Wednesday, June 17, 2009

Unitech may issue a billion shares

Hopes to mop Rs 8,500 crore; promoters could raise stake by 5%. Bolstered by the sharp run-up in its share price after the recent private placement, the country’s second-largest realty firm Unitech today took shareholders’ approval to issue up to a billion shares to raise more funds.
At the current market price of around Rs 87 a share, the company could bring in around Rs 8,500 crore through this route.
In addition, the company would raise Rs 1,150 crore through a preferential issue of convertible warrants to promoters at Rs 50 each. Each warrant is convertible into one equity share.
“The real estate market has bottomed out and investors are showing an interest in realty companies. Even though we do not need to raise funds immediately, we want to be ready as the market sentiment is very bullish,” said Sanjay Chandra, managing director, Unitech.
In April 2009, the company mobilised Rs 1,625 crore through issue of fresh shares to select foreign and domestic investors. Of the funds raised through QIP, Unitech used Rs 700 crore for repayment of a part of its debt, which is about Rs 7,800 crore.
“Our sale of assets in the past two months has fetched us more than the expected amount and we expect to mop over Rs 1,700 crore by the end of this fiscal, as against Rs 1,600 crore expected earlier,” Chandra added.
Till date, the company claims to have raised nearly Rs 1,000 crore through the sale of its two hotel properties and a commercial office space in Delhi NCR.
The company also got shareholders’ approval to issue 227.5 million convertible warrants on a preferential basis to promoters at Rs 50 for each. The promoter group will pay 25 per cent of the total amount in the next 15 days. On conversion of the warrants, the promoters’ stake in Unitech will go up by 5 per cent. It is 51 per cent currently.
On the listing of its real estate investment trust (REIT) on the Singapore Stock Exchange, Chandra said the market in Singapore was not good enough to get the desired money through public issue of its commercial assets.
“We were able to raise more money by selling our assets to high net worth individuals and will continue to do so this year. The listing of REIT would take another year,” said Chandra.
The company has booked over 4 million sq ft of residential space in the past two months and expects booking of around 20 million sq ft of space by the end of this fiscal year.

Govt moots for low cost housing

Updated: 16/06/2009 11:39 PM IST Top Stories Govt moots for low cost housing Rajat Guha Tuesday, June 16, 2009 (New Delhi) EMail Print BlogComments: Read (0) Post Rate the story Housing for the poor tops the UPA government’s agenda. The Budget may bring cheer to those looking to buy houses costing less than Rs 30 lakh. In order to revive the demand in the real estate sector, the government is considering the need for cheaper loans for buying houses.
Low cost homes could become cheaper still. The country's new Urban Development Minister, Jaipal Reddy, on Tuesday, met Finance Minister Pranab Mukherjee and proposed that low cost housing should be given cheaper loans.
The rate should be at 6.5 per cent for houses priced below Rs 5 lakh and about 7.5 per cent for houses below Rs 20 lakh.
“We have given our wish list to the Finance Minister. We want loans upto Rs 5 lakh at 6.5 per cent and loans upto Rs 20 lakh at 8 per cent, while loans above Rs 30 lakh be at 7.5 per cent,” Reddy said.
Apart from suggesting cheaper housing loans, Reddy also sought more budgetary allocations for projects under the Commonwealth Games and UPA's flagship scheme for urban renewal.
Now, with banks already forced to cut interests, these new proposals will have to wait to hear the final word from the finance ministry, but one thing is clear that the UPA's ‘aam admi’ agenda will put low cost housing right on top priority.

India 'most attractive' retail market

India still continues to be 'red hot' when it comes to a preferred destination as a retail market. India has reclaimed the top position amongst 30 nations in the results of the 8th Annual Global Retail Development Index (GRDI) revealed by global consulting firm A T Kearney. Low inflation, reduction in rent in smaller cities helped push India's score (68) above Russia (60), China (56), UAE (56), Saudi Arabia (56), the study shows. For the fourth time in five years, India has been ranked the most attractive for retail investment as global retailers including Wal-Mart, Carrefour and Tesco continue to expand in the country.The GDRI helps retailers prioritise their global development strategies by ranking the retail expansion attractiveness of emerging countries on a set of 25 variables including economic and political risks, retail market attractiveness and the difference between GDP growth and retail growth. In 2008, Vietnam toppled India to become the 'most attractive' retail market but tables changed as recession swept through continents. AT Kearney now believes that 'larger and resilient developing countries' such as India are most likely to lead the economic recovery. The global recession has made prime real estate locations increasingly available in many developing markets. It also has made acquisition valuations of many local-market retailers very attractive, says the report.Slower retail sales are causing Indian retailers to delay expansion plans and restructure their operations. But this has opened the window of opportunity for global retailers and many, including Wal-Mart, are continuing expansion plans as Indian consumers grow increasingly affluent, brand conscious and familiar with global retail formats.

