Sobha, Unitech offload assets to pay debts

Cash-strapped realtors look to offload assets

Livemint.com reports

The developer has debt obligations worth Rs2,500 crore coming due by the end of March

Bangalore / New Delhi: India’s second largest developer by market value, Unitech Ltd, is selling parts of its 14,000-acre land bank, leading a trend among realty firms putting up parts of their properties for sale to tide over a financial crunch and repay debt.

About 30 plots of the company in the National Capital Region centred on New Delhi, that are part of Unitech’s mixed-use developments and were dedicated for building hospitals and schools, are now up for sale.
“We are selling some of the plots but not all of them,” a company spokesperson said. “We have already sold two such plots.” He declined to give further detail.
Unitech had earlier said it was looking at “monetization” of some of its completed properties to meet debt commitments. The company is trying to sell land parcels in Noida and Gurgaon, both on the outskirts of New Delhi, to meet its debt obligations, analysts say.
The developer has debt obligations worth Rs2,500 crore coming due by the end of March. Unitech is trying to raise funds to repay this debt through several measures such as selling some hotel, office and retail assets and by diluting equity at the company and at the project-specific levels.
Unitech, which is holding an extraordinary general meeting of its shareholders on Monday to seek approval for an enabling resolution to raise up to Rs5,000 crore through various means, has to repay Rs1,100 crore in the next two weeks and meet further debt obligations of Rs1,500 crore over the next three months, according to a 15 January report by BNP Paribas Securities.
“The management has hinted that it is in the process of raising Rs800 crore to tide over the near-term liquidity crisis,” Sandeep Mathew, an analyst with BNP Paribas, wrote in the report. “Failure to do so could lead to forced sale of underlying assets (primarily land).”
In the heart of Bangalore’s business district, a 1.5 acre plot has been put up for sale by Sobha Developers Ltd, a leading developer in south India.
The land, strategically located close to the city’s main shopping and business district of MG Road, at the junction of Church Street and Museum Road, is a fetching piece of real estate in an area that is one of the most expensive in the country’s technology hub.
The builders, analysts said, have been trying to sell off the plot for the last four months, where it had initially planned a shopping mall and a hotel. But the high asking price of Rs120 crore has kept away buyers. The money will be pumped into Sobha’s under-construction projects that are delayed and to repay expensive loans.

Realty firms are looking at other avenues to manage cash flows as debt has become more expensive, analysts at Credit Suisse India Research said in a 13 January note. The report states that Sobha, for example, borrowed funds at 24-30% for short-term periods in October-November and seems to have defaulted on some repayments during this period.
Unitech borrowed at 19% in the same period. “These borrowings are due for payment in January which could become a problem for both Sobha Developers and Unitech as volumes in the property sector are yet to pick up. With mutual funds having stopped lending to this sector and private banks reluctant to lend, Sobha is selling off its ‘excess’ landbank,” the report states.
Unitech and Sobha Developers are only two of many such cases of forced land sales in the past few months that have witnessed aborted land deals, low demand and few sales, pushing developers to defer launches, stall projects and scurry for cash to beat the financial slowdown.
Sobha Developers managing director J.C. Sharma declined to comment, citing a so-called silent period firms need to observe ahead of quarterly results announcements.

“The Church Street land was bought on a 60-year lease period and the developer is planning to re-lease it away. But the sale price is too high,” said a Bangalore-based real estate consultant close to the negotiations. The consultant didn’t want to be identified.

“These are land parcels that would have been bought in the last two-three years at steep prices and where construction hasn’t yet taken off. There are some buyers still—mostly high-net worth individuals—who can buy, but are hard bargainers. With demand being low, it is a buyer’s market now, putting developers in a tough situation,” he said.
Tables have turned for developers, who till the beginning of 2008 would scout for land and pay steep prices. Not any more. “Today, I am flooded with proposals from builders wanting to sell some land assets. But where are the buyers?” asked Praveen Kumar, chief executive officer of One Third Earth, a property and land advisory in Bangalore.
“Many developers are selling the licensed land or developed/under construction projects to get working capital,” said Manish Aggarwal, director, land and industrial agency, at consultancy Cushman and Wakefield India.

