Wednesday, February 18, 2009
DLF reduces Bangalore project price by 24 per cent
DLF reduces Bangalore project price by 24 per cent
Business Standard, February 18, 2009, Page 4
Arun Kumar / New Delhi
DLF, the largest real-estate player in the country, has reduced the price of its residential project in Bangalore by around 24 per cent. The revised price of the project — Westend Heights in New Town, Bangalore — is less than Rs 2,100 per sq ft as against the October 2008 launch price of Rs 2,775.
The new price would be applicable with retrospective effect, so that customers who had booked flats in 2008 are benefited.
When contacted, a company spokesperson said DLF "is passing on the benefit of reduced input costs to give greater value to its customers. Our intention is to make it affordable for the common man”.
Another senior official of the company said the most interesting feature of the project was that bigger apartments carried lower price per sq ft.
On the issue of delay in other projects in New Gurgaon, the spokesperson said that the company had not put on hold any project where it had made commitments to customers. This included DLF New Town Heights and Express Greens. DLF would deliver the projects on time, he added.
DLF has launched new residential projects in Hyderabad and Bangalore, and will be launching more projects soon.
Business Standard, February 18, 2009, Page 4
Arun Kumar / New Delhi
DLF, the largest real-estate player in the country, has reduced the price of its residential project in Bangalore by around 24 per cent. The revised price of the project — Westend Heights in New Town, Bangalore — is less than Rs 2,100 per sq ft as against the October 2008 launch price of Rs 2,775.
The new price would be applicable with retrospective effect, so that customers who had booked flats in 2008 are benefited.
When contacted, a company spokesperson said DLF "is passing on the benefit of reduced input costs to give greater value to its customers. Our intention is to make it affordable for the common man”.
Another senior official of the company said the most interesting feature of the project was that bigger apartments carried lower price per sq ft.
On the issue of delay in other projects in New Gurgaon, the spokesperson said that the company had not put on hold any project where it had made commitments to customers. This included DLF New Town Heights and Express Greens. DLF would deliver the projects on time, he added.
DLF has launched new residential projects in Hyderabad and Bangalore, and will be launching more projects soon.
PEs eye stakes in DLF Assets
PEs eye stakes in DLF Assets
The Economic Times, February 18, 2009, Page 4
Rajesh Unnikrishnan & Boby Kurian MUMBAI BANGALORE
A CONSORTIUM of private equity funds, including UAE’s leading financial institution Taib Bank, the Blackstone Group and JP Morgan, is believed to be in advanced negotiations with promoters of the DLF Group to pick up a majority stake in affiliate company DLF Assets. The deal, if finalised, would fetch DLF Assets about $400 to $450 million.
A senior team from Taib Bank was in Delhi last week holding talks with DLF Assets, a person involved in the development said. However, Taib is not looking at a large exposure at this point. The Middle East financial giant is evaluating a $50-million investment in DLF Assets, the person added. “The deal would see a consortium of PE firms investing in DLF Assets. Over five to seven PE firms are in negotiations with DLF Assets. None of them are willing to invest the required funds alone and all are negotiating to invest in the range of $50 to $100 million,” an investment banker close to the development said.
DLF Assets is in the market to meet payment obligations and for rolling over immediate debt as its planned $1.5 billion Real Esate Investment Trust listing in the overseas market, has been postponed due to volatility in the global stock market. DLF Assets is scouting for various options to raise funds including through PE deals. The company owes about Rs 4,800 crore to DLF, the listed entity of the group.
When contacted DLF vice-chairman Rajiv Singh said: “I cannot comment anything on DLF Assets now.” However, he had earlier said that “if all goes well, we can expect to receive in excess of Rs 5,000 crore from DLF Assets, in some mixture of debt and equity by the end of this financial year.”
The Economic Times, February 18, 2009, Page 4
Rajesh Unnikrishnan & Boby Kurian MUMBAI BANGALORE
A CONSORTIUM of private equity funds, including UAE’s leading financial institution Taib Bank, the Blackstone Group and JP Morgan, is believed to be in advanced negotiations with promoters of the DLF Group to pick up a majority stake in affiliate company DLF Assets. The deal, if finalised, would fetch DLF Assets about $400 to $450 million.
A senior team from Taib Bank was in Delhi last week holding talks with DLF Assets, a person involved in the development said. However, Taib is not looking at a large exposure at this point. The Middle East financial giant is evaluating a $50-million investment in DLF Assets, the person added. “The deal would see a consortium of PE firms investing in DLF Assets. Over five to seven PE firms are in negotiations with DLF Assets. None of them are willing to invest the required funds alone and all are negotiating to invest in the range of $50 to $100 million,” an investment banker close to the development said.
DLF Assets is in the market to meet payment obligations and for rolling over immediate debt as its planned $1.5 billion Real Esate Investment Trust listing in the overseas market, has been postponed due to volatility in the global stock market. DLF Assets is scouting for various options to raise funds including through PE deals. The company owes about Rs 4,800 crore to DLF, the listed entity of the group.
When contacted DLF vice-chairman Rajiv Singh said: “I cannot comment anything on DLF Assets now.” However, he had earlier said that “if all goes well, we can expect to receive in excess of Rs 5,000 crore from DLF Assets, in some mixture of debt and equity by the end of this financial year.”
Slump-hit realty funds go slow on raising money
Slump-hit realty funds go slow on raising money
The Economic Times, February 18, 2009, Page 17
Prashant Mahesh MUMBAI
IT’S not the best of times for real estate funds. Given the slowdown in the sector, they are going slow on raising money from their investors — a process that is referred to as the drawdown option. This is on account of a paucity of investment opportunities.
Typically, a real estate fund works on a commitment from its investors for the amount to be raised. Initially, the fund collects about 20-25% of the amount that has been committed. As and when investment opportunities crop up in the real estate space, funds make a drawdown on investors asking for funds. Investors in normal practice get about a month to pay such drawdowns. Real estate funds are close ended for a period of 7 years and the money is raised from investors over a period of 3 years.
