CCI modifies DLF-buyer agreements

NEW DELHI: The Competition Commission of India has modified clauses in agreements between real estate firm DLFBSE -1.78 % and apartment buyers in two of the company's projects in Gurgaon, in a move that could alter buyer-seller agreements across the Indian real estate industry.

The commission on Thursday said it modified the agreement after a direction from the Competition Appellate Tribunal in March last year to pass an order specifying the extent and manner in which the terms and conditions of the apartment buyer's agreement needed to be modified.

DLF had earlier filed a complaint against a Competition Commission of India (CCI) order imposing Rs 630-crore penalty on the company for abuse of its dominant position in Gurgaon market. The order came after complaints filed by flat buyers' association of two DLF projects - DLF Park Palace and The Belaire.

In its latest order, CCI said it has also considered the relevant provisions of the laws applicable to the development of group housing projects in Haryana, particularly the mandatory requirements that must be followed by every developer/builder, but were not followed by DLF in this instance. The commission said it has modified the terms of the agreement in a manner, that it considers fair and reasonable and takes into account the interest of both parties.

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Debt burden bites real estate bigwigs

Big real estate 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 reason for the debt burden is high interest rates, drying up of cash flow from banks and slowing sales volume.

According to industry estimates, all top 11 listed real estate developers started the year with a net debt of Rs.41,700 crore, which was 14 per cent more than the year ago.

"This is a difficult situation for developers. The debt burden is huge and they have to pay huge amount as interest rate every quarter. If the situation does not improve, they may have to put some of their large portfolio projects for sale," Amit Goenka, national director (capital transactions) Knight Franks India, said.

The country's largest developer DLF Limited accounts for more than half of the debt burden of these listed companies. According to the company's financial report as of December 31, 2011, it had a debt of Rs.22,725 crore. In 2011-12 fiscal, DLF's net profit fell by 27 per cent to Rs.1,200.82 crore from Rs.1,639.61 crore in the previous year. The company paid Rs.603.89 crore as interest in last quarter alone.

Despite asset sales, DLF was able to decrease its debt by only Rs.33 crore. The company has a mandatory debt repayment of Rs.3,900 crore within this fiscal. "Our main focus is to reduce debt by selling noncore assets. The company will focus more on selling non-core assets and is targeting to raise Rs.5,000 crore-Rs.6,000 crore," Rajiv Singh, vicechairman, DLF, said after announcing its financial results.

Even Unitech is resorting to asset sales. According to industry sources, the company is planning to sell some of its noncore assets like IT park and SEZs to pay off debt. The company's last reported debt stood at Rs.5,190 crore.

HDIL, another large developer, had a debt of Rs.4,100 crore as of December 31, 2011. It recently sold a two-acre plot at Andheri, Mumbai, to the real estate arm of Adani Enterprises for Rs.900 crore.

Another National Capital Region-based real estate giant Parsvnath Developers is selling land banks, including its prime property on Kasturba Gandhi Marg. 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 reduced its debt to Rs.1,183 crore as on 31 March from Rs.1,800 crore.

The situation is set to become worse as land banks have already started shrinking. For example, DLF's land bank was almost halved to 349 million sq ft at the end of December 2011 from 751 million sq ft in March 2008.

Experts say it is just the tip of the iceberg: unlisted developers account for more than double, or 60 per cent, of the debt of listed companies.

Source: http://indiatoday.intoday.in/story/debt-burden-bites-real-estate-bigwigs/1/200344.html

India real estate players under pressure

Indian realty sector seems to be going through a rough phase. On one hand, in metros like Mumbai, sales have declined, and the government has been strict with regulations and granting clearances. On the other hand, it is difficult to get investments.

DLF, India’s biggest realty player, has seen a 38.6% drop in its profits for the quarter ended March 2012. One year ago, DLF reported a net profit of Rs 344.54 crore, but this year, it has come down to Rs 211.7crore. Higher interest costs and margin compression have been cited as the reason for the loss. A brokering report said that interest cost increased by 32.5 percent year-on-year to Rs 604 crore, while other income declined by 30 percent year-on-year to Rs 131 crore.

DLF has a staggering Rs.22,725 crore debt on its book, after shedding only Rs33crore in the fourth quarter. The firm has long been looking to sell non-core assets and sell off some of the special economic zone(SEZ) properties, but have not met with much success. The company is looking sell around 12 million sq. ft of residential space to raise Rs.4,000 crore and Rs.6,500 crore, respectively

DLF is not alone. Parsvanath Developers too, have posted a loss of Rs 23 crore in the fourth quarter. Last year, it had made a profit of Rs32crore. Mr Pradeep Jain, chairman, Parsvnath Developers Ltd, said: “Financial Year 2011-12 has been very challenging for us, primarily due to the increasing cost of material, funding and then the unavailability of funds for real estate sector. “

Other players, like Omaxe and HDIL, who have reported profits, have also pointed out that there is scarcity of funds available for realtors. The glum economic scenario, along with the rupee devaluation has put a strain on builders. To add to their worries, market regulator Securities and Exchange Board of India (Sebi) has issued a notification that makes Rs1 crore the minimum limit for alternative investments, including realty funds, up from Rs5 lakh earlier.

