Track2Realty Exclusive-Yearly Analysis: Leading developers are resorting to desperate measures like selling their land banks, half finished projects and other noncore assets to reduce the burgeoning debt burden. The situation is set to become worse as land banks have already started shrinking. For example, DLF’s land bank stands less than half to about 3oo million sq ft from 751 million sq ft in March 2008. Experts say it is just the tip of the iceberg as unlisted developers account for more than double, or 60 per cent, of the debt of listed companies.
DLF plans to reduce its debt from Rs. 22,700 crore to Rs. 13,000 crore by March, 2013 through sale of non-core assets as well as stake in the company. The realty major which closed a 2,725-crore land deal with Mumbai-based Lodha Developers, hopes to sell Aman Resorts and its wind power assets by the end of the fiscal. The two transactions are expected to fetch the company Rs. 2,500 crore, which would go towards reducing the debt, says Ashok Tyagi, Chief Financial Officer.
Tyagi says these deals are taking time because of the complex nature of the properties. DLF expects to raise 800-1,000 crore from the sale of its wind power assets while the sale of Aman Resorts is expected to fetch Rs. 1,700-2,000 crore.
“A debt of Rs. 12,000-13,000 crore is sustainable for us. It can be managed with our rental revenues. We hope to get there in another two years through a mix of operating surpluses, disposal of some assets and capital action linked to SEBI guidelines,” Tyagi says.
Even Unitech is reportedly resorting to asset sales and industry sources maintain the company is planning to sell some of its non-core assets like IT Park and SEZs to pay off debt. The company’s last reported debt stood at Rs. 5,190 crore. “We have been continuously reducing our debt by utilising cash flows from operations,” says Ajay Chandra, Managing Director, Unitech.
Another large developer, HDIL, had a debt of Rs. 4,040 crore as of June ended quarter 2012. It sold a two-acre plot at Andheri, Mumbai, to the real estate arm of Adani Enterprises for Rs.900 crore.
Parsvnath Developers is also selling land banks, including its prime property on Kasturba Gandhi Marg where the developer had earlier announced a mega project. The firm has recorded a debt amount of Rs. 1,250 crore. The company also has plans to sell non-core assets in Kochi and Chennai.
Others like Sobha Developers have already managed to reduce their debt. It has sold many of its non-core assets and managed to reduce its debt to Rs. 1,183 crore as on 31 March from Rs. 1,800 crore.
Many mid-size developers even don’t have land bank to sell and these companies raised capital at interest rates of between 21 per cent and 25 per cent from finance companies to service debt. By any standards it was calling for disaster at a time when their sales volumes dropped by about 50 per cent.
…..to be continued
