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Firms tapping ‘real’ wealth in their books

Some companies are monetizing land and real estate assets to cut debt, others see a lucrative opportunity
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First Published: Mon, Feb 04 2013. 11 32 PM IST
Air India has appointed 
DTZ International Property Advisors to advise it on renting, selling or redeveloping its properties. This includes leasing out floors in its iconic headquarters at Nariman Point in south Mumbai. Photo: Abhijit Bhatlekar/Mint
Air India has appointed DTZ International Property Advisors to advise it on renting, selling or redeveloping its properties. This includes leasing out floors in its iconic headquarters at Nariman Point in south Mumbai. Photo: Abhijit Bhatlekar/Mint
Bangalore/Mumbai: Indian companies are turning to real estate to bail them out or capitalize on an expected turnaround in the real estate market.
To reduce their huge stockpile of debt built up over the past few years, some Indian companies and business groups are selling, leasing or developing properties originally bought for their own use.
State-run Air India Ltd, for instance, which had a debt of Rs.47,226 crore as on 31 July, has appointed DTZ International Property Advisors Pvt. Ltd to advise it on renting, selling or redeveloping its properties across cities. This includes leasing out floors in its iconic headquarters at Nariman Point in south Mumbai.
Another state-owned company, Mahanagar Telephone Nigam Ltd (MTNL) is finalizing the appointment of consultants to explore options such as leasing of space, and the sale and development of land, mostly in Mumbai and Delhi.
Analysts estimate the telco’s city-centric assets to be worth about Rs.5,000 crore, although MTNL chairman and managing director A.K. Garg didn’t confirm this.
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“Monetization is always a good proposition. Anything that’s not giving returns is a liability,” said Garg. “We may decide to develop some of the plots ourselves with partners. The capital generated from the monetization will be used for company’s operational purposes, not just to reduce debt.”
The trend isn’t new, said one person, although there may be more deals being closed now.
Companies have been looking to monetize their real estate assets for the past two years, said Saurabh Mukherjea, head of equities at brokerage firm Ambit CapitalPvt. Ltd. “There could be a pickup in actual deals now since we are towards the end of a downturn and beginning of an upturn, and there is greater parity between the price expectations of the buyer and the seller,” he added.
It is a good time to sell such assets, said an expert.
“This is a stable market to sell land because prices are going up and companies are increasingly focusing on core activity and also want to reduce their debt overhang, if any,” said DTZ director Rajeev Bairathi. “Monetizing assets now is good because fair market prices are available and there is no desperation.”
Indian companies borrowed heavily before the global depression of 2008-09 mostly to expand, and have since struggled with heavy debt with the economy still hobbling.
The combined debt of 10 large business groups in India jumped fivefold in five years to Rs.5.39 trillion at the end of March 2012, according to a Credit Suisse report issued in August.
These 10 groups—Adani Enterprises Ltd, GMR Group, GVK group, Vedanta group, Videocon group, Essar Group, the Anil Ambani-led Reliance Group, Jaypee Group, JSW Group and Lanco Group—accounted for 20% of all bank loans in the country, Credit Suisse said.
The combined debt of BSE-100 companies was Rs.65.23 trillion at the end of fiscal 2012, according to Capitaline data.
In December, Reliance Group announced a joint venture with China’s Dalian Wanda Group Corp. Ltd to develop land it owns across India. The joint venture will develop integrated townships within Reliance Communications Ltd’s (R-Com’s) 135-acre Dhirubhai Ambani Knowledge City in Navi Mumbai and on 80 acres owned by Reliance Infrastructure Ltd in Hyderabad.
A Reliance Group executive said then that the two proposed land developments could fetch the group up to Rs.7,500 crore.
Reliance Group had an outstanding debt of Rs.86,700 crore at the end of March 2012, which was seven times its earnings before interest, taxes, depreciation and amortization, Credit Suisse said in its report. A major chunk of this debt can be traced back to R-Com’s books, it said.
Smaller firms have more modest plans.
Auto maker Premier Ltd announced earlier in January that it had entered into an agreement with real estate firm Runwal Group to jointly develop 150 acres of land in Mumbai suburb of Dombivli. Under the agreement, a Runwal subsidiary will pay Rs.220 crore to Premier, which will also get a share of the built-up area at a later stage.
In Chennai, TVS Motor Co. Ltd is looking to monetize a 20-acre land parcel, property analysts said, pegging a potential deal at around Rs.150 crore. And DTZ is scouting for a buyer for a three-acre land parcel that belongs to wholesaler Metro Cash and Carry in Ghaziabad for Rs.100 crore.
Spokespersons of both TVS and Metro declined comment.
The next fiscal year beginning in April could see a rise in such corporate land deals, said Sanjay Dutt, executive managing director (South Asia) at Cushman and Wakefield, a property consultancy.
“These assets would be bought by developers, private equity funds and even HNIs (high-networth individuals). However, the assets are a mixed bag, and buyers will pick and choose what they want,” he said. “While land earmarked for residential usage will fetch a premium price, land meant for industrial usage will sell at market or below market prices.”
Arundhati Ramanathan in Chennai contributed to this story.
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First Published: Mon, Feb 04 2013. 11 32 PM IST
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