Indiabulls Real Estate: Asset monetisation plan positive

Debt after asset sale could come down by half

Indiabulls Real Estate (IBREL) is making progress on its plans to monetise its commercial and non-core assets with two deals it announced on Monday and Friday involving its Mumbai commercial and Chennai properties. The company is divesting its entire stake in certain subsidiaries and thereby indirectly divesting 50 per cent stake in Indiabulls Properties (IPPL) and Indiabulls Real Estate Company (IRECPL) to Blackstone Group at an aggregate enterprise value of around $1.46 billion or ~9,500 crore. The stake sale in entities that include One Indiabulls and Indiabulls Finance Centre at Mumbai will fetch the company ~47.50 billion. The company is also selling residential assets at Chennai which it calls its noncore market, for ~2.86 billion.

The Mumbai properties sold are part of its completed commercial projects with a total area of 5.2 million sq ft and is more than half of its projects both completed and under construction by area. The other commercial projects, with an area of 3.9 million sq ft, are under construction and located in Gurugram and Worli/Parel in Mumbai. For the nine months ended FY18, the company’s rental portfolio generated about ~5.17 billion and at an annualised level it is expected to hit ~7.2 billion. The company has a target of doubling its rental revenues to ~15 billion by FY21. Abhinav Sinha of CLSA believes this will be achieved by increase in lease asset area, acquiring brownfield assets and rental increases.

While the sale of the rental assets in Mumbai (Chennai commercial sale is pending) means that the rental income is expected to come down, the proceeds from the sale will help bring down the company’s net debt of ~95 billion. About ~42 billion of this is attributable to its rental operations while the rest is accounted for by its developmental or residential portfolio. Analysts believe that the asset monetisation is a nearterm catalyst for the stock given that total debt will come down by half (by 63 per cent if Chennai rental assets fetch ~12 billion) if the Mumbai asset sales are entirely used to retire debt. Analysts at JPMorgan in an earlier report indicated that residential balance sheet will move towards a net cash position, especially given it has almost ~20 billion in pending collections from its pre-sold assets such as BLU, which is 99 per cent sold.

The focus now is expected to shift to the execution of it residential portfolio of 33.91 million sq ft, the largest of which is its Panvel project. Of the 15 projects, the company has started handing over the units in five and expects to start the handover process in another four in the next fourfive quarters.