Monday, January 12, 2009

Rajus' land bank could be much bigger

Farfetched but true. The greed for land is has sunk a solid cash cow business built on cheap labor, dollar arbitrage and government subsidies. Along with Raju, there will be hundreds and thousands of mini Raju's who will be crushed under the weight of this collapse. In one stroke Ramalinga Raju has setback the development of Hyderabad and AP by atleast half a decade. There is no need for Telangana for now as the crown itself has crumbled.

If 6800 acres is put on the market to liquidate what will be net asset value of this illiquid asset. I think the figure is much more then 6800 acres. Satyam has land in Nagpur close to Mihan and those bozos there propped up the prices by quoting Raheja, Satyam and Infosys.In all my dreams I could never think that the end game for the real estate bubble would be the largest corporate fraud in Indian history.

I always thought the US slowdown will affect jobs, liquidity concerns etc. just like it happened in the US. Raju has created a script which will beat the slumdog millionaire several times over. Maybe he should write his memoirs and make a film on it. I'm sure he will regain his riches if that happens. A Satyameve Raju should be a good title.

It is mind boggling thinking about the hobsons choices which are presented to the Satyam employees.All the moronic newschannels and papers have yet to digest the scope of this scandal and the effect it has on employees whether in India or abroad. There is a satyam blog which is trying to bravely counter all the negative news. Unfortunately the kids don't realize that business leaders of GE/Nestle and others are cut-throat competitors. If they don't think twice in axing their own employees what chance do they have to keep contractors when the company which employs is close to bankruptcy, and will soon have few thousand lawyers crawling all over them. A simple question to ask is "Knowing what you know about Satyam today would you do business with them ?". If you answer yes for whatever reason, you are destined to be a sucker for life.

The Indian political establishment is also making some weak attempts so appear that they are working towards fixing the problem. As with politics they are looking for the problem to vanish and let some other issue take over the media. Unfortunately in this case the US shareholders will get their pound of flesh. Corrupt Indian politicians let Union carbide get away by sacrificing the lives of thousands of Indians. In a country where lives are much valued and law followed, the US lawyers will make sure the misdeeds are punished and the company assets are distributed to their shareholders. If the Indian govt. cannot assure the FII's, safety of their Investments, expect the Sensex to go back to 2003 levels. No more free lunches for anyone. The destruction of money here is of gigantic proportions.

If someone doubt's my analysis, just google for Filipino BPO companies which are touting itself as an attractive outsourcing destination for BPOs due to their ethical business practices. If the government fails to act swiftly, book offenders and liquidate Satyam quickly, one can be rest assured that dark days are ahead.


Let the scavenging begin.

DNA reports
Hyderabad: B Ramalinga Raju has claimed that Maytas Properties had a land bank of 6,800 acres, sources said it could be more than that, considering the properties the family had acquired in other countries.

The uncertainty about the actual amount of land held comes from the fact that most of the property was either handled through a general power of attorney (GPA) or held in somebody else's name.

While Teja Raju was completely in charge of Maytas Infra, a listed entity, Rama Raju, Jr, was handling Maytas Properties, a family-owned, closely-held entity. It is in the family-owned business that the Rajus had built the land bank.

Sources said that the family was acquiring land along with the immediate relative of a top politician in the statehoping that the politician would get a project to the area, or at least a good buyer for the property. "There are many such properties lying with the family which do not have any immediate market unless something major happens at the location," a source said.

However, the real estate market crashed in the last eight months, locking up the assets of the Rajus. The market is unlikely to see any upswing in the near future. "Even if you take the land bank of 6,800 acres, it means at least Rs 4,000-5,000 crore is locked up. Though Ramalinga Raju is a stakeholder in both Maytas Infra and Maytas Properties, it is his sons who are handling the affairs of both the companies," the source explained.

