Bangalore: India’s two largest real estate developers by market value are finding their way out of the woods, say analysts.
DLF Ltd and Unitech Ltd are showing the first signs of surviving their worst crisis ever.
The popping of the Indian real estate bubble and a severe funds crunch had left these firms gasping for cash between October and March even as sales halved despite declining property prices. But they have since revamped their business strategy and raised funds. However, worries continue about whether the two developers can sustain themselves if sales don’t pick up and cash flow is affected, if home interest rates inch upwards and revenues from asset sales do not meet expectations.
The firms modified their development plans and project formats, sold non-core assets, ventured into affordable housing, stalled capital intensive projects such as shopping malls, and exited large townships. The process culminated in May, when Unitech raised Rs1,620 crore through a qualified institutional placement (QIP), and DLF’s promoters sold a 9.9% stake to investors to raise Rs3,860 crore for buying hedge fund DE Shaw and Co. Lp’s stake in its unit, DLF Assets Ltd.
In a QIP, equity stake is sold directly to institutional buyers such as banks to raise money.
The May stake sale helped DLF repay only Rs2,200 crore out of its Rs16,358 crore debt, and it has restructured about Rs2,000 crore of short- and long-term loans.
For Unitech, QIP has solved only a part of its total debt overhang. The firm currently has Rs7,800 crore of debt.
Share prices of DLF and Unitech have surged since 1 April on account of the funds raised. DLF’s shares, which were trading at Rs177.1 on 1 April, closed at Rs316.40 on Tuesday, climbing 78.5%. In the same period, Unitech’s share price has jumped 120% to end at Rs77.05 on Tuesday.
The Bombay Stock Exchange’s (BSE) realty index has surged 103%, outperforming the 47.5% rise of the benchmark Sensex during the period.
Renovating strategies
“The past two quarters that ended in March were bad for us, but the situation is relatively better now,” a DLF spokesman said, requesting anonymity.
DLF’s objectives for 2009 are clear. It will focus on residential projects, primarily mid-segment, and not launch any commercial or retail venture, the spokesman said. DLF has already suspended the development of capital intensive projects, including 20 million sq. ft of office space and 7 million sq. ft of retail space.
The firm has also decided to build and sell its commercial projects rather than lease them out, monetize assets such as hotels, and focus on city-centric land parcels which can attract customer attention. Its target is to launch 17-18 million sq. ft of space by the year-end, most of it residential.
DLF’s strategy to beat the slump has been manifold, according to a 15 June report by IDFC-SSKI Securities Ltd: higher volumes at lower prices, asset monetization, debt restructuring and land sale.