Thursday, June 11, 2009

Realtors Seek Share Sales To Repay Debt, Await Sales

From VCCircle.

Since the start of 2009, almost $ 2 bn has been called for by realtors via share sales.

India's real estate firms are seeking share sales to settle debt and meet working capital needs as valuations improve, but the funds won't be enough to salvage them if sales don't pick up, say industry watchers.

Since the start of 2009, almost $1.7 billion has been raised by home builders, according to Thomson Reuters data, while up to $2 billion more has been called for by realtors via share sales, especially qualified institutional placements (QIPs).
"It is an over-leveraged market...the overall market is too huge. This (money) is nothing. It's small peanuts. It won't suffice," Pankaj Kapoor, founder of Liases Foras Real Estate Rating & Research, said.
Realty firms piled up debt as they rushed to launch projects amidst a three-year bull run in the sector. But, sales began slumping in 2008 amid a global meltdown and reluctance among buyers at higher prices, leading to a severe cash crunch.
Sentiment improved with the successful share sales by Indiabulls Real Estate, Unitech and India's largest listed real estate firm DLF, prompting more builders to seek board approval to raise money via share placements.
"They don't have an option," Shobhit Agarwal, Joint Managing Director, Capital Markets, Jones Lang LaSalle Meghraj, said, referring to QIPs. "If you go to private equity, which is the other extreme, this kind of size is not available."
"They have no further capacity to raise debt... or to service that debt," he added.
Outstanding bank loans to real estate firms rose to 623 billion rupees in FY08, up about 38 percent from a year earlier, the latest central bank data shows. Confederation of Real Estate Developer's Association of India (CREDAI) estimates that listed companies account for over half of those loans.
Sales are trickling back as realtors focus on medium to low-priced houses, redesigning projects and cutting prices by as much as 40 percent in some markets, but most buyers appear to be flighty investors, suggesting that recovery may be months away.
Residences account for the bulk of real estate up for sale and select projects across India are seeing a revival of demand, developers say.
Equity analysts remain sceptical even about firms that were successful in raising money.
Indiabulls Real Estate's share issue brought down promoter holding to about 16.7 percent said a Motilal Oswal June report, "however, till date no concrete plans on the usage of the QIP proceeds have been shared."
Stock investors have pushed up the industry's market value but analysts don't think the rise can be sustained. India's realty index is up almost threefold from March.
With most stocks trading at NAV (net asset value) premiums and equity dilution a likely overhang, we view risk/reward as unfavorable, Karishma Solanki, analyst at Citi said in a June report.
India's property market pick-up is typically seen starting from Mumbai, then Delhi, followed by the southern markets, Jones Lang's Agarwal said.
But, the future still rests on revival of demand and a further price correction to bring back fundamentals.
The only thing that will bring back efficiencies into the (realty) market is sales," said Liases Foras' Kapoor. "For that prices have to come down, because until they come down, the buyer will not be motivated to come and purchase."


Anonymous said...

House prices in India were already unsustainable unlike many other countries and had to go down.

Recession didn't cause the prices to down but the crazy increases in house prices from 2002-2008 casued the Recession not only in the US but all over the world.

In fact this is Great Depression part II after the 1929-30 GD. The only difference is that the world economies have put in a lot of stimulus/steroids and to me it is on life support.


shayna said...

Being one of the founder members of CONSPIRACY THEORY INTL, I strongly believe the market bottom is the collapse of CHINA.

The western economies will drag this credit crunch-excess-crunch... till such time that the RED DRAGON stops spewing fire and fissles out, which as per reports is not too far - see my last post in the prv thread - as reported by many in CHINA where they say GUANGDONG the most economically active region of china has seen 10% drop in electricity consumption YOY.

Having said that i believe the INDIAN economy will do better than rest of the world however this does not necessarily translate into rising house price, the reason being the lowering of the avg wage across all industries.

Anonymous said...

China is safe for the time being as they are holding a lot of US debt and buying more. If China goes down, US is totally screwed as the yields on 10 year bonds will rise so high that the mortgage rates will cross 20%.

US is in a catch22 situation.


Desi Guy said...

Increase in housing price in US is not the cause for recession. In fact the falling of housing prices was the trigger of the severe recession. For the record RE prices peaked in 2006 and recession started in Dec 2007.