Developers are selling assets that will fetch the maximum price such as hotels, office or land licensed for residential group housing.

Land prices in the periphery of cities across India have on average fallen by 25-40% over the last few months, said Aggarwal. “Should the landlords or developers decide to price their products rationally, it is expected that there may be an interest for joint development, joint venture transactions for sellable projects starting from July-October quarter this year,” he said.

Happy Diwali from the Finance Minister Mr Chidambaram

Dear Fellow Citizens,

On behalf of the Congress party, Manmohan Singh, Sonia Gandhiji and Mr Rahul Gandhi I would like to extend my warm wishes to the citizens of India on the eve of Diwali 2008. It has been a tumultuous year for the markets and as we have seen things have been going as per plan. We had a plan for 9% growth, however we came close to it at 8% and got a bonus 12% in inflation. We also managed to bankrupt a lot of the speculators and investors, some of who were senior citizens who lost their retirement saving in the market .

When the congress came to power in May 2004, the Sensex was 5000, now after 41/2 years it is at 8500, A stellar gain of 70% over a 4.5 year period as opposed to a 40% compounded gain if you had invested in safe fixed deposits. However if you had invested exactly a year ago, the return would be a -70%, a warning to speculators that India will not tolerate short term investors.

We are also happy to report that the rupee has breached Rs 50, so now your NRI brothers and sisters are given a welcome bonus this Diwali. The Foreign investors who have dumped the rupee and fled like rats will now have a greater incentive to return back, now that they have gained 20% over a period of 1 year. As you can see we are trying hard to please all sections of society and we look forward to continue this good work in the year five years under the astute leadership of Shri Manmohan Singh and Smt Sonia Gandhi.

Having seen the turmoil with the Italian Lira, we have superb leadership at the top which understands the economic consequences of pandering to the common people. I have instructed the SEBI and the RBI to take strict action against market manipulators who have been trying to create a illusion of wealth in the Indian stock market. Thanks to their efforts the Sensex has been brought down from 21000 to 8500, a level which will hold for a few more days, before we bring it down further to 6000 so that it is affordable to the common man.

It has also been an very happy Diwali for some of our Foreign short sellers who were allowed to participate in the merry making outside the borders of the country, thanks to a recent directive by SEBI, a brilliant move by the SEBI chairman.

With reference to housing we have managed to create a spectacular bubble where land prices have soared to the heavens. Some of the property where I live is now worth Rs 50000 per sq/ft. Even developed countries like the US and UK don't have the prices we have. We have asked our banks to make sure that the citizens are working hard to pay off the EMI's on the house/car loans for their highly prized properties. These banks are creating thousands of recovery agent jobs each month to make sure borrowers don't default on their loans.

As a consequence of the soaring housing prices, the congress party and other political parties have had great success in raising funds for the upcoming elections. Unlike the US which has a lobby system, the Indian political system depends on builders to finance their political activities. We prefer black money to avoid scrutiny of the Income Tax bureaucracy and thereby reduce corruption in the system.

Some of the builders have defaulted on their payments to government authorities and banks, and as a penalty, we will be confiscating their assets and then auctioning them over to our brothers in the Gulf, some of who have nefarious designs against our great nation. By doing so we will establish an ownership society where all the prime land is owned by our enemies, so they will have no vested interest in creating turmoil, riots or exploding bombs in our cities and towns.

In closing, I wish all citizens a very happy Diwali and hope that the next five years are even more prosperous then ever before.