With the slowdown in the real estate sector, funds are realizing that it has become difficult to get the right opportunities to deploy money. This has resulted in the slowing down in calling for drawdowns from investors. Over the last 2-3 years, several funds like India REIT, Milestone Capital Advisors, HDFC and Kotak raised money from local as well as overseas investors. The ticket size for the domestic funds ranged from Rs 25 lakh to Rs 5 crore.
The Anand Jain-promoted Urban Infrastructure Fund, where the minimum ticket size was Rs 1 crore, closed its first fund in a year and a half. After the rights issue in May last year, the fund has not exercised the drawdown option. In the case of Kotak India Real Estate Fund, which was launched in July 2007 with a ticket size of Rs 5 crore, only 47% of the committed amount has been drawn down. “We have not asked for any money in the last nine months since we do not find any suitable investment opportunities”, said an official from the fund, who did not want to be quoted.
The case of India REIT is quite similar. It has two domestic funds with a corpus of Rs 430 crore and Rs 550 crore respectively. “Though we have completed the drawdowns six months ago only 75% of the funds have been deployed “, says Ramesh Jogani, MD, India REIT advisors. Also, there are no plans to raise fresh funds.
Parekh sees interest rates falling
Parekh sees interest rates falling
The Economic Times, February 18, 2009, Page 10
Our Bureau NEW DELHI
HOUSING Development Finance Corporation chairman Deepak Parekh on Tuesday said the Reserve Bank of India (RBI) may take some more steps to bring down lending rates in the market. He also said that HDFC, the country’s biggest housing finance company, would cut interest rate as and when its cost of funds comes down.
“We are reviewing the rates every day and will bring down the rates if the cost of funds comes down,” Mr Parekh said on the sidelines of an event here. He said there was enough liquidity in the banking system that could help banks in bringing down interest rates.
“Banks are funding (parking) Rs 40,000 crore to Rs 60,000 crore with the RBI under the reverse repo window. (This means) there is enough liquidity in the system and that is why there is a likelihood of interest rates coming down,” he said.
Mr Parekh hoped the RBI would take more steps as inflation had fallen below its targeted level of 5%. Wholesale price-based inflation for the week ended January 31 eased to a one-year low of 4.38%.
The central bank has cut its key lending rate by 350 basis points since October to 5.5% and also reduced the cash reserve ratio by 400 basis points to 5% to lower borrowing costs and prod banks to step up lending to sustain economic growth.
“We are hoping that since inflation numbers are down the RBI will take some steps. May be not immediately, but in near future,” he said. Mr Parekh also acknowledged the real estate market was witnessing correction in terms of pricing due to the pressure on availability of finance.
शहरी विकास का मूलमंत्र
शहरी विकास का मूलमंत्र
मिस्त्र जैसा देश भी काहिरा को बचाने के लिए 20 नए शहर बसा रहा है, लेकिन भारत में इस बारे में कोई कुछ सोचने के लिए तैयार नहीं
दैनिक जागरण, बुधवार 18 फरवरी 2009,
चीन के नानजिंग में चौथे वर्ल्ड अर्बन फोरम में शहरों के अनियोजित विकास और इससे पैदा होने वाली समस्याओं पर विचार किया गया था। संयुक्त राष्ट्र के महासचिव बान की मून ने स्पष्ट कहा कि शहरीकरण की यही स्थिति रही तो 2030 तक दुनिया में दो अरब से ज्यादा लोग झुग्गी-झोपडि़यों में रह रहे होंगे। शहरों के विकास की एक सीमा होती है। इसके बाद ये दम तोड़ने लगते हैं। भारत में तो स्थिति खास तौर से विकराल होती जा रही है। दिल्ली, मुंबई, कोलकाता, चेन्नई, बेंगलूर आदि महानगरों को तो छोडि़ए, कानपुर, धनबाद, पटना, जबलपुर, कोयंबटूर, पुणे, इंदौर, हैदराबाद जैसे मध्यम दर्जे के शहरों की हालत भी बिगड़ती जा रही है। शहरों की आबादी बेतहाशा बढ़ती जा रही है, लेकिन उस अनुपात में नागरिक सुविधाओं का विकास नहीं हो पा रहा है। समाजशास्ति्रयों के अनुसार शहरीकरण के दो प्रमुख कारण आकर्षण और मजबूरी हैं। बहुत से लोग शहर की सुविधाओं और आकर्षण के कारण शहर की ओर खिंचे चले आते हैं और अनेक लोग गांव की गरीबी और भुखमरी से त्रस्त होकर मजबूरी में रोजगार और जीवनयापन