Sebi’s move will make it difficult for builders to find investors, as many of them would not like to invest as high as Rs1 crore in real estate when the situation is tough. Hence, the demand for private equity funding will remain, even though the borrowing rates are sky high in cities like Mumbai and Delhi.

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Source: http://www.businessreviewindia.in/money_matters/india-real-estate-players-under-pressure

DLF Q4 net profit down 39% at Rs 211 cr

New Delhi: India's largest realty firm DLF today reported a 39 per cent fall in its consolidated net profit at Rs 211.70 crore for the quarter ended March 31, 2012, on high interest outgo.

The company had posted a net profit of Rs 344.54 crore in the year-ago period.

The total income from operations declined marginally to Rs 2,616.78 crore in the fourth quarter of 2011-12 fiscal as against Rs 2,683.09 crore in the corresponding period of previous year, DLF said in a filing to the BSE.

The interest outgo in the fourth quarter increased to Rs 603.89 crore from Rs 455.70 crore in the year-ago period. As on December 31, 2011, DLF had a debt of over Rs 22,000 crore.

In 2011-12 fiscal, the net profit fell by 27 per cent to Rs 1,200.82 crore from Rs 1,639.61 crore in the previous year.

The income from operations, however, rose to Rs 9,629.38 crore in 2011-12 from Rs 9,560.57 crore in the previous fiscal.

Source: http://www.financialexpress.com/news/dlf-q4-net-profit-down-39-at-rs-211-cr/955761/

Realty firms start mega asset sales

Real estate companies across cities, pushed into a corner, have kicked off plans on an unprecedented scale to sell assets so they can trim their bulging debt and generate cash flows.

About a dozen large developers, including the country’s top realty firm, DLF Ltd, are raising about Rs.15,000 croreby monetizing their assets,according to estimates by Mint.

Real estate analysts say that while the rush to sell assets resembles what transpired after the slowdown of 2008, this time it is more widespread. Earlier, it was mostly DLF and Unitech Ltd that wanted to exit largely non-core assets in non-prime markets, but now even mid-size builders are trying to sell assets they don’t want to develop immediately.

“Developers looking at asset monetization today require capital for paying off bank liabilities in a scenario where sales are slow. And secondly, many are in a consolidatory mode where they don’t want to keep futuristic land parcels,” said Rajiv Sahni, partner (real estate practice), Ernst and Young India, a consultancy. “The good part is that there are buyers such as private equity (PE) funds and developers, too, for such assets today, unlike then.”

In December, US PE firm Blackstone Group bought a Pune special economic zone from DLF and Hubtown Ltd (formerly Ackruti City Ltd) for Rs.810 crore. In January, property firm M3M India Ltd bought 28 acres of land in Gurgaon from DLF for Rs.440 crore.

A spokesperson for Blackstone said that with “equity markets virtually closed and banks becoming increasingly choosy about debt financing, many developers are facing tight liquidity conditions. This is putting pressure on them to liquidate some of their non-core assets and land and focus on executing current projects under development”.

Many small- and medium-size developers that are not leveraged are scouting for such deals as these assets come at a bargain, said Kunal Banerji, president, marketing, M3M India. “While M3M already has a 600-acre landbank in and around Delhi, if we find opportunities, the strategy would be to acquire them for future growth because the company is cash-rich,” he said.

DLF, which had a debt of Rs.22,519 crore at the end of September, raised Rs.3,480 crore by selling non-core assets in the first two quarters of this financial year. DLF’s plan is to raise about Rs.10,000 crore through this route over the next few years, Mint reported in January.

DLF and Hubtown didn’t respond to Mint’s queries on their asset sale strategies.

While “non-core” remains a debatable and subjective term, analysts argue that not all assets that are on the block are non-core.

Parsvnath Developers Ltd, for example, has put up for sale a 1.5-acre plot in the heart of Delhi, in Connaught Place, to raise Rs.700-800 crore to cut debt. It had bought the plot three years ago. Parsvnath had a debt of Rs.1,200 crore as at end-September.

Parsvnath chairman Pradeep Jain said the firm has so far monetized assets worth Rs.400-500 crore and will continue to do so, even as it plans new projects. “Going forward, we intend to monetize some of our assets in southern and western India and the capital will all be used for debt repayment,” said Jain.

With the next six-nine months expected to remain difficult for the realty sector and a significant portion of debt due for repayment, defaults by some unlisted companies are unavoidable, say analysts.

“Lack of demand and slow sales, coupled with a liquidity crunch and a debt pile-up, make it look like the slowdown will last longer this time” for real estate developers, said Ambar Maheshwari, managing director, corporate finance, at Jones Lang LaSalle, a property advisory,

Housing Development and Infrastructure Ltd (HDIL) and Emaar MGF Land Ltd, which have debt of Rs.3,900 crore (at end-September) and Rs.4,217 crore (at end-December), respectively, too, are negotiating the sales of some assets, including land meant for township projects, according to property analysts.

HDIL is not only looking to monetize assets in places such as Kochi, far from its comfort zone Mumbai, but also in suburban Mumbai, where it has land, said an HDIL official who didn’t want to be identified. “We already have land and have sold FSI (floor space index, or development rights) as a business model, and there are several unlisted developers who want to acquire landbank to grow,” he said.

An Emaar MGF spokesperson declined to comment on the sale strategy.

Source: http://www.livemint.com/2012/01/29210316/Realty-firms-start-mega-asset.html?atype=tp