Livemint reports

UK investment bank Noble sees more Satyams in the pipeline

Noble Group was “disappointed but not surprised” by the Satyam development
Mumbai: A day after the Satyam Computer Services Ltd scandal broke, UK-based independent investment bank Noble Group released a report that points to widespread accounting lapses across the broad index of 500 Indian companies listed on Asia’s oldest bourse, the Bombay Stock Exchange (BSE), and warns of “more Satyams in the pipeline”.
 Cheat code: Satyam Computer Services headquarters in Hyderabad. Mahesh Kumar A. / AP
Cheat code: Satyam Computer Services headquarters in Hyderabad. Mahesh Kumar A. / AP
The report suggests that as many as one-fifth of these companies have accounting issues. Noble Group was “disappointed but not surprised” by the Satyam development.
“Our experiences over the past few months...suggest that manipulative accounting and aggressive promoter practices are more common in India than is generally believed to be the case,” the report says.
The group’s analysis shows at least five types of accounting malpractices exist across BSE 500 firms—among them, recording revenue ahead of time, booking “fictitious” sales, expense manipulation and cash manipulation.
At least 30 companies, the report says, recognize revenue at the time of sales. This, it says, is disclosed by worsening cash flow from operating activities despite a rise in earnings before interest, taxes, depreciation and amortization, or Ebitda, a widely used measure of profitability.
At least 60 firms on the index, the report says, seem to have booked sales that might actually have come from investment income or other income.
Also, reducing depreciation rates to push expenses to a later period is noticed in at least 10 companies. And at least 15 firms have handed out the bulk of their loans and advances to companies in which their directors have an interest.
“Pump and dump” and “blab and grab” are among the more popular ways that promoters use to push their stock up, according to the report. In the former, the promoter “pumps” up the stock to generate liquidity, follows it up with announcements that send the price up and then “dumps” the holdings.
In the latter, the promoter announces a new venture, even when it has nothing to do with the company’s main business. This infuses fresh funds, which the promoter “grabs”, but then sells his/her own holdings. The new venture is then conveniently postponed, sending the stock price down.
A third method promoters use is to simply siphon off funds during bear markets, when the pressure to show strong earnings is less. The most common method, the report says, is to inflate “other expenses” or “sales and distribution expenses”, or even “miscellaneous expenses”. In bear markets, the report says, such expenses rose by almost 25% (as a percentage of operating expenses).
The problem exists on three fronts: lax accounting rules, weak market regulation and corporate corruption.
In the first category, the report says, there is a lack of restrictions on auditors to do consulting work for the firms they audit.
Second, the Indian market does not seem to place restrictions on how quickly after the year-end a firm has to publish its annual report, which deprives investors of a timely look at the true state of affairs. The report also castigates market regulators that are driven more by political decisions.
And the third fault-line lies, the report says, with the promoters, whose powers are largely unchecked by directors, auditors or regulators.
Still, in the face of all the doom and gloom surrounding Satyam, the report says this is the best time to invest in India, as the markets are unprecedentedly cheap, noting that such scandals do not appear to have an overall bearing on market direction.
Investors must do three basic things before they open their wallets—primary data checks on management, forensic financial analysis and in-depth interviews with management.

17 comments:

Anonymous said...

Real Estate companies in soup

DLF had a consolidated debt of around Rs14,000 crore as of September 2008. According to credit rating agency Fitch, some Rs6,500 crore has to be repaid in 2009.

Omaxe Ltd, has a debt of Rs1,700 crore. Around Rs150 crore of this and some loan instalments are due this fiscal year.

Parsvnath Developers Ltd could not be reached though its chairman Pradeep Jain had earlier welcomed banks’ move to restructure loans.

Unitech Ltd did not respond to mails or text messages with questions on debt restructuring. It needs to repay Rs2,500 crore by March this year.

Anonymous said...

The only option left for the Real Estate lobby is to push the Banks for lowering home loan interest rates to the teaser rates e.g. 7.5 to 8%. But please remember that once we get trapped by these teaser rates it is just a matter of time before the rates get reset and we get financially paralyzed.