की खोज में शहर पहुंचते हैं। हालांकि शहर में भी उनकी हालत खस्ता ही रहती है। अक्टूबर 200 में इंटरनेशनल फूड पालिसी रिसर्च इंस्टीट्यूट की वैश्विक भूख सूचकांक रिपोर्ट आई थी। इसके अनुसार वैश्विक भूख सूचकांक में भारत की स्थिति सबसे नीचे के देशों में है। यही भूख और गरीबी उन्हें शहर की तरफ धकेलती है। यह हमारे लिए शर्म के साथ-साथ दुख की बात भी है। रोजगार के अलावा शहर जिस वजह से आकर्षित करते हैं उनमें शिक्षा, स्वास्थ्य, नागरिक सुविधाएं आदि प्रमुख हैं। देश की अनेक समस्याएं बेलगाम शहरी विकास के इसी माडल का नतीजा हैं। भारत की राजधानी राजनीति और शासन का केंद्र होने के साथ-साथ शिक्षा, व्यापार, स्वास्थ्य, कला, खेल, व्यापार और अन्य अनेक गतिविधियों का केंद्र है। अमेरिका या यूरोप के देशों की ओर नजर दौड़ाएं तो बिल्कुल अलग तस्वीर नजर आती है। इन देशों में राजनीति, व्यापार, शिक्षा, स्वास्थ्य और अन्य सभी गतिविधियों के केंद्र कुछ प्रमुख शहरों में न सिमटकर अलग-अलग शहरों में स्थापित करने की कामयाब कोशिश की गई है। इसको इस रूप में समझें कि न्यूयार्क सिटी, लास एंजिल्स, शिकागो, ह्यूस्टन, लास वेगास आदि कोई भी शहर राज्य की राजधानी नहीं है। और भी दिलचस्प बात यह है कि पूरे देश की राजधानी वाशिंगटन का तो बडे़ शहरों के सूची में 27वां स्थान है। राज्यों की राजधानियां छोटे-छोटे शहरों में हैं। उदाहरण के लिए न्यूयार्क राज्य में पूरी दुनिया के व्यवसायिक केंद्र न्यूयार्क सिटी होने के बावजूद इसकी राजधानी अलबनी है। इसी तरह इलिनाय राज्य में शिकागो है, किंतु इसकी राजधानी स्पि्रंगफील्ड है। कैलिफोर्निया में लास एंजिल्स है, किंतु इसकी राजधानी सेक्रामेंटो है। फिर इसी तरह शिक्षा के केंद्रों को देखें तो देश के उत्कृष्ट विश्वविद्यालय अपेक्षाकृत छोटे शहरों में हैं। दुनिया का सर्वश्रेष्ठ विश्वविद्यालय हारवर्ड यूनिवर्सिटी मैसाचुसेट्स राज्य के कैंब्रिज शहर में है तो प्रिंसटन यूनिवर्सिटी न्यूजर्सी राज्य के प्रिंसटन शहर में। इसी प्रकार न्यूजर्सी सबसे बड़ा शहर है, जबकि राजधानी ट्रेनतौन है। उसी तरह येल यूनिवर्सिटी कनेक्टिकट राज्य में है, जहां की राजधानी हार्टफोर्ड है और सबसे बड़ा शहर है ब्रिजपोर्ट। इसी तरह मिशिगन की राजधानी लानसिंग है, जबकि मिशिगन यूनिवर्सिटी ऐन आर्बर में है। यहां का सबसे बड़ा शहर डेट्राइट है। यहां बता देना जरूरी है कि मैं जिन विश्वविद्यालयों का नाम ले रहा हूं उनके छोटी जगहों में स्थित होने का मतलब यह नहीं है कि वे साधारण या निम्न स्तर के विश्वविद्यालय हैं, बल्कि वे दुनिया के सर्वश्रेष्ठ विश्वविद्यालयों में से है। इनके अलावा बहुत बड़ी संख्या में विश्वविद्यालय अन्य शहरों में भी फैले हुए हैं। इसी तरह स्वास्थ्य के उच्च केंद्र और श्रेष्ठ अस्पताल भी अनेक जगहों पर फैले हुए हैं। यही स्थिति खेलों आदि की भी है। कहने का तात्पर्य यह है कि चीजों को इस तरह से बसाया गया कि शिक्षा, राजनीति, व्यापार, स्वास्थ्य आदि के केंद्र अलग-अलग शहरों में हैं। इसका फायदा यह हुआ कि कुछ ही शहरों का अंधाधुंध विस्तार होने के बजाय विकास का विकेंद्रीकरण हो गया। अर्थात आबादी का संकेंद्रण एक ही जगह न रहा और चतुर्दिक विकास हुआ। छोटे-छोटे कस्बों तक को विकास से जोड़ा गया है। मैं अमेरिका में जिस जगह हूं वह एक छोटा सा कस्बा है। इसकी आबादी महज साठ हजार है, लेकिन यह कस्बा विकास की दृष्टि से किसी भी बड़े शहर से कम नहीं है। पूरा कस्बा केवल यहां की यूनिवर्सिटी की वजह से जाना जाता है। पूरी दुनिया से यहां छात्र पढ़ने आते हैं। दूसरी ओर हमारे देश में उच्च वर्ग को कोई परेशानी न हो, किसी भी चीज के लिए उन्हें कहीं दूर न जाना पड़े, इसलिए सारे विकास को एक ही जगह पर केंद्रित कर दिया गया है। गांवों, कस्बों, और छोटे शहरों में आम लोग चाहे जितने कष्ट में रहें या उन्हें मजबूरी में बड़े शहरों में आकर स्लमडाग की जिंदगी जीनी पड़े, मिलियनेयर तो वे फिल्मों और परीकथाओं में ही बन सकते हैं। 1950 और 1960 के दशक में इंग्लैंड और फ्रांस ने लंदन और पेरिस को बचाने और नियोजित विकास के लिए बड़ी संख्या में नए शहर बसाए। और तो और मिस्त्र जैसा देश भी राजधानी काहिरा को बचाने के लिए 20 नए शहर बसा रहा है, लेकिन भारत में इस बारे में कोई कुछ सोचने को तैयार नहीं। आज भी शिक्षा, स्वास्थ्य, कला, खेल और अन्य सभी गतिविधियों के केंद्र बड़े शहर ही हैं। पहले ही आबादी का बोझ उठाने में इन शहरों के पांव कांप रहे हैं। अब और बोझ ये बर्दाश्त नहीं कर पाएंगे। इसके साथ-साथ वहां जीवन की लागत और खर्च भी बढ़ता जाता है, जिससे आम जनता बेहाल रहती है। दूसरी ओर अन्य क्षेत्र विकास से वंचित रह जाते हैं। (लेखक कैलिफोर्निया विवि में प्राध्यापक हैं)
Tuesday, February 17, 2009
Unfinished business
Unfinished business
Business Standard, the strategist, February 17, 2009, Page 1
Can Unitech's Sanjay Chandra put his company back on track?
