Real es­tate com­pa­nies fo­cus on trim­ming high­cost debt

RE­ALTY BITES Tepid sales and pil­ing un­sold inventory are still wor­ry­ing firms

Hindustan Times (Chandigarh) - Estates - - FRONT PAGE - Mad­hurima Nandy mad­hurima.n@livemint.com

BENGALURU: Real es­tate firms are try­ing their best to trim debt and re­duce the cost of loans this year, even as some devel­op­ers stare at de­faults and in­sol­vency risks.

Four years into the prop­erty mar­ket slow­down, tepid sales and pil­ing un­sold inventory are still wor­ry­ing firms, push­ing them to clean up bal­ance sheets in or­der to sus­tain them­selves un­til the mar­ket re­cov­ers.

On 25 Au­gust, In­dia’s largest de­vel­oper DLF Ltd said its pro­mot­ers will sell their stake in its rental arm for Rs11,900 crore, which in­cludes sell­ing 33.34% to an af­fil­i­ate of GIC Real Es­tate, Sin­ga­pore, for Rs8,900 crore and buy­backs of pref­er­ence shares for an­other Rs3,000 crore.

The trans­ac­tion, along with an in­sti­tu­tional place­ment of shares, will see Rs1,300 crore of cap­i­tal in­fu­sion into DLF that will en­able it to re­duce its Rs26,000 crore debt sig­nif­i­cantly.

“The deal ar­range­ment should help ad­dress DLF’s stretched bal­ance sheet, though it comes at the ex­pense of sig­nif­i­cant eq­uity di­lu­tion..,” said a 28 Au­gust re­port by Edel­weiss Se­cu­ri­ties Ltd.

“...Its res­i­den­tial op­er­a­tions re­main chal­leng­ing with slug­gish new sales, lit­tle new launches and per­sis­tent slow­down in its main­stay Gur­gaon mar­ket,” it said.

Mum­bai-based Lodha Group, which clocked the high­est sales in 2016-17, plans to re­duce both cost and quan­tum of debt in 2017-18. Its debt is around Rs14,500 crore, up from around Rs13,000 crore in Oc­to­ber 2016.

“We ex­pect our debt to re­duce by Rs800-1000 crore this fi­nan­cial year and con­tinue to see re­duc­tion in cost of funds. We don’t in­tend to raise any ad­di­tional debt, though we may re­place debt from time to time as we are of­fered bet­ter terms by lenders,” a spokesper­son said.

On Tues­day, Fitch Rat­ings said it has main­tained the Rat­ing Watch Neg­a­tive (RWN) placed on Lodha Devel­op­ers’ ‘B’ Long-Term Is­suer De­fault Rat­ing and the ‘B’ long-term rat­ing on its out­stand­ing $200 mil­lion 12% un­se­cured un­sub­or­di­nated notes due in 2020. The RWN re­flects the pos­si­bil­ity that Lodha may not be able to com­plete the re­fi­nanc­ing of the £225 mil­lion loan for its prime res­i­den­tial May­fair de­vel­op­ment in Lon­don by end-Septem­ber 2017, it said.

A Lodha spokesper­son said, “We have al­ready com­pleted the re­fi­nanc­ing and con­struc­tion fi­nance ar­range­ments and hence, the prob­a­bil­ity of not re­fi­nanc­ing is non-ex­is­tent. We ex­pect the rat­ing watch to re­vert to neu­tral in the next four weeks once the new fa­cil­ity is drawn down.”

Larger devel­op­ers DLF and Lodha have bet­ter ac­cess to in­sti­tu­tional cap­i­tal com­pared to mid-sized ones, who are over­lever­aged and are strug­gling with both sales and debt re­duc­tion, said an­a­lysts.

“Post-RERA, debt is bound to shoot up in the next cou­ple of years be­cause devel­op­ers will need to raise money for project ex­e­cu­tion in or­der to pre­vent penal­ties and be­cause sales con­tinue to be slow,” said Ra­jeev Bairathi, ex­ec­u­tive di­rec­tor and head of cap­i­tal mar­kets, Knight Frank In­dia.

“It’s a ques­tion of sur­vival for devel­op­ers to­day. Some are down­siz­ing their port­fo­lios and part­ner­ing with pedi­greed devel­op­ers, while many are sell­ing a por­tion of their land banks. But debt re­duc­tion is an in­terim so­lu­tion and sales need to re­vive for the sec­tor to turn around,” he said.

Parsv­nath Devel­op­ers Ltd (PDL), with a net debt of Rs1,300 crore as of De­cem­ber 2016, is fo­cus­ing on re­duc­ing its cost of debt. On 8 Au­gust, Crisil Rat­ings down­graded Parsv­nath’s longterm bank fa­cil­i­ties of Rs250 crore from C to D or de­fault, re­flect­ing de­lays in ser­vic­ing the rated debt on ac­count of stretched liq­uid­ity, a rat­ing note said.

“PDL has de­layed in ser­vic­ing its debt obli­ga­tions fol­low­ing lower-than-ex­pected cash flows from its projects. Abil­ity to suc­cess­fully mon­e­tize sur­plus land parcels will re­main a key rat­ing sen­si­tiv­ity fac­tor,” it said.

“We will be re­plac­ing high­cost debt with low-cost and may raise fresh debt this year. Ser­vic­ing debt is not that tough but ac­cess to new debt has be­come a chal­lenge,” said Pradeep Jain, chair­man, Parsv­nath Devel­op­ers.

Devel­op­ers, par­tic­u­larly in the Na­tional Cap­i­tal re­gion (NCR)— worst hit by the slow­down—have been strug­gling to re­duce debt.

Unitech Ltd, which had Rs5,818 crore of debt as of Septem­ber, 2016, has been try­ing to mon­e­tize land and get projects started.

Cri­sis-hit re­alty firm Am­ra­pali group is mak­ing ef­forts to mon­e­tize its land bank and rope in co-devel­op­ers to com­plete over 30,000 hous­ing units in Noida and Greater Noida, said man­ag­ing di­rec­tor Anil Sharma, ac­cord­ing to a 15 Au­gust PTI re­port.

Un­der a 9 Au­gust or­der passed by the Al­la­habad bench of the Na­tional Com­pany Law Tri­bunal (NCLT), liq­ui­da­tion pro­ceed­ings against Jaypee In­frat­ech Ltd were ini­ti­ated un­der the In­sol­vency and Bank­ruptcy Code of In­dia, 2016.

Jaypee In­frat­ech has de­faulted on a Rs526.11 crore loan out­stand­ing to IDBI Bank, Mint re­ported on 23 Au­gust.

“Banks are con­cerned about dis­bur­sals and in­vestors are wor­ried about in­sol­vency risks in north, com­pared to south where devel­op­ers have bet­ter bal­ance sheets,” said Anu­ran­jan Mohnot, man­ag­ing di­rec­tor at in­vest­ment firm Am­plus Cap­i­tal Ad­vi­sors Pvt. Ltd.

MINT/FILE

Devel­op­ers, par­tic­u­larly in the na­tional cap­i­tal re­gion— worst hit by the slow­down—have been strug­gling to re­duce debt

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