3rd of the series
Track2Realty Exclusive
Analysts are worried and do not see a rosy picture ahead in 2012. According to them real estate companies planning IPOs in 2012 may experience a lack of enthusiasm on the part of investors. “Any failure to raise funds through the equity market would increase real estate companies’ dependence on banks and increase their vulnerability to RBI (Reserve Bank of India) action,’’ said analysts from international rating firm Fitch, in a recent report.
Another analyst with a Mumbai-based brokerage sounds concerned when he says “nobody knows how much debt these unlisted firms have piled up or how much they need to pay in FY 2012. Barring Emaar MGF, nobody has filed a revised DRHP (draft prospectus) after September 30, 2010.’’
Drying bank finance makes matter even worse for the developers. “Since RBI has refused further concessions, either developers have to pay their dues or get their loans classified as NPAs. But banks do not want NPAs and hence the pressure is on developers,’’ says Pranay Vakil, Chairman of Knight Frank India. “They (banks) will also review the advances given to developers in greater detail.’’
The cost of debt from banks has risen about 2-2.5% and from non-banking sources by about 6 percent in a year, says Lalit Kumar Jain. Reserve Bank of India has raised key policy rates ten times since March 2010 and is widely expected to tighten rates further to tame inflation. Second, most of the companies going public want money to fund capital expenditures. Starting new projects in India often is a long exercise prone to delays in regulatory clearance and Government approvals, as evident by the problems faced by foreigners like Posco and even state-owned Coal India. With New Delhi busily engaged in damage control arising from corruption allegations, investors feel such approvals could take longer.
No wonder, investors are least bothered about realty and looking for other interesting happy hunting grounds. Muthoot Finance, a company that gives small loans against gold as security, saw its IPO oversubscribed 25 times, mainly because it benefits from higher gold prices and the borrowing needs of India’s urban and rural poor. Another standout was Lovable Lingerie, whose $20 million offering was oversubscribed 30 times.
Maybe it is not roof over the head, but gold and, even interestingly, lacy women’s undergarments that appeal to investor’s primal desires. But then it is not good news for the realty sector that has thrived phenomenally through capital market in the past.