Bhupesh Bhandari & Joe C Mathew / Mumbai
“If you get emotionally attached to a hotel, you will never make money. Build in a down cycle and sell when the market is up,” Peter Barge, the well-regarded former chairman of Jones Lang LaSalle Hotels, had advised Sanjay Chandra in 2006 when he was in two minds whether to sell his stake in the Delhi Radisson or retain it.
With the same advice ringing in his ears, the 36-year-old managing director of real estate developer Unitech has put the upcoming Marriott Courtyard at Gurgaon on the block. With hotel valuations in a free fall, the timing may not be perfect, as Barge would have liked it, still Chandra hopes to shortly net up to Rs 250 crore from the sale. “We are in the business of selling assets,” he says candidly.
Unemotionally and in a severe down cycle, Chandra wants to set his house in order. He has put assets up for sale, scrapped some projects and slashed price tags mercilessly. He is negotiating with bankers as well as private equity investors to raise money and is lobbying hard with state governments to allow him to build low-cost affordable houses. To survive the crisis, the one-time builder of luxury homes is more than willing to slide down the value chain.
Till a year ago, Chandra, like most other real estate developers, had not anticipated the crisis. Unitech bought land wherever it was available and built a land bank of 14,000 acres across the country. To bankroll these acquisitions, Chandra says, the company planned to raise $1.5 billion (around Rs 7,000 crore at current exchange rates) by listing some prime assets in a real estate investment trust in Singapore. Another $1 billion (Rs 4,700 crore) was to be raised from investors.
Before the company could make the first moves, the markets went into a tailspin. The plans to raise money had to be shelved. And Unitech ended up with debt of over Rs 8,000 crore on its books. Most of this debt is short-term, while all projects will take six or seven years to complete. There is, therefore, a huge cash-flow mismatch which needs to be addressed.
That’s just one of the several problems Unitech is up against. The company owes Rs 1,000 crore to various states where it brought land. On the other hand, sales have taken a hard knock. Buyers for houses, offices and retail space overnight turned bearish. House sales, which account for almost 85 per cent of Unitech’s business, are down as much as 70 per cent.
Debt trap
Chandra’s first priority is to reduce the debt. On an average, it carries interest of about 14 per cent. This makes the quarterly interest burden on the company almost Rs 300 crore — not very different from its consolidated real estate income of Rs 375 crore for the quarter ended December 31, 2008.
Chandra has deftly capitalised a large chunk of this payment — the interest will be paid when the asset for which the loan was taken is sold. Thus, Unitech paid interest of just Rs 97 crore during the quarter. In other words, the company has deferred almost two-thirds of its interest liability. Still, the principal and the interest need to be cut. “We want to bring down the debt by 60 per cent,” says Chandra.
Chandra says that debt worth Rs 1,200 crore will get transferred to his new telecom venture, Unitech Wireless, in which Telenor of Norway has taken 60 per cent. Unitech Wireless will pay Unitech another Rs 900 crore for the investments it has made so far. Thus, it will reduce Unitech’s debt by Rs 2,100 crore.
On January 1, the Unitech board passed a resolution enabling the company to mobilise up to Rs 5,000 crore in equity capital. Chandra says he is in talks with some private equity funds focused on real estate to sell some stake.
This is easier said than done, say investment analysts. One, the Unitech share price has taken a real beating in the stock market, indicating scant appetite for any fresh paper from the company.
It has fallen well over 90 per cent from Rs 430 in February 2008 to around Rs 30 now. The Chandras (father Ramesh and his two sons, Sanjay and Ajay), who had made it to the coveted Forbes list of billionaires in 2007 with a personal wealth of $ 11.6 billion, are worth a fraction of that now. Two, foreign investment is not allowed in some projects of Unitech.
Chandra is aware of these problems. “We can raise only a fraction of the capital authorised by the board,” he admits. About the glitch regarding foreign investment, he says the all-powerful Foreign Investment Promotion Board has recently cleared a similar proposal put up by a Mumbai developer and is, therefore, likely to take a positive view of the Unitech application. “We have discussed the matter with the officials. The key is how to monitor the use of money received from abroad,” says he.
In addition, Chandra says he is negotiating with some private equity funds to invest in some of his projects. Before the September 2008 crash, a fund managed by Lehman Brothers had invested $150 million (Rs 700 crore) in a Unitech project. “Some funds dedicated to India are sitting on $6-7 billion,” he claims.
Industry insiders doubt if Chandra will find ready buyers for his projects. The Lehman-managed fund, for instance, was supposed to invest in three more projects. But it has since pulled out. “There is a huge mismatch in valuations. It will be a miracle if Unitech can pull off these deals,” says a rival who does not wish to be named.
Chandra also plans to sell two hotel projects, the Marriott Courtyard at Gurgaon and another one in Delhi, and an office complex in South Delhi to cut his debt. “I have got a buyer for the Gurgaon hotel. The market has put a value of Rs 200-250 crore on it,” says he. The land for the hotel was bought for just Rs 8 crore, so there are handsome profits to book. Chandra is also hopeful of wrapping up the office complex deal too within a month for Rs 450-600 crore.
Chandra says he is negotiating with some banks so that he can replace short-term debt of about Rs 1,000 crore taken from mutual funds with long-term money. This should even out some cash-flow mismatch and also reduce his interest payout by up to 350 percentage points.
Bottom of the heap
“When the market tanked, none of us had the right products for the housing market,” admits Chandra. As developers like Unitech had focused on the luxury end of the market, where the profit margins were hefty, they had nothing to sell once easy money vanished.
Housing finance companies became reluctant to lend and customers lost their appetite, thanks to fears of joblessness. Chandra’s first reaction was to cut the ticket price by as much as 50 per cent. Not only did he drop the rates but also cut floor space. At Nirvana in Gurgaon, for instance, Unitech started selling floors instead of standalone villas at one-third the price. “While we were selling not more than a dozen villas earlier, we sold 300 floors in a month,” says he.
