India's Real Estate Developers Restructuring Their Debt

Real estate companies and developers have undertaken ambitious debt restructuring exercises to improve their financial situation as tight iquidity situation crimps house-buying decisions and debt-equity ratio of companies crosses the prudent level of 0.5. The debt-equity ratio of many property firms currently ranges from 1 and 1.5.

The domestic real estate market has already seen private equity firms buying strategic stakes in holding companies, sale of land banks and non-core businesses, pledging of promoters' equity for long-term debt and securitising of future receivables for their working capital requirements.

"Developers are quick to accept their over-leveraged position and are taking all possible measures to correct this financial mess," said Anshuman Magazine, MD (South Asia) of CB Richard Ellis. "Currently, they are focusing only on reducing debt. This can be done either by bringing in a strategic partner or selling land assets," he added. CB Richard Ellis is working with more than six developers to cut debt exposures.

RBI's recent move to allow real estate companies to restructure their outstanding debt may be the last saving grace for these developers.

Unitech's outstanding debt was Rs 10,000 crore, going by the December 2008 quarter results. Unitech had to repay Rs 2,500 crore by March 2009. It was able to restructure Rs 1,000 crore and this will be due for repayment after 12-18 months, depending on the restructuring terms.

Another Rs 1,000 crore was raised through mutual funds and Rs 500 crore was restructured for three months and will be due by the end of March this year. The company is raising funds by part-selling its stake and non-core businesses.

Similarly, HDIL, Omaxe, Unitech and DLF have restructured their debts due for repayment by March 2009. Investment bankers said DLF is on the verge of closing a deal with a PE firm by selling a majority stake in DLF Assets, its group company. DLF Assets is expected to raise around $400 million by the end of this fiscal.

The Bangalore-based Sobha Developers is restructuring 45% of its Rs 1,900 crore debt. The company, which has a land bank of 3,000 acres, primarily in southern India, is in talks with over ten banks and financial institutions to restructure its debt of about Rs 850 crore.

"Around eight months back, the real estate market was driven by supply. The scenario has changed now. Demand, especially in the commercial property space, has dipped. Developers have had to reshape their strategies," said Amber Maheshwari, director investments of DTZ, a property consultancy firm.

Some developers have already shelved their future projects or surrendered plots auctioned earlier. Recently, BPTP submitted an application to surrender the land auctioned in Noida. Companies such as DLF, Puravankara and Parsvnath have also requested local authorities to allot land proportionate to the payments made.

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