Indian real estate companies, which borrowed heavily during the peak of the economic cycle and rosy business forecast, are now caught in the vortex of piling debt post-slowdown. Most of the realtors who went on a land bank acquisition with borrowed money are struggling to repay even the interest and banks look reluctant to restructure the debt any more.
With other forms of funding, like IPO, PE and other measures also drying up the future looks bleak for many of these developers. The larger players in the business may overcome the tide by selling land banks and other non-core assets, developers with a handful of projects are the worst affected one.
The combined debt of six listed companies stood at Rs. 35,425 crore in the March 2012 quarter. Several real estate companies had approached banks for a restructuring package, in the wake of the economic slowdown, post the Lehman crisis as they were unable to repay their loans.
Unable to generate strong cash flows, the total debt for these companies has fallen only marginally by 2.1% at the end of March, 2012, from Rs. 36,188 crore at the of December, 2011. As such their interest bill, too, has come off only by 2.83% to Rs. 853.3 crore in March.
Some firms have attempted to sell assets to pare their debt. DLF, for instance, divested Rs. 1,200 crore of assets in the third quarter of 2011-12 and R150 crore in the fourth quarter.
Unitech, however, did not sell any assets, but instead refinanced R500 crore and repaid another R500 crore through internal accruals. This year it needs to repay Rs. 1,000 crore. “We have been continuously reducing our debt by utilising cash flows from operations,” said Ajay Chandra, Managing Director, Unitech.
Bangalore-based Sobha Developers repaid Rs. 732 crore last year from internal accruals and fresh borrowings. “This year we need to repay R335 crore, of which, we have repaid R129.6 crore so far. We expect to repay the rest from internal accruals,” said JC Sharma, MD, Sobha Developers.
While Godrej Properties may have pared its debt by Rs. 370 crore in the March 2012 quarter with the help of the R470 crore that it mopped up through an institutional placement programme, equity is going to be hard to come by for other players.
As such, realty firms will need to generate strong cash flows to repay their borrowings. According to Fitch Ratings, “Foreign direct investment and private equity funding have dwindled and a weak equity market no longer makes IPOs a viable funding option. All this, together with the banks’ cautious approach, limits fund raising options.”
Sales at real estate companies have been reasonably good. DLF registered sales of 67.5 lakh square feet in the three months to March 2012 against 33 lakh square feet in the December quarter. Unitech sold marginally more at 18 lakh square feet against 17 lakh square feet. Sobha Developers, too, sold 8.6 lakh square feet space against 7.5 lakh square feet in the December quarter. Godrej Properties and Oberoi Realty saw sales volumes surge by as much as 50% sequentially in the March quarter.
Mumbai-based Housing Development and Infrastructure repaid Rs. 237 crore in the March 2012 quarter and expects to repay around Rs. 1,000 crore this year. Analysts believe the company can generate some cash flows from existing FSI sales and the rest from new launches in Noida-NCR in April 2012, Virar and Ghatkopar.
The Delhi-based Anant Raj Industries piled up debt last year as its spends on construction, land payments, interest and principal payments exceeded collections from customers. A report from Motilal Oswal notes that the company expects its golf course project to boost cash flow over FY14, releasing surplus cash to address deleveraging plan. The company needs to repay Rs. 220 crore this year.