This obviously hasn’t shown up in the company’s results. Net consolidated sales slumped 57 per cent to Rs 489 crore in the quarter ended December 31, 2008. Clearly, Chandra needs to do more if he has to revive sales.
To rescue the situation, Chandra wants to come out with flats priced below Rs 30 lakh. State-owned banks have opened a concessional window for buyers who take loans of up to Rs 20 lakh. Several real estate developers have, therefore, come out with price points around this figure. Unitech too wants to sell homes at these prices.
For instance, at the ambitious Unitech Grande at Noida, where all flats are currently priced above Rs 1 crore, new flats will be built at below Rs 30 lakh. “Almost 80 per cent of our new homes will be in this bracket,” says Chandra. But time is running out: The concessional finance window closes in June.
Business Standard, the strategist, February 17, 2009, Page 1
Can Unitech's Sanjay Chandra put his company back on track?
Bhupesh Bhandari & Joe C Mathew / Mumbai
“If you get emotionally attached to a hotel, you will never make money. Build in a down cycle and sell when the market is up,” Peter Barge, the well-regarded former chairman of Jones Lang LaSalle Hotels, had advised Sanjay Chandra in 2006 when he was in two minds whether to sell his stake in the Delhi Radisson or retain it.
With the same advice ringing in his ears, the 36-year-old managing director of real estate developer Unitech has put the upcoming Marriott Courtyard at Gurgaon on the block. With hotel valuations in a free fall, the timing may not be perfect, as Barge would have liked it, still Chandra hopes to shortly net up to Rs 250 crore from the sale. “We are in the business of selling assets,” he says candidly.
Unemotionally and in a severe down cycle, Chandra wants to set his house in order. He has put assets up for sale, scrapped some projects and slashed price tags mercilessly. He is negotiating with bankers as well as private equity investors to raise money and is lobbying hard with state governments to allow him to build low-cost affordable houses. To survive the crisis, the one-time builder of luxury homes is more than willing to slide down the value chain.
Till a year ago, Chandra, like most other real estate developers, had not anticipated the crisis. Unitech bought land wherever it was available and built a land bank of 14,000 acres across the country. To bankroll these acquisitions, Chandra says, the company planned to raise $1.5 billion (around Rs 7,000 crore at current exchange rates) by listing some prime assets in a real estate investment trust in Singapore. Another $1 billion (Rs 4,700 crore) was to be raised from investors.
Before the company could make the first moves, the markets went into a tailspin. The plans to raise money had to be shelved. And Unitech ended up with debt of over Rs 8,000 crore on its books. Most of this debt is short-term, while all projects will take six or seven years to complete. There is, therefore, a huge cash-flow mismatch which needs to be addressed.
That’s just one of the several problems Unitech is up against. The company owes Rs 1,000 crore to various states where it brought land. On the other hand, sales have taken a hard knock. Buyers for houses, offices and retail space overnight turned bearish. House sales, which account for almost 85 per cent of Unitech’s business, are down as much as 70 per cent.
Debt trap
Chandra’s first priority is to reduce the debt. On an average, it carries interest of about 14 per cent. This makes the quarterly interest burden on the company almost Rs 300 crore — not very different from its consolidated real estate income of Rs 375 crore for the quarter ended December 31, 2008.
Chandra has deftly capitalised a large chunk of this payment — the interest will be paid when the asset for which the loan was taken is sold. Thus, Unitech paid interest of just Rs 97 crore during the quarter. In other words, the company has deferred almost two-thirds of its interest liability. Still, the principal and the interest need to be cut. “We want to bring down the debt by 60 per cent,” says Chandra.
Chandra says that debt worth Rs 1,200 crore will get transferred to his new telecom venture, Unitech Wireless, in which Telenor of Norway has taken 60 per cent. Unitech Wireless will pay Unitech another Rs 900 crore for the investments it has made so far. Thus, it will reduce Unitech’s debt by Rs 2,100 crore.
On January 1, the Unitech board passed a resolution enabling the company to mobilise up to Rs 5,000 crore in equity capital. Chandra says he is in talks with some private equity funds focused on real estate to sell some stake.
This is easier said than done, say investment analysts. One, the Unitech share price has taken a real beating in the stock market, indicating scant appetite for any fresh paper from the company.
It has fallen well over 90 per cent from Rs 430 in February 2008 to around Rs 30 now. The Chandras (father Ramesh and his two sons, Sanjay and Ajay), who had made it to the coveted Forbes list of billionaires in 2007 with a personal wealth of $ 11.6 billion, are worth a fraction of that now. Two, foreign investment is not allowed in some projects of Unitech.
Chandra is aware of these problems. “We can raise only a fraction of the capital authorised by the board,” he admits. About the glitch regarding foreign investment, he says the all-powerful Foreign Investment Promotion Board has recently cleared a similar proposal put up by a Mumbai developer and is, therefore, likely to take a positive view of the Unitech application. “We have discussed the matter with the officials. The key is how to monitor the use of money received from abroad,” says he.
In addition, Chandra says he is negotiating with some private equity funds to invest in some of his projects. Before the September 2008 crash, a fund managed by Lehman Brothers had invested $150 million (Rs 700 crore) in a Unitech project. “Some funds dedicated to India are sitting on $6-7 billion,” he claims.
Industry insiders doubt if Chandra will find ready buyers for his projects. The Lehman-managed fund, for instance, was supposed to invest in three more projects. But it has since pulled out. “There is a huge mismatch in valuations. It will be a miracle if Unitech can pull off these deals,” says a rival who does not wish to be named.
Chandra also plans to sell two hotel projects, the Marriott Courtyard at Gurgaon and another one in Delhi, and an office complex in South Delhi to cut his debt. “I have got a buyer for the Gurgaon hotel. The market has put a value of Rs 200-250 crore on it,” says he. The land for the hotel was bought for just Rs 8 crore, so there are handsome profits to book. Chandra is also hopeful of wrapping up the office complex deal too within a month for Rs 450-600 crore.