A great troika (Finance minister, Minister of Commerce & Industry, RBI Governor) which was earlier in the denial mode for the economic slowdown went into panicky after Sept-08 and started lowering the CRR, Repo rate etc. But the banks have not reciprocated the generosity in the same proportion by lowering the home loan interest rates. Because the banks know that the residential/commercial real estate loans default Tsunami is on the horizon and it will be self-destructive to gamble more. They know that even if they confiscate the assets in case of defaults, there will be no buyers in the current scenario of uncertain future and financial instability.

Until now the so called techies were willing to take humongous loans because of confidence to repay the loan. But recent events have shattered the confidence. They must have realized that how the credit card companies, banks start for baying for the blood once they get the inkling of you loosing jobs/income. Let us hope that techies will keep in mind "Fool me once, shame on you. Fool me twice, shame on me."

So all mungerilals, who are believing that the bringing home loan rates to 7.5 - 8 % will revive the growth, the time will prove that you are living in the dream world.

Anonymous said...

Though the Satyam’s case came out as IT company fraud, on close scrutiny it is nothing but a real estate company[Maytas] bankruptcy case.
If the 6008 acre land couldn’t save Raju, how come 1200 sqft apartment is the great investment?
If India will have a housing scarcity, why this 6008 acre land is insolvent property?
Yes the time line matters, the eternity theory is good only in long run.

Govt. should review the land ceiling act, if govt. can take out the ancestral land under land ceiling, how come this land accumulation is allowed?

Please add ICICI also to @anon list, who is the financier of this mess. If mark to market
valuation will be carried out, it’s a guaranty that all these companies are insolvent.

So guys let it fall then only pick up, minimum 50% price cut is guaranty.

Vulture.

Anonymous said...

Vulture,
Exactly that's what I was thinking. If RE is not going down, why couldn't Satyam save itself?

HB

Anonymous said...

Financial News
Sluggish Realty Market To Jumpstart Again
Measures announced by the Central government to stimulate the economy by ensuring cheaper loans for homes and industry has raised hopes for people in the real estate and banking sectors. Banks like IDBI Home Finance, ICICI and SBI are anticipating that demand for home loans would increase by 20% in a couple of weeks as queries for home loans have already started pouring. People are now inquiring about home loans after finding that the Union government has decided to make loans cheaper, said a senior bank official. Bank officials also feel that steps being taken by the government to revive the economy would also end all the rumours that have affected the loan business more than the global slowdown.
4 Jan 2009 Google News

Overseas Investments to Boost Realty Sector
According to the second economic stimulus package announced by the government, the real estate sector would now be allowed to tap the external commercial borrowing route to raise money, subject to the Reserve Bank of India approval, provided the money is used for the development of integrated townships. There would also be a dialogue between the central and state governments to release more land for low and middle income housing. Along with these, the RBI's easing monetary stance, signalling a lower interest rate regime, is also good news for the beleaguered sector. "The reopening of the ECB window would address the liquidity issue currently faced by the industry. In fact, the industry is struggling with the liquidity issue," said Mr. Pranay Vakil, managing director, Knight Frank. "The move is also positive for the industry because borrowing money abroad is always cheaper than in India. But companies will benefit only if there is no significant change in rupee/dollar parity,! which I think is unlikely," he adds.
3 Jan 2008 Google News

DLF, SRK Plan To Invest Rs. 90 Billion In Kerala
SRK Group has planned to invest Rs 50 billion in Kerala in the next five years for building apartments and villas in around 16 projects in places like Kochi, Thirssur and Thiruvananthapuram. Currently, the group has 20 projects in the pipeline, including a township called Skywing near the SmartCity promoted by Dubai Internet City. Another realtor which has shown interest in Kerala is DLF Ltd. The company has announced plans to invest Rs 40 billion over a period of five years in various projects in the state. The company is also looking at commercial projects like hotels, shopping malls and office complexes, according to Mr. M.G. Girish, Vice-President of DLF Homes.
8 Jan 2009 Realty Plus