Report puts India on top of retail potential index

New York: India has regained its position at the top of an annual rating of countries' retail sector potential that is being released a week after Ikea, the Swedish home retailer, said it was abandoning an attempt to open stores there.
The authors of AT Kearney's 2009 Global Retail Development Index said that India's largely unmodernised retail sector remained attractive to both domestic and international retailers, in spite of government regulations that prevent 100 per cent foreign ownership of retail stores.
"Overall ... the country risk is low and the market potential is still very high, making it the most attractive option for growth," the report says.
Wal-Mart, the largest US retailer, opened a partly-owned cash-and-carry warehouse store in Punjab last month in a joint-venture with Bharti Enterprises, while Tesco and Carrefour are also planning joint venture stores.
Hana Ben-Shabat, one of the report's authors, said foreign companies including Jean-Claude Biguine, the French hair salon, Inditex's Zara and Arcadia's Top Shop were also developing arrangements to establish their brands with Indian consumers.
"Maybe the model won't be owning the establishment, but getting the brand into market place," she said.
AT Kearney argues that the economic recession has increased the opportunities for cross-border investment by those retailers who are still generating significant cash-flow as a result of the depressed costs of assets and real estate.
India remained ahead of both Russia and China in the index, and pushed Vietnam out of the number one slot amid concerns about the impact of the global recession on Vietnam's export-based economy, and the collapse of the country's real estate bubble.
But the report notes that Vietnam will allow foreign companies 100 per cent ownership of food retailing from January.
Ben-Shabat also noted that in Russia the impact of the slump had reduced the potential cost of assets, increasing existing interest in deals and acquisitions of a number of significant players.
In China, in third place, the report notes increased foreign interest in smaller format convenience stores, rather than the supermarkets and hypermarkets.

Budget 2009: Govt should provide stimulus to real estate sector

Although, Indian economy as a whole has largely been insulated against the global economic slowdown, the Indian real estate sector has been severely been affected keeping in sync with the fortunes of the global real estate sector. Demand dynamics of one large industry decide the fortune of its ancillary industries. The ups and downs of the real estate market have serious implications on companies whose future is linked to the housing and infrastructure demand in India.
The risk straddle includes industries such as furniture, granites, ceramic tiles, paints, power cables, glass, electrical equipments and interior designers among others, which exemplifies the significant backward and forward linkages that the real estate sector has with the economy. There is a need for the Government to provide a stimulus for the industry so as to revive this ailing spectrum of sectors. And what better time can there be, than the forthcoming budget!
Some of the measures that should be taken by the Government are as follows:
• Given the demand for and emphasis of the Government of India on affordable housing (through lower interest rates on loans upto Rs 30 lakhs) there is a need to reintroduce tax holiday under section 80IB for housing. • Tax holiday available to hotels under section 80ID to be extended 10 years from existing time limit of 5 yrs. The gestation period in hotel industry, itself, stretches from 4 to 5 yrs. • To garner resources for providing liquidity to the Indian real estate industry, there is a need to: o Re-introduce 'tax pass through' status for domestic venture capital funds that invest in the Indian real estate sector; o Clarify that the Real Estate Mutual Funds are to be treated as equity oriented fund; o Extend the external commercial borrowing scheme to the entire Indian real estate sector including Special Economic Zones and not just 100 acre township, hotels, hospitals in view of the moderate international costs of borrowing; • Encourage states to reduce stamp duty to 5 percent and to provide a system of credit for each stage of sale i.e. levy on value addition. • Increase in deduction available under section 24(b) to Rs 300,000, against, existing limit of Rs 150,000 for self occupied houses. • Increase the basic exemption limit under provisions of Wealth tax Act to Rs 50 lakhs against existing limit of Rs 15 lakhs keeping in perspective the price of property, etc. • Service tax provisions should be amended as follows: o It has been clarified that no service tax should be levied in case pre-construction sale of residential complex where the seller and the buyer enter into an 'agreement to sell'. Similar clarification should be issued for pre-construction sale of commercial complex. o Service tax on renting immovable property should be abolished • To reduce the cost of procurement of capital equipments for construction purposes there should reduction/ rationalization of customs duty (exemption from special additional duty) and excise duty (8 percent to 4 percent)
In summary, the above measures would go a long way in providing much needed succour to the Indian real estate sector in these difficult times.