Chandra says he is negotiating with some banks so that he can replace short-term debt of about Rs 1,000 crore taken from mutual funds with long-term money. This should even out some cash-flow mismatch and also reduce his interest payout by up to 350 percentage points.
Bottom of the heap
“When the market tanked, none of us had the right products for the housing market,” admits Chandra. As developers like Unitech had focused on the luxury end of the market, where the profit margins were hefty, they had nothing to sell once easy money vanished.
Housing finance companies became reluctant to lend and customers lost their appetite, thanks to fears of joblessness. Chandra’s first reaction was to cut the ticket price by as much as 50 per cent. Not only did he drop the rates but also cut floor space. At Nirvana in Gurgaon, for instance, Unitech started selling floors instead of standalone villas at one-third the price. “While we were selling not more than a dozen villas earlier, we sold 300 floors in a month,” says he.
This obviously hasn’t shown up in the company’s results. Net consolidated sales slumped 57 per cent to Rs 489 crore in the quarter ended December 31, 2008. Clearly, Chandra needs to do more if he has to revive sales.
To rescue the situation, Chandra wants to come out with flats priced below Rs 30 lakh. State-owned banks have opened a concessional window for buyers who take loans of up to Rs 20 lakh. Several real estate developers have, therefore, come out with price points around this figure. Unitech too wants to sell homes at these prices.
For instance, at the ambitious Unitech Grande at Noida, where all flats are currently priced above Rs 1 crore, new flats will be built at below Rs 30 lakh. “Almost 80 per cent of our new homes will be in this bracket,” says Chandra. But time is running out: The concessional finance window closes in June.
Analysts give their thumbs up to the switch in priorities. Says Shailesh Kanani of Angel Broking: “The shift from luxury housing and commercial real estate to affordable housing is a step in the right direction as low-priced and mid-sized houses are the only segments of the market that are seeing some movement today.”
The downturn in the commodity cycle has helped Unitech and other builders to rein in their construction costs. Chandra says he has been able to knock off about a quarter of his costs because of the crash in steel and cement prices and the contraction in contractor margins. In addition, Unitech has decided to keep the frills (Italian marble, Jacuzzi and so on) out of its homes. Architects and designers have been put on a tight leash.
Chandra has another ace up his sleeve. “The biggest advantage with Unitech is that a large part of its land bank was bought when prices were low. This will enable it to drop prices in this market,” says Gaurav Dalmia, the chairman of Landmark Land Holdings, which has invested in a score of real estate projects across the country.
The average cost of land for Unitech, according to Chandra, is just Rs 100 per square feet. In tony Gurgaon too, Chandra says his cost is Rs 120-130 per square feet. “Even if we take the cost of construction at Rs 1,500 per square feet, I can easily drop prices of flats from Rs 3,500 per square feet now,” says he.
Unitech, unlike some other developers, made it a point to always buy farm land directly from farmers and not through middlemen. Though it took more time, it has helped the company keep its costs low. “We bought land at Mohali in Punjab at Rs 60 lakh per acre. Someone else recently bought at Rs 5 crore per acre in an auction,” says Chandra.
Still, the population density norms have kept Unitech from building small houses at Gurgaon in Haryana and Noida in Uttar Pradesh, its principal markets. Thus, Chandra and other developers are lobbying with states to ease the norms.
Scale back
Like residential real estate, the commercial market too has fallen on bad times. Information technology companies, which till recently gave future commitments for office space (and locked prices in the bargain), have turned to ordering just-in-time. Office rentals are down 20 per cent. Payments from mall tenants, especially the smaller ones, have turned erratic.
As a result, Chandra has decided to scale back some projects. Two information technology parks, on in Gurgaon and the other in Greater Noida, now look uncertain.
A multi-product special economic zone in Haryana has been shelved. “Almost 70 per cent of the information technology parks announced in the country will not come up,” says Chandra.
Of course, the company is no longer acquiring real estate. “The 14,000 acres we had bought about a year ago looked good enough for 12 or 13 years. Now, it appears that this will last us for 16 years,” says Chandra.
Analysts as well as industry experts give Unitech a fair chance of sailing through the current crisis. The question uppermost in everybody’s mind is, will the Chandras be able to retain control of Unitech? The family is known to have pledged a large chunk of its stake (67.5 per cent at the end of December 2008, down from 74.5 per cent a year ago) to raise money. With Unitech shares down, don’t they run the danger of losing the company? Also, any new infusion of equity capital will dilute their stake further in the company.
Chandra admits that a large number of shares were indeed pledged to raise money and new investors could dilute the family’s control over the company. But some of these pledged shares, he says, have been brought back from the creditors. Recently, the family sold 2.5 million shares in Orissa Sponge Iron for Rs 23 crore to Bhushan Steel. In another deal not reported to the stock exchanges, it sold 3.5 million warrants to Bhushan Steel. Chandra says the family will liquidate some more investments to reclaim the pledged shares. Without emotion, just like Barge had advised.
The downturn in the commodity cycle has helped Unitech and other builders to rein in their construction costs. Chandra says he has been able to knock off about a quarter of his costs because of the crash in steel and cement prices and the contraction in contractor margins. In addition, Unitech has decided to keep the frills (Italian marble, Jacuzzi and so on) out of its homes. Architects and designers have been put on a tight leash.
Chandra has another ace up his sleeve. “The biggest advantage with Unitech is that a large part of its land bank was bought when prices were low. This will enable it to drop prices in this market,” says Gaurav Dalmia, the chairman of Landmark Land Holdings, which has invested in a score of real estate projects across the country.