Small Realty Companies To Rework Their Pact With Landowners
With land prices going down, many medium-sized developers are trying to renegotiate the joint development agreements (JDAs), they had signed with landowners earlier. When the real estate market was at its peak, several medium-sized developers found it too expensive to acquire land at inflated rates in cities such as Gurgaon, Pune, Bangalore and Hyderabad. Then, JDAs emerged as the best option. The scenario of the market today is such that developers are being forced to offer lower cost housing, which will be impossible if they do not negotiate. To offer a lower cost product to customers, they will need to get land at a much lower cost. On the other hand, there are some developers who are under pressure from their private equity partners who want better IRR (internal rate of return), as they perceive the market at higher risk today. Private equity players have, in some cases, increased their IRR expectation by about 10%. There are some property developers who are wiling to get out of deals completely. Developers and landowners are reworking both on time as well as percentages. According to a source, in a renegotiation happening between a developer and landowner in Pune, the land valuation has been pegged 10-15% lower, and the developer is asking for at least another six months before he starts construction.
9 Jan 2008 Google News


Property Headlines
Buyers Are Back In The Market, Realtors Assert
After the Reserve Bank of India reduced its key benchmark rate and cut the cash-reserve ratio requirement, property developers are expecting an increase in sales of homes. They are optimistic about attracting more overseas investment in projects as demand revives. Mr. Rohtas Goel, chairman and managing director of Delhi-based Omaxe, said, "We are confident that banks will reduce interest rates for the housing sector, which will help bring back the end-user to the market. This move will further boost the confidence of investors." Realty experts are still doubtful of banks passing on the entire benefit of the reduced rates to their customers. "The RBI has cut rates in the past but we have not seen much from financial institutions. Only when home loan rates come down to 8-8.5 per cent, can we see some difference," said Mr. Anuj Puri, chairman, Jones Lang LaSalle Meghraj.
3 Jan 2009 Business Standard

Observer said...

The Indian Sensex stock index is going to go below 5000 soon. Lots more accounting irregularities will show up. Most of the Indian companies have a promoter stake of more than 50%. Which means most can create fictitious sales and show them in the accounting statements. Do not trust any profits of real estate companies and smaller companies. This sector contains the maximum number of crooks in India.

Companies like Tata and PSUs might be a better investment, and a safer place to put money in after the stock market has crashed.
Investment Bank sees more Satyams ahead

Mumbai: A day after the Satyam Computer Services Ltd scandal broke, UK-based independent investment bank Noble Group released a report that points to widespread accounting lapses across the broad index of 500 Indian companies listed on Asia’s oldest bourse, the Bombay Stock Exchange (BSE), and warns of “more Satyams in the pipeline”.
Cheat code: Satyam Computer Services headquarters in Hyderabad. Mahesh Kumar A. / AP
Cheat code: Satyam Computer Services headquarters in Hyderabad. Mahesh Kumar A. / AP
The report suggests that as many as one-fifth of these companies have accounting issues. Noble Group was “disappointed but not surprised” by the Satyam development.
“Our experiences over the past few months...suggest that manipulative accounting and aggressive promoter practices are more common in India than is generally believed to be the case,” the report says.
The group’s analysis shows at least five types of accounting malpractices exist across BSE 500 firms—among them, recording revenue ahead of time, booking “fictitious” sales, expense manipulation and cash manipulation.
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Vik said...

Observer thanks for the mint link. I'm surprised the investment bank recommends investing in these companies even though it has found glaring loopholes in the system. When it says valuations are cheap, how can you trust the P/E when the earnings are inflated by manipulation. It seems like everyone is trying to push the dirt under the carpet. If there is another fiasco bigger then Satyam, we might see a repeat of Russia here. Only god can save the systemic rot which has set in the corporate India.

Prashant said...

There is a very important point that one must keep in mind when reading news, and that is, who the news is coming from. If the news is coming from a vested interest, then you can be sure that the news will either have a positive spin, partial lies or outright lies and dis-honesty. I have observed this here in US very closely based on the news from the various vested interests. This includes Bush and all Republicans, Bernanke, Real Estate developers, Banks, Real Estate associations, and all who would benefit from the continuation of the RE boom. Alas, you know what happened. Here is a confession for a person who had a vested interest in RE.

