Bangalore: 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 crore by monetizing their assets,according to estimates by Mint.
Sale strategy: A file photo of a DLF residential society in Gurgaon. The realty firm’s plan is to raise about Rs 10,000 crore by selling non-core assets over the next few years. 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.