The average cost of land for Unitech, according to Chandra, is just Rs 100 per square feet. In tony Gurgaon too, Chandra says his cost is Rs 120-130 per square feet. “Even if we take the cost of construction at Rs 1,500 per square feet, I can easily drop prices of flats from Rs 3,500 per square feet now,” says he.
Unitech, unlike some other developers, made it a point to always buy farm land directly from farmers and not through middlemen. Though it took more time, it has helped the company keep its costs low. “We bought land at Mohali in Punjab at Rs 60 lakh per acre. Someone else recently bought at Rs 5 crore per acre in an auction,” says Chandra.
Still, the population density norms have kept Unitech from building small houses at Gurgaon in Haryana and Noida in Uttar Pradesh, its principal markets. Thus, Chandra and other developers are lobbying with states to ease the norms.
Scale back
Like residential real estate, the commercial market too has fallen on bad times. Information technology companies, which till recently gave future commitments for office space (and locked prices in the bargain), have turned to ordering just-in-time. Office rentals are down 20 per cent. Payments from mall tenants, especially the smaller ones, have turned erratic.
As a result, Chandra has decided to scale back some projects. Two information technology parks, on in Gurgaon and the other in Greater Noida, now look uncertain.
A multi-product special economic zone in Haryana has been shelved. “Almost 70 per cent of the information technology parks announced in the country will not come up,” says Chandra.
Of course, the company is no longer acquiring real estate. “The 14,000 acres we had bought about a year ago looked good enough for 12 or 13 years. Now, it appears that this will last us for 16 years,” says Chandra.
Analysts as well as industry experts give Unitech a fair chance of sailing through the current crisis. The question uppermost in everybody’s mind is, will the Chandras be able to retain control of Unitech? The family is known to have pledged a large chunk of its stake (67.5 per cent at the end of December 2008, down from 74.5 per cent a year ago) to raise money. With Unitech shares down, don’t they run the danger of losing the company? Also, any new infusion of equity capital will dilute their stake further in the company.
Chandra admits that a large number of shares were indeed pledged to raise money and new investors could dilute the family’s control over the company. But some of these pledged shares, he says, have been brought back from the creditors. Recently, the family sold 2.5 million shares in Orissa Sponge Iron for Rs 23 crore to Bhushan Steel. In another deal not reported to the stock exchanges, it sold 3.5 million warrants to Bhushan Steel. Chandra says the family will liquidate some more investments to reclaim the pledged shares. Without emotion, just like Barge had advised.
VOTE ON ALL COUNTS
VOTE ON ALL COUNTS
The Economic Times, February 17, 2009, Page 1
THE FINAL UPA BUDGET WAS NOTHING BUT A CURSORY RUNDOWN OF THE GOVERNMENT’S ACHIEVEMENTS. IT DISAPPOINTED INDUSTRY. THE MARKETS, TOO, REACTED NEGATIVELY BY SLIDING 329 POINTS
A SUMMARY DISMISSAL OF SLOWDOWN
SWAMINATHAN S ANKLESARIA AIYAR
The Economic Times, February 17, 2009, Page 1
THE FINAL UPA BUDGET WAS NOTHING BUT A CURSORY RUNDOWN OF THE GOVERNMENT’S ACHIEVEMENTS. IT DISAPPOINTED INDUSTRY. THE MARKETS, TOO, REACTED NEGATIVELY BY SLIDING 329 POINTS
A SUMMARY DISMISSAL OF SLOWDOWN
SWAMINATHAN S ANKLESARIA AIYAR
DISSECTS THE INTERIM BUDGET
Y-A-A-A-W-N. The interim budget was the mother of all anti-climaxes. Instead of virtually launching the Congress party’s election campaign, as was widely expected, stand-in finance minister Pranab Mukherjee produced a long, bald statement of government accounts, so boring that some members of Parliament nodded off. Not a single new scheme or tax initiative relieved the tedium.
The business community, hoping for relief for recession hit sectors and a spur to demand, was disappointed. The Sensex plummeted 329.2 points. However, this index was down 200 points even before the budget speech ended, so much of the fall was due to gloomy global factors. The budget speech deepened the gloom.
Mr Mukherjee claimed that constitutional propriety obliged him to stick to a bare statement of accounts, and not announce any new schemes or tax proposals. However, this claim of propriety drew gasps of disappointment at what was widely seen as a missed golden opportunity. Such cynicism emanates from the fact that a government with seven tainted Cabinet ministers cannot with a straight face claim that propriety is top priority. So, Mr Mukherjee’s anticlimactic budget was widely interpreted as tactical. Sonia Gandhi will very soon be launching the party’s election campaign, and analysts speculated that she might not want Mr Mukherjee to steal any of her thunder. Party insiders said the public should expect something big very soon.
Bond yields rose with the revelation that government borrowing for 2009-10 is being budgeted at almost Rs 200,000 crore higher than the original estimate. However, it is not much higher than the revised budget figure for 2008-09; so the bond market has overreacted. Besides, the finance secretary later said the additional borrowing would not fall entirely on the markets—meaning RBI will be a big buyer.
The fiscal deficit, budgeted at 2.5% of GDP this year, will end up at 6%, to which should be added another 1.5% of GDP for off-budget items like dues to oil and fertiliser companies. Throw in another 3.5% of GDP of state government deficits, and India will have a consolidated fiscal deficit of 11% in 2008-09, as high as in the crisis year of 1991.
However, at a time of deep recession this should be seen as an economic stimulus rather than profligacy. Indeed, the government virtually boasts that its expanded fiscal deficit amounts to one of the biggest fiscal boosts anywhere in the world. Mr Mukherjee said the government would return to the high road of fiscal responsibility after the economy stabilised.
Ironically, what looked last February like pre-electoral populism (for ex. farm loan waivers) has turned out to be well-timed Keynesianism. The actual disbursement of both the farm loan waiver and Pay Commission award started in October, bang on time to counteract the global meltdown. This populism constitutes a bigger stimulus in hard cash than the two formal stimulus packages.