Confessions of a former real estate bull -
http://money.cnn.com/2009/01/05/real_estate/Lereah.moneymag/index.htm?postversion=2009010617

Now, this is exactly what we are seeing in India. Human nature! Unfortunate part is that the public is so gullible that it will subscribe to the false opinions that are put forward by the vested interests. Some who are unfortunate will subsribe to these views and still buy. Obviously they will learn a costly lesson.

hari said...

Intersting link that.
Btw in times property fridy edition in TOI, they have been writing about Home loan reduction to boost real estate for quite some times now. Funy thing is that every week its the same thing. (just check it urself. its been like that for almost3 months now). I read it every week just to see what they write. I hope they will write something else this friday

Anonymous said...

No matter how low the rates go down, the steam is out of buyers now. The market will never be what it was a year back and will never be like that in our lifetimes. It was a major bubble and cannot be recreated as people know reality now.

Prices will keep declining. It could be at least 2 years before you can see 60% haircut off of peak prices in major metro areas of India. But that is inevitable.

HB

Sreedhar Dargula said...

Hon'ble minister Kamalnath announces that government would announce a relief package to Satyam.
Are you kidding.
With enough dow on the palate whom do you think Minister can fool. I am referring to sick companies like
IDPL.
And directors appointed by government is a eye wash measure by government to subside the enormity of the
case and divert the attention of innocent news hungry citizens.
Remember this not going to compensate the millions of investors losses and thousands of Satyams employees.
I hope Satyam employees are wise enough to realize the situation the company is in, and live under false hope
that company is going to revive soon.
Even if company has to survive for a while, remember in long run when government is in the driver seat slowly many issues like reservations creep in and drive the last nail in to the coffin.
So Satyamites, who are busy performing yagnas and yagas secure your pants, because after elections Satyam is
going to be dreaded Whore on the streets.

Anonymous said...

I think Satyam should go with its fate with wrongdoings and file bankruptcy.

Instead the Govt. should help the farmers who are on the verge of committing suicides.

HB

Anonymous said...

Anon@8:36 PM, you changed the advertising media & never informed to us.
Any way, but why your are not returning the canceled booking money?

http://economictimes.indiatimes.com/Markets/Real_Estate/
Builders_under_pressure_as_buyers_press_for_refund/
articleshow/3970375.cms

Thanks Observer for Nobel Group article.

--On 8 Jan 2009 DLF announced the new project venture in Kerala.
--On Jan 12 DLF reshuffles debt to lower interest cost.
This is how they are keeping investor confused & creating hype & accounting fraud in market. This is the exact case explained by Nobel group,
“In the latter, the promoter announces a new venture, even when it has nothing to do with the company’s main business. This infuses fresh funds, which the promoter “grabs”, but then sells his/her own holdings. The new venture is then conveniently postponed, sending the stock price down.”

Above this giving reference of “3 Jan 2008 Google News” he(Anon@8:36 PM) is explaining coming housing boom.

So Guys let it fall then only pick up, minimum 50% price cut is guaranty.

Vulture.

Anonymous said...

Thank you Vulture@5:47 PM for the link. Just posting a few stories for the risk of article getting removed -:)

Buildersunder pressure as buyers press for refund

...

The broker, who facilitated Mr Jain’s purchase, says DLF has not even paid the government to convert the industrial plots at Shivaji Marg and Okhla in Delhi into commercial plots.

...

Mr Verma has also been unsuccessfully seeking a refund of his investment in Unitech’s Grande project. “I am paying Rs 4.5 lakh as EMI. Unitech executives say the project will be delivered on schedule, but there is no worker at the site,” he says.

A Unitech spokesman said, “We generally discourage cancellations. But if the buyers insist, we refund the money after deducting 10-15% of the total value of the apartment.
....