Sd

Mr P.C Chidambaram

Finance Minister

Government of India

New Delhi

Samvat 2050

Dark Diwali: Pink slips, pay cuts await realty staff

Observer,
Here is the post following up on your comment about the reality layoffs. Some of your other comments have some good advice which I will collate and post as a new article.
For Anil and other realty touts, this is the writing on the wall. Your jobs are no more secure then the IT/ITES folks, so better tighten your purse strings.
Also regarding the comment regarding the plot which Anil bought for Rs 150 in Pune and then later sold for Rs 5800 is pure BS. Baner-Pashan apts were at Rs 1800 3 years ago and now they are Rs 3300. So cut the crap and try selling the Taj Mahal to somebody else.
NEW DELHI: It’s not going to be a happy Diwali for people working in the real estate industry. Even as sales failed to pick up this festive season, most realty firms including DLF, Unitech, Omaxe, Parsvnath and BPTP, now plan to lay off staff in significant numbers soon after Diwali.
While spokespersons of all these companies denied there were plans to cut jobs or salaries, executives in these companies told ET that job cuts were in the offing and salaries have been delayed in some of these companies.

“All real estate players, including us, will have to reduce manpower cost significantly if we are to survive in the current hostile market conditions,” says a top executive at a Delhi-based listed mid-size realty firm, which plans to reduce manpower by almost 20%. The job cuts will start happening soon after Diwali.

Executives at many other real estate firms also confirmed companies plan to offload people and a list of staff was being prepared, who would be asked to leave soon after the festive season was over. Developers are waiting for Diwali as they didn’t want to dampen sentiments further.
“Job cuts at Jet Airways became a big issue also because it was done before Diwali. Developers are wary of raking up any political controversy,” explained a senior executive.
Also, realty firms needed large number of sales staff for the festive season. But now that their price discounts or other freebies have failed to stimulate the home market, developers feel they can cut back on staff. The developers have already started easing off some staff. Many developers, including DLF, had already asked around a few hundred employees to leave.
And sources say more job cuts are in the offing at DLF, as construction pace slows and expansion plans are put on hold. Unitech, Omaxe, Parsvnath and BPTP too prepare to issue pink slips.
Salaries have been delayed at many mid-size and small realty firms, even as management is asking employees to take salary cut. Even though he denies salaries are being delayed or cut at his company, Parsvnath chairman Pradeep Jain supports the idea of salary cut.
“Employees’ salaries have risen so much in the past few years that I see no harm in reducing it a bit,” says Mr Jain.
“Salaries at the top management level have already started to come down. A number of real estate players are already renegotiating salaries with staff so that overall wage bill comes down and not many jobs are lost. Companies are preferring to retain the jobs of those capable of multi-tasking,” said Executive Access MD Ronesh Puri.
Employees at most real estate firms are in a state of panic as job loss fears mount. Too many resumes have been floating around in the market. “Earlier it was extremely difficult for a smaller developer like us to hire talent. Now we are flooded with CVs. Surely, people are being fired somewhere else,” says Ambience group chairman Raj Singh Gehlot.

Lehman fall may deepen Indian realtors' credit woes

Enuff said

NEW DELHI/MUMBAI: Lehman Brothers’ bankruptcy is likely to cost Indian real estate dear. It may impact the financial major’s existing investments worth $500 million in realty firms, including DLF and Unitech, besides drying up another $500-million worth of potential investment which was expected to flow into Unitech’s Mumbai projects.

The news of Lehman’s collapse brought the BSE realty index down by 7.65% on Monday, while the benchmark Sensex declined 3.35%. Both DLF and Unitech fell 7.5%.

Lehman’s fall signals a deepening of credit crisis for Indian developers, who have lately been battling falling sales, rising cost of construction and tightening credit. It is expected that the US-based firm is likely to go for a fire sale of its assets.

The financial services major was very bullish on India and was among the active investors in Indian real estate. Early this year, it had leased out an office space in Mumbai paying Rs 1 crore per month as rental. This would divert a part of fresh funds seeking to invest in Indian realty.


This is because global fund houses have country-allocations. And as they buyout Lehman’s stake in some of the Indian assets, they will end up diverting some of the fresh funds-in-hand to existing assets rather than investing in new projects.