For 2009-10, the budget envisions a slightly lower fiscal deficit of 5.5% of GDP. The revenue deficit, budgeted at 1% of GDP last year, is budgeted at 4% next year. This means much of the higher government borrowing will be for give-aways and not hard investment. These ratios assume that nominal GDP will rise 10.97% next year, with inflation accounting for around 4% and real GDP growth for around 7%.
Y-A-A-A-W-N. The interim budget was the mother of all anti-climaxes. Instead of virtually launching the Congress party’s election campaign, as was widely expected, stand-in finance minister Pranab Mukherjee produced a long, bald statement of government accounts, so boring that some members of Parliament nodded off. Not a single new scheme or tax initiative relieved the tedium.
The business community, hoping for relief for recession hit sectors and a spur to demand, was disappointed. The Sensex plummeted 329.2 points. However, this index was down 200 points even before the budget speech ended, so much of the fall was due to gloomy global factors. The budget speech deepened the gloom.
Mr Mukherjee claimed that constitutional propriety obliged him to stick to a bare statement of accounts, and not announce any new schemes or tax proposals. However, this claim of propriety drew gasps of disappointment at what was widely seen as a missed golden opportunity. Such cynicism emanates from the fact that a government with seven tainted Cabinet ministers cannot with a straight face claim that propriety is top priority. So, Mr Mukherjee’s anticlimactic budget was widely interpreted as tactical. Sonia Gandhi will very soon be launching the party’s election campaign, and analysts speculated that she might not want Mr Mukherjee to steal any of her thunder. Party insiders said the public should expect something big very soon.
Bond yields rose with the revelation that government borrowing for 2009-10 is being budgeted at almost Rs 200,000 crore higher than the original estimate. However, it is not much higher than the revised budget figure for 2008-09; so the bond market has overreacted. Besides, the finance secretary later said the additional borrowing would not fall entirely on the markets—meaning RBI will be a big buyer.
The fiscal deficit, budgeted at 2.5% of GDP this year, will end up at 6%, to which should be added another 1.5% of GDP for off-budget items like dues to oil and fertiliser companies. Throw in another 3.5% of GDP of state government deficits, and India will have a consolidated fiscal deficit of 11% in 2008-09, as high as in the crisis year of 1991.
However, at a time of deep recession this should be seen as an economic stimulus rather than profligacy. Indeed, the government virtually boasts that its expanded fiscal deficit amounts to one of the biggest fiscal boosts anywhere in the world. Mr Mukherjee said the government would return to the high road of fiscal responsibility after the economy stabilised.
Ironically, what looked last February like pre-electoral populism (for ex. farm loan waivers) has turned out to be well-timed Keynesianism. The actual disbursement of both the farm loan waiver and Pay Commission award started in October, bang on time to counteract the global meltdown. This populism constitutes a bigger stimulus in hard cash than the two formal stimulus packages.
For 2009-10, the budget envisions a slightly lower fiscal deficit of 5.5% of GDP. The revenue deficit, budgeted at 1% of GDP last year, is budgeted at 4% next year. This means much of the higher government borrowing will be for give-aways and not hard investment. These ratios assume that nominal GDP will rise 10.97% next year, with inflation accounting for around 4% and real GDP growth for around 7%.
ECONOMIC TURNOUT
THE ECONOMY
TAX burden likely to moderate next year to shore up private consumption
GOVERNMENT will also step up spending to stimulate growth in a slowing economy
INCREASED spending to be financed largely through borrowings. Central and state fiscal deficits to add up to 11% of GDP
INDUSTRY & CORE
CEMENT, steel and construction to benefit from boost to infrastructure
CONSUMER goods companies to gain from increased rural demand
TEXTILES, carpets, leather, gem and jewellery, marine product makers to enjoy lower interest rates till September 30
UNIQUE ID plan to benefit software firms
THE MARKET
STREET disappointed with the budget. The Sensex and Nifty fall 3% each
REALTY, banking and metal shares among the worst hit, respective indices down 4-5%
PROSPECTS of large govt borrowings leading to higher interest rates reflect in the bond market as prices dip and yields harden
MORE funds for infrastructure as refinance to banks through IIFCL stepped up
SOCIAL SECTORS
CHEAPER credit for farmers to continue
MORE primary health centres and increased spend on education
CITY infrastructure & transport get a boost through more funds for urban renewal scheme
PENSION for widows below poverty line
Realty sector feels let down
Realty sector feels let down
The Hindu Business Line, February 17, 2009, Page 5
Our Bureau, Mumbai, Feb. 16
Expectations of realty players appeared to be belied.
Mr Rajesh Vardhan, Managing Director of the Vardhman Group said “Since this is a vote on account budget, no one expected any major policy changes in the Budget. Yet, there were some small measures that could have been introduced. For example, the Government could have increased the deduction for interest paid on housing loans from 1.5 lakh to Rs 2 lakh a year. In fact any steps to reduce interest on housing loans would have been welcome in the current market conditions.”
Expressing disappointment, Mr Rohtas Goel, Chairman and Managing Director, Omaxe Ltd, said, “The Budget was completely lacklustre. While one can understand that this was an interim Budget, given the adverse business sentiments, the Government could have taken exception and announced some sops for reviving the market. Benefits for housing would have created a ripple effect in the market and helped in giving a positive push to the economy.”
Mr Kaushal Sampat, COO, Dun & Bradstreet India, said, “With the lack of major growth stimulating measures in the interim Budget, we expect the RBI to cut interest rates further before the April monetary policy review to stimulate demand to a certain extent.”
Mr Anshuman Magazine, Chairman and Managing Director of CB Richard Ellis, South Asia Pvt Ltd, felt that “Although the expectations from the vote on account were limited as elections are due soon, the real estate industry was still hoping to get some stimulus, and none were announced.”
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