Most realty firms do not encourage refund requests. Till the end of 2007, investors could easily sell their property in open market as the prices were going up. But with buyers disappearing from the market, investors are forced to approach developers for refunds.

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Anonymous said...

more yuppie kaluratnam & gangadin on the flee.


http://www.dnaindia.com/report.asp?newsid=1221350

Anonymous said...

Black Swan Events 2009

e.g.

S&P500 will hit 500 in 2009

The primary reason for this will be falling earnings, rather than falling P/E ratios (since the low interest rates justify relatively high P/Es). There are several reasons why earnings will continue to drop:

- Consumers will no longer be able to extent their credit from banks, since the banks are writing off losses and need to lower their balances
- Cost of funds have also increased in the corporate sector – and especially for debt-financed consumption
- Total housing equity is vaporising and will no longer be able to serve as collateral for loans
- Companies will curb their investing programs, which will hurt B2B business models.


First Asian currency to be pegged to CNY

China’s economic, political and cultural influence is growing and a return from Phony Economics to Old School economics will lead everyone to focus on the important issues. In other words: Who has the productive potential? Who holds the debt? Who has growth and savings? Most of the answers will favour China, and the Asian economies will increasingly look towards China to find new trade partners and to scale down on the hitherto US-centric agenda.


Chinese GDP growth to 0%

This is as close to recession that China will get in 2009. The export-driven sectors in the Chinese economy will be hurt significantly by the free-fall economic activity in the US. Furthermore, many of the commodity-based investments that have been undertaken over the past five years will sour with the collapsing commodity prices. Since the Chinese economy has been stimulated by overly expansive monetary policy for years, more of the thereby induced speculative excesses will also be revealed in 2009.

Anonymous said...

HOUSE PRICES MAY FALL 80% in IRELAND:

HOUSING MARKET: IRELAND WILL see more demolition than construction of houses over the next decade, as the economy struggles to recover from the collapse of the housing market and the emergence of “zombie” banks, UCD economist Morgan Kelly told the conference.

In a presentation that drew several collective intakes of breath, Mr Kelly predicted that house prices would fall by 80 per cent from peak to trough in real terms.

“Construction, but not demolition, of residential and commercial property will fall to zero for the foreseeable future,” he said.

Low levels of education among those employed in construction – where worker numbers peaked at about 280,000 – meant retraining would not be straightforward.

Recovery will be slow: “It has taken us 10 years to get into this situation – it will in all likelihood take us 10 years to get out of it.”

Mr Kelly said he had been hailed as being extremely prescient as a result of his warnings in relation to the property bubble, when in fact he and a handful of other “amateurs” were merely stating what was obvious.

Sparing no blushes, he said professional economists in the Central Bank and the Economic and Social Research Institute “need to look very closely at their analyses of the Irish economy and figure out what went wrong”.

Mr Kelly said Ireland’s “reputational capital” had been damaged by “chancers” such as ex-Anglo Irish Bank chairman Se├ín FitzPatrick, who had been abetted by “buffoons” such as former financial regulator Patrick Neary, Minister for Finance Brian Lenihan and the Taoiseach.

In discussing the €110 billion given in loans to developers, Mr Kelly said a typical regional housing collapse in the US saw banks sustain a 20 per cent loss on these loans, but the narrowness of the Irish market increased the risk of “substantially larger losses” for Irish banks.

“The guarantees of Anglo and [Irish] Nationwide liabilities have a strong chance of being called in over the next 21 months,” he said. Extending the Government guarantee to these two financial institutions was “extraordinarily unwise” and could produce losses that the State cannot afford to repay.

The global financial crisis may have been positive for the Irish economy as it “stopped us dragging ourselves even deeper into our hole,” he said. “If it had taken another year or two, we would have ended up in an Icelandic-shaped hole, which is not to say that we won’t end up in one.”

Mr Kelly said the Government should abolish stamp duty on property, compile proper price and quantity statistics and restore competitiveness through a public sector pay cut of 10 per cent.