Desperation driving developers to sell non-core assets, ink JVs

With the realty market showing no signs of revival, cash-strapped developers are now resorting to desperate measures like selling strategic assets and signing partnership deals in a bid to shore up their cash flows, manage the increasing debt levels and salvage their balance sheets.

For example, Delhi-based realty major DLF Ltd is working on a strategy to taper its rising debt levels by bringing in private equity investors as strategic partners and also issuing securities backed by commercial mortgage and debentures to improve its debt profile.

Arch rival Unitech Ltd, which posted a net loss of approx INR 163cr for the March quarter, has said it had significantly reduced its telecom-related liabilities and overall debt in the last financial year and that all its telecom-related debt has been repaid.

According to a company spokesperson, Unitech was now committed to increasing its construction-related activities and was in line to scale up deliveries from this year, with the sales proceeds from its current projects expected to generate positive cash flows for the company's bottomline and help in reducing in servicing loans and reduce debt.

Ansal Properties and Infrastructure Ltd, another leading Delhi-based developer is in the process of looking for cheaper loan options to replace its more expensive debt. According to company sources, the firm was also trying to speed up construction and ensure timely delivery to improve customer confidence while simultaneously monetizing select projects from its portfolio.

Elsewhere in the financial capital Mumbai, city-based realty major Housing Development and Infrastructure Ltd's (HDIL) is said to be working on reducing its overall debt estimated to be in the region of INR 2,950 cr via the sale of non-core assets and businesses like entertainment.

Further the company has also decided to sell its land parcels in cities like Kochi, Baroda and Hyderabad and is optimistic that its new projects will bring in the much-needed cash flows to improve its fiscal situation.

Indiabulls Real Estate Ltd (IBREL) on the other hand is reasonably optimistic despite a net debt of approx INR 5,480 cr, courtesy impressive sales of INR 2,037 cr, up from INR 1,549 cr in the preceding year.

The company's debt levels which can be considered high by industry are mainly due to its acquisition of the 22 Hanover Square property in central London and the purchase of approx 8 acres of land in Thane for a combined consideration of approx INR 2,050 cr.

In the present context, IBREL is developing over 38 mn sq.ft of saleable area as part of its ongoing projects with another 1,000 acres of land in had for future development. Going forward, the developer plans to focus on execution and delivery of these projects and use the surplus cash flows to reduce debt.

With property sales not expected to improve for atleast another 3-4 quarters it's not just the top-rung developers who are waging a grim war for survival. Smaller, unlisted players have also been sucked into the fiscal meltdown and are trying every means in the book to reduce high debt levels - from looking at cheaper refinance options to resorting to volume sales to PE funds at hefty discounts to cut down the ever-increasing pile of unsold inventory.
 
In what could be a small glimmer of hope, Fitch Ratings in recent report has said that it expects the fast rising debt levels of domestic developers to reduce significantly by the end of next year as India's investment climate shows signs of improvement, triggered by the recent policy changes to attract foreign investment.  The top 10 real estate firms by market capitalization had a total net debt of a whopping INR 45,723 cr as of March 31, this year.