Housing prices are falling in India too. In fact in terms of %, Indian RE has fallen faster and deeper than the US RE. And the end is still not in sight.

Did we notice India has not fallen into recession the same way US did?

The difference is Indian RE is still capitalized by "Normal" ways.

In US the finance engineering of debts that caused the system which is interlinked, overleveraged to unravel with Domino effects into other parts of economy.

The real culprit is the gaming of the system by Wall street executives, who are driven by a
flawed compensation structure.

I dont have any clue on this conspiracy theory of Western economies emasculating Chinese economy by committing harakari themselves!!. That is a Jihadi mentality !!

Any way it is fun to see conspiracy theorists surfacing here also. It is a nice time pass to read such imaginations - like UFOs, 9/11 by Jews etc., Fun but Pure fantasy...

Anonymous said...

Problem with US is finding another huge BUBBLE, like Real Estate. Theirs is a bubble economy. They cannot survive without a bubble. Now ran out of all bubbles. Earlier, Tech bubble, then Real estate and commodities (which is very small).


Anonymous said...

Desi Guy,
If you would look at the basics, RE prices went up on the first place by immense greed of wall street and unregulated government standards. Recession wouldn't have been there if people were playing by rules.

Since all the nonsense went unchecked for so many years, massive bubble has formed and now the Govt. is trying for it to deflate slowly rather than it burst.

If sense prevailed, recession would have not occured in normal circumstances. It is the excesses that we have to give up to bring housing to sustainable levels. RE cannot go more than inflation level over the long run in any country. If it does in short run, either the prices correct or they stay same for years to come to adjust for inflation.


Anonymous said...

Financial de-leveraging.

Archimedes said that if I will get a long enough lever I can lift the earth, on the same principal financial engineers created leveraged finance to buy world. Now the de-leveraging force can push the world much deeper. Today media is full of Indian corporate’s fund raising news. Initially only RE sector lined up in queue but now the so called elite companies are also lined up for capital raising. When sales are down all of a sudden how expansion is started? How come expansion without employees?
It’s not an expansion it’s a de-leveraging. Corporate are getting away from debt by converting debt into equity. Means the lever of debt leveraging is getting smaller & smaller, unless you bring own equity you will not get credit.

We have seen in past 4 years, how leveraging took the prices to corner, how companies & people became wealthy in a short duration. Now it’s a time for correction.

Investors wary as firms share sales mushroom

“So far in 2009, 11 Indian firms have raised nearly $2.6 billion, mostly in the last two months”.

--Axis Bank to raise $300 mn through bond sales
--Vedanta raises $1.25 bn through a bond issue
--L&T sells 11.49% stake in UltraTech for Rs 1,036 cr
-- HDFC QIP's biggest of 'em all

Discounts pay, home buyers back in market

“Home sales have picked up in select Indian markets over the past couple of months, but analysts warn that prices may not have bottomed out yet as developers are sitting on a huge inventory”.

“The March quarter sales accounted for just 10% of the inventory in Mumbai and Delhi, it said. At that rate, it will take another 10 quarters to flush out the inventory even if there’s no fresh supply”.

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


shayna said...


US mortgage interest rates have gone up by a full 1% on friday 12th of june.

Chinese growth has been on the back of western retail industry boom, which was the consequence of rising RE Wherein people encashed equity on their property to go on a spending spree. Right now these consumers are grappling with -ve equity and deflation is the first sign of this loss of business....

China has managed to delay the inevitable thru domestic stimulus packages. These are running out of steam as the day of reckoning comes closer.

Rise in gold and oil prices are indication of investors moving away from the dollar.... much to chinas dismay

North korea is a puppet of china. Japan and USA can't be seen to be doing nothing about it.

Bharat said...

As is obvious to all the current rally is a bear rally. So if the RE players are seeking solace from their debt burden via share sales then this is a temporary relief.
Recently in a show Suze Orman was seen saying that the current rally is steroids driven. Ben Bernanke and Geithner have pumped liquidity into the market with a stream of lies to drive the market rally. Can this be sustained? The long term effects of steroids is extremely detrimental and so very soon we should see the US markets falling along with the dollar...Indian markets will also follow suit and this will last for some time to come. So much for the stock market rally and so much for hopes of RE rallying