Lehman Property Boss Returns

Mark Walsh, the lead executive who loaded Lehman Brothers Holdings Inc. with toxic property investments, is part of a group chosen by Lehman to take over the bankrupt firm's real-estate private-equity arm.

Mr. Walsh and a team of former Lehman colleagues are setting up a new stand-alone business to manage the private-equity portfolio. They stand to profit if the portfolio of distressed assets -- for which they once paid top dollar -- recovers only some of its value.
The arrangement is a remarkable second act for 49-year-old Mr. Walsh, formerly Lehman's global head of real estate. When it filed for bankruptcy protection last September, Lehman directly held roughly $43 billion worth of real-estate loans and assets, exposure that played a key role in its collapse.
Federal prosecutors continue to investigate, among other things, whether Mr. Walsh and his team improperly valued commercial-real-estate holdings to prop up Lehman's balance sheet.
New Jersey Attorney General Anne Milgram also has filed a civil suit against Mr. Walsh and others accusing them of defrauding the state's pension funds by misrepresenting the value of Lehman's real-estate holdings.
Anton Troianovski/The Wall Street Journal The InterContinental hotel in New York's Times Square is among the property investments made by Lehman Brothers Real Estate Partners.A lawyer for Mr. Walsh declined to comment
While helping strike deals using Lehman's own balance sheet, Mr. Walsh also oversaw a separate unit called Lehman Brothers Real Estate Partners. Set up as a trio of private-equity funds, the unit eventually invested in $5.6 billion worth of deals, attracting some of the nation's largest pension funds as backers. Lehman itself also contributed about 20% of the unit's capital.
Properties in the portfolio include the 34-story InterContinental hotel in New York's Times Square, 60 hotels in the United Kingdom, and a commercial-real-estate development in Mumbai called Santa Cruz. About three-quarters of the portfolio is located outside the U.S. And it is valued at about 50% of its original purchase price, according to people familiar with the matter.
To maximize recovery for creditors, Lehman's restructuring advisers Alvarez & Marsal have been trying to find a buyer for the unit since late last year. Dozens of prospective buyers expressed interest, but it winnowed the group to five finalists, including AREA Property Partners, formerly Apollo Real Estate Advisors LP, and a group led by Raymond Mikulich, the former co-head of the group who left the firm in early 2007.
Lehman's estate eventually chose a management group that had run the business for years, which includes Mr. Walsh and executives Brett Bossung and Mark Newman. Lehman will retain its roughly 20% stake and hold seats on the new firm's oversight committees.
The group paid about $10 million for the business, according to a person familiar with the deal. The number was low, say people familiar with the matter, because continuing management fees are likely to be consumed by the costs of managing the existing properties.
The fund also will shrink the size of its most recent vehicle, a $3.2 billion fund, closed just days before Lehman's collapse. The fund will forgo about $1.6 billion in uninvested capital from investors, limiting new management fees.
The funds' new managers and Lehman creditors will thus only profit if the value of the properties increase over time. Lehman's investors agreed to "reset' some incentive fees for the managers, giving them payouts if asset values rise above their current distressed levels.
Typically managers would receive 20% of the "carry," or cut of certain profits, but that figure is expected to be lower for the new management, according to people familiar with the transaction.
"We fully support this management team and believe not only that they are best equipped to maximize the value of the assets," a Lehman spokeswoman said, "but also that they will be extremely successful in the growth of the new platform."
The transaction follows similar spinouts by the Lehman estate, including its flagship private-equity fund and its venture-capital unit.
The largest of those deals was a management buyout of Neuberger Berman, Lehman's money-management unit, which is 51% owned by its employees, with Lehman retaining the balance.
The Lehman group's sale comes at a time of crisis for the real-estate fund industry. During the boom years, funds run by Wall