“Lehman’s departure will impact future cash flows of real estate companies. In a market situation like today’s, it will be all the more difficult for the firms to raise funds,” says Karvy Stock Broking vice-president Ambareesh Baliga.

Lehman invested $200 million in DLF promoter group company DLF Assets last year and bought 50% stake in Unitech’s Mumbai project for $175 million a few months ago. It had also invested $80 million in Bangalore-based SEZ Gandhi City and was likely to hike its share to $300 million.

Lehman’s other investments include a 40% stake in an IT park project of Peninsula Land in Hyderabad for an initial investment of Rs 50 crore. It had also teamed up with Mumbai-based developer HDIL to bid for the redevelopment of Asia’s largest slum Dharavi.

Wherever the developers had received fund, they are safe. But where the funds are yet to come, the developers could get stuck. Some analysts say a distress sale by Lehman will impact the valuation of existing projects.

DLF CFO Ramesh Sanka had earlier told ET that Lehman’s sale of investments in DAL would not impact DAL’s valuation. Unitech MD Sanjay Chandra said that his company had already received funds. So, the company won’t get impacted by Lehman’s bankruptcy.

Some industry executives say that FDI norms of a three-year lock-in period may prevent Lehman from making an immediate sale. But analysts argue that the lock-in period in case of bankruptcy may not hold.

Banks queue up to sell rising bad home loans

We're taking foreclosures and auctioning of apts to the highest bidder, a.k.a US style. This is very big news. If the number of foreclosures is significant, the prices will be in a downward spiral. Its interesting to note that one of the reasons for foreclosure is the builders inablity to handover the completed apartment on time to the buyer who is forced to cough up rent and EMI at the same time. The builders will be forced to accept the lowered payments from the bank since most of them have over-leveraged land positions and need the liquidity to complete the construction. It will be interesting to follow Arcil as it unwinds the loans piece by piece.

Business standard reports.

Defaults due to rising rates resulted in the move.

For the first time since the housing loan boom, the country�s top three home loan providers, State Bank of India (SBI), ICICI Bank and HDFC, are approaching the Asset Reconstruction Company Ltd (Arcil) to sell bad loans from their home loan portfolios.

The move has been prompted by a sharp rise in defaults from retail customers, squeezed by rising interest rates, in the last two quarters.

Arcil is a company that buys bad loans at a discount and sells the assets for a profit. All three institutions are selling home loan portfolios worth Rs 250-300 crore each, sources close to the developments said.

While Arcil will take these loans on its own balance sheet, a subsidiary will be set up to service the loans � in terms of valuing property, collecting cheques and so on.

The retail loans, scattered across the country, will be taken over by Arcil for Rs 100 crore to Rs 150 crore each. �We are in negotiations. These deals are expected to close by the second quarter,� the sources added.

Interest rates on home loans have risen from 8-8.5 per cent to 10-12 per cent in a year�s time, a result of the Reserve Bank raising the cost and reducing the availability of money to achieve monetary policy objectives. As a result, borrowers have seen their equated monthly instalments rise significantly.

�In many places, builders have failed to give possession of the apartment and the customer was unable to pay EMIs as well as rent for his present accommodation. The double blow for retail customers has increased the incidence of bad loans,� sources in ARCIL said.

Several banks have reported a 3.5 to 4 per cent default in home loan repayments, against less than 2 per cent a year ago. State Bank of India Chairman O P Bhatt recently commented that rising interest rates would result in higher defaults for India�s largest commercial bank.

ICICI Bank, HDFC and SBI have grown their portfolio at an average annual rate of 28 per cent in the past three years. Though HDFC says it has not seen a deceleration, SBI has seen growth slow to 18-19 per cent in its home loan portfolio.

Once the loans are in Arcil�s portfolio, the Mumbai-based firm will either offer a package to existing customers to pay off the loans or sell their property to the highest bidders.