Debt repayments worry Indian developers

Mumbai: India's biggest developers have Rs1.8 trillion (Dh126 billion) of debt maturing in the next three years as ratings firms cut or withdraw their assessments.

DLF Ltd., the nation's largest builder, was downgraded by Crisil Ltd., the Indian unit of Standard & Poor's, on December 27 after its liabilities minus cash climbed to an all-time high of Rs242.7 billion in the three months ended September 30, data compiled by Bloomberg show. Fitch Ratings withdrew its rankings last month for Unitech Ltd., the second-biggest developer which faced a funding crunch during the 2008 credit crisis.

The rising risk of defaults in India's real estate industry shows the central bank's record monetary tightening in the last two years hurt companies that are already coping with the slowest economic growth since 2009.

"Slowing cash flows in a weak economic environment and the high levels of debt may further undermine the financial status of Indian builders," Kejal Mehta, an analyst at Mumbai-based brokerage Prabhudas Lilladher Pvt., said. "Ratings remain under threat due to delays in debt reduction and the pressure on profits. Given the high rates in India, it's difficult to expect a near-term improvement in the situation."

Rising costs

Debt costs jumped at India's real estate companies as the central bank lifted its benchmark rate by 3.75 percentage points in the last two years to rein in inflation.

The central bank's repurchase rate, currently 8.5 per cent, is the highest level since 2008.

The average mortgage rate at Housing Development Finance Corp., the nation's biggest mortgage lender, is 16.5 per cent, according to the company's website.

DLF paid a record Rs5.26 billion of interest in the third quarter of 2011, up from Rs4.96 billion in the prior period, data compiled by Bloomberg show. Similar expenses rose 11 per cent to Rs1.91 billion rupees for Housing Development & Infrastructure Ltd., the nation's third-biggest builder.

"In 2012, a number of distressed projects will be acquired by large developers at sub-valuation prices," Ramesh Nair, Mumbai-based managing director for western India at Jones Lang LaSalle India, said.

"Some developers are gearing up to sell their non-core land and divest their stakes in non-core businesses such as hospitality and retail."

Combined net debt

Kumar Urban Development Pvt. and Neptune Developers Ltd. borrowed at rates from 19 to 20 per cent in the second-half of 2011, according to data from the National Securities Depository Ltd.

Combined net debt of 11 Indian developers rose 19 per cent from a year earlier to Rs403 billion rupees in the three months ended September 30, according to Mumbai-based brokerage Edelweiss Securities Limited.

"Financing challenges will continue for high-risk real estate investments," Nair said. "With tighter lending policies, debt will become more expensive and many developers will seek other options for their funding needs."

DLF signed a Rs4 billion loan due in 2015 to refinance existing debt, data compiled by Bloomberg showed last week.

Rupee-denominated bonds returned 6.9 per cent in the past year, while Indonesian notes earned 20.2 per cent in the best performance among 10 Asian local-currency debt markets tracked by HSBC Holdings Plc.

Builders face liquidity crunch

Mumbai: Property demand has slumped in India's biggest cities as borrowing costs rose and economic growth slowed.

Home sales in Mumbai dropped 20 per cent in November from a year earlier to a 31-month low, according to Prabhudas Lilladher.

Sales dropped because of "a stalemate between the buyers and the builders," Samantak Das, Mumbai-based head of research at the Indian unit of Knight Frank LLP, wrote in a note.

Profits at Indian developers shrank 23 per cent last quarter from a year earlier, after falling 20 per cent in the three months ended June 30, according to Edelweiss. Net income at DLF slid 11 per cent to Rs3.72 billion in the quarter ended September 30 from a year earlier.

"Liquidity concerns remain a challenge for developers," Samir Jasuja, CEO at PropEquity, a Gurgaon-based real estate data and analytics provider, said. "Banks are already going slow on realty lending."

Source: http://gulfnews.com/business/property/international/debt-repayments-worry-indian-developers-1.965090