2nd of the series
Track2Realty Exclusive
In 2011 six big ticket real estate IPOs was expected to raise over $2.9 billion or Rs.13,000 crore. Emaar MGF, which could not raise money in the capital market in consecutive attempts even when market conditions were conducive, has now reduced its issue size by around 40% to raise Rs.1,600 crore through an IPO and is yet to get a SEBI nod for this. It plans to use Rs.614 crore from the IPO to repay or prepay debt. As per the figure available, the Delhi-based developer needed to repay Rs.1,199 crore by March 2011.
Lalit Kumar Jain, President of industry body CREDAI and CMD of Kumar Urban Developers, however, doesn’t believe this turmoil to be realty specific and blame the overall market volatility. “There are quite a few options other than IPO for raising money like Private Equity and project finance, apart from internal accruals. We keep tapping these as and when the need arises. We will plan our IPO in consultation with our book running lead managers whenever the time is ripe. Obviously, the conditions are not favourable as things stand owing to various reasons, including volatile market conditions. Even major PSUs have kept their public issue plans on the back burner,” he says.
However, realty companies continue to defer the proposed IPOs. SMC noted that the trend in the IPO market may set panic in the mind of the private equity (PE) funds, unable to exit from their investments. PE funds generally invest in promising but unlisted companies in the hope of a later exit through IPOs.
The capital market story for realty companies is thus far pretty disturbing. Equity market down, liquidity drying; listed ones sell land or try refinance as unlisted ones bite their nails. The struggle by realty companies to repay the debt load they had taken in brighter times continues. Unlisted property developers are likely to have a problem, even as big listed ones such as Unitech, HDIL, Parsvnath, etc raised funds through equity via qualified institutional placement (QIP).
Unlisted companies which were planning initial public offers (IPOs) to finance their projects and deleverage their books are yet to float these, given the volatility in the markets. They can’t even think of selling off core or non-core assets to ease off debt as they have a limited land bank and can’t raise much by such sales. “Large players have built their land bank over the years and even if they sell some non-contiguous land, it will not affect their project pipeline, but this is not the case with unlisted companies,’’ says an analyst from a Mumbai-based brokerage.
…to be continued
