Placements May Have Brought In the Much-Needed Funds, But Developers Yet To Weather Slowdown Storm: Crisil
Real estate shares have been star performers since the turnaround in the stock market from March this year. What also boosted the sentiment was the fact that some of the leading names in the sector were able to raise equity funds by qualified institutional placements (QIPs), helping them tide over a severe liquidity crisis. Property developers’ shares suddenly find themselves in a virtuous cycle. The fact that institutional investors are willing to invest in these companies has pushed up stock prices, in turn attracting more investors. While QIPs may have solved short-term concerns of the real estate sector, a strong rebound in demand is imperative if the sector has to recover from the serious miscalculations
Made in the past, says Crisil Research in a note.
Aggressive debt-funded land acquisition had led to severe liquidity crunch among developers during the slowdown, which began in early 2008. QIPs helped improve the liquidity situation of developers and reduced their gearing. However, valuations of realty shares look stretched, as demand for property — residential and commercial — continues to be significantly below peak levels, the note says, adding that the QIP route should not be considered a fund-raising tool, but as the last and undesirable alternative to internal accruals. This is because developers may enjoy better short-term liquidity position, but at the cost of stake dilution. “QIP issuance results in dilution of shareholders’ stake, hence, it is not a preferred mode of raising funds, as a few investors would gain the ability to influence stock prices,” the note says.
Just like developers, equity shareholders also witness dilution in stake after a QIP. However, retail investors experience deterioration in earnings per share and also face the risk of institutional investors exiting their investments in the short term, which may lead to a sharp decline in stock prices. Hence, investors may have been able to earn short-term returns, but the gains are laced with certain risks.
Till October this year, seven real estate players have raised funds through QIP — Unitech (two issues), India bulls Real Estate, HDIL, Sobha Developers, Orbit Corp, Parsvnath Developers and Ackruti City. The promoters of DLF also offloaded some part of their stake to QIBs, but not through QIP, as the existing equity was diluted and no fresh issues were made.
Yet, some industry sources point out that despite its shortcomings; QIPs have their advantages as well.
“Both demand and liquidity is important. If developers are bound by liquidity constraints, they will not be able to complete projects or take up new ones. This will increase demand, and in the process spiral up prices,” said Jones Lang LaSalle Meghraj chairman and country head Anuj Puri. “If there is a steady supply of projects, prices will be under check,” he added. The BSE Realty index has been the best performing sectored barometer since early March, rising 241%.
Courtesy:- Et dt:- 14-10-09
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