raise Rs 450 crore with a greenshoe option for an additional about Rs 45 crore.
Mr Vaidyanathan said that stake dilution would largely "depend on market conditions", refusing to divulge any other details. The funds would be "used for our hospitality and retail projects, repay certain debts of the company and sign up new land parcels," he said. The company has development rights for about 20 million sq ft developable space in the next three- four years, he added.
As a company strategy, Nitesh Estates plans to have 80 per cent of its residential projects aimed at the mid-market, which is a deviation from its earlier upscale luxury business model. "The mid market (Rs 20 lakh to Rs 40 lakh) is where the demand is, and this is where a bulk of our projects would be focussed," said Mr Vaidyanathan.
In the next few months, the company plans to launch two mid-market projects in Bangalore, through which it plans to add over 1,100 units.
However, the company would stick to the upscale luxury model for its Goa project. Though there are land parcels identified for commercial development, the company would wait till "the market for commercial space picks up," he added. Next year, Nitesh Estates would have over three million sq ft under development, said Mr Vaidyanathan.
There are also plans to enter the Ahmedabad market, as "we have a land parcel being offered to us there: We are getting it evaluated and also studying the market to identify the kind of development to opt for," said Mr Vaidyanathan.
Wednesday, December 9, 2009
Sensex up 245 points
Sensex up 245 points
The Times of India, December 9, 2009, Page 25
Mumbai: Snapping twoday losing string, BSE benchmark sensex on Tuesday surged by 245 points to regain the 17,000-level, with investors reposing confidence in Indian shares amid distinct weakness in Asian and European bourses.
Realty shares were back in favour though debt-ridden Dubai World's real estate arm Nakheel's restructuring raised concerns in Gulf bourses which registered sharp losses. “Real Estate stocks have seen a long build-up, suggesting that investors have been taking fresh positions in these stocks,” said Bonanza Portfolio assistant vice-president Avinash Gupta. PTI
Home loan battle heats up as ICICI, Kotak cut rates
Home loan battle heats up as ICICI, Kotak cut rates
The Financial Express, December 9, 2009, Page 13
fe Bureau, Mumbai
The home loan product with low fixed rate for the first two years seems to be gaining popularity. Private sector lenders ICICI Bank and Kotak Mahindra Bank have followed State Bank of India and HDFC and have launched similar loan schemes combining fixed and floating interest rates. ICICI Bank and Kotak Mahindra on Tuesday announced low rates of 8.25% and 8.49% respectively for home loans.
A spokesperson of ICICI Bank told FE, "The bank is now offering home loans at a fixed interest rate of 8.25% for first two years which then would be adjusted to the then prevailing floating interest rate. The rate would be applicable to new home loans sanctioned between December 1, 2009 and January 31, 2010. Also, the first disbursement must be availed before March 31, 2010."
"The interest rate to be charged for new home loans upto Rs 20 lakh is 8.25% fixed for first two years. For third year onwards for loan upto Rs 20 lakh, the floating reference rate (FRR) would be 4% adjustable rate for home loan (ARHL). For loans ranging between Rs 20-50 lakh, the FRR would be 3.5% ARHL. But for loans above Rs 50 lakh, the FRR would be 3% ARHL. The floating interest rate for home loans upto Rs 20 lakh will be 8.75%," he added. Similarly the interest rate for floating loans ranging between Rs 20-50 lakh, would be 9.25% and for Rs 50 lakh above the floating interest rate is 9.75%.
Meanwhile, Kotak Mahindra Bank also said the special offer of 8.49% can be availed for all new loans irrespective of the loan amount for 30 months. But the offer is limited till January 31, 2010. It will charge floating rates after the 30-month period, which will be decided based on the retail prime lending rate. While the fixed duration loan rate will remain the same irrespective of the loan amount, the floating rate will vary with the loan amount, the bank said.
For salaried customers, the bank said it would offer floating rates starting from 7.99% per annum depending upon loan amount.
Last week, premier housing finance company HDFC had offered 8.25% rate up to March 31, 2012. This offer was to counter SBI's offer of 8% rate for the first year.
Rate war in home loan market hots up
Rate war in home loan market hots up
Business Standard, December 9, 2009, Section II, Page 2
BS Reporter / Mumbai
ICICI, Kotak Mahindra announce fixed-cum-floating rate schemes.
The interest rate war in the home loan market shows no signs of abating with ICICI Bank and Kotak Mahindra Bank entering the fray with their fixed-cum-floating rate schemes.
ICICI bank has announced a scheme under which the rate will be fixed at 8.25 per cent for the first two years. After that, floating rates will apply. The rates apply to loans sanctioned between December 2009 and January 2010. To avail of the offer, borrowers have to ensure that the first disbursement takes place before the end of March 2010.
Similarly, Kotak Mahindra Bank, which announced its scheme today, has fixed the rate on home loans at 8.49 per cent for 30 months from the date of the disbursement of the loan.
Salaried borrowers can hope to get floating rates starting from 7.99 per cent depending on the loan amount. While the fixed-duration rate would be the same, irrespective of the loan amount, the floating rate would vary with the amount, the bank said in a statement.
ICICI Bank’s latest move comes after a quiet phase for the bank’s retail operations which saw its home loan portfolio shrink by over 21 per cent to Rs 49,300 crore at the end of September 2009 from Rs 62,475 crore a year ago. The country’s largest private sector lender has identified home loans as a focus area.
Bankers said there was ample liquidity in the system with banks parking around Rs 100,000 crore a day with the Reserve Bank of India through the reverse repo window, which is used to suck out excess liquidity from the system. The cost of short-term funds is also much lower than for long-term funds.
Besides, with credit growth only a shade above 10 per cent, banks are keen to lend, even if it is for the short term, to maximise returns as the reverse repo window earns 3.25 per cent while parking cash in liquid schemes of mutual funds gets them an annual return of 4.75 per cent.
While many banks, including ICICI Bank, are still averse to unsecured lending, they are pushing home loans as defaults are low.
Last week, the country’s largest mortgage financier, HDFC, abandoned its aversion to fixed-floating loan schemes. Under HDFC’s scheme, all home loan applications filed till the end of January will be eligible for the dual-rate offer, under which the interest rate will be 8.25 per cent up to March 31, 2012. Subsequently, the bank levy the applicable floating rate. At least a part of the disbursement has to take place before March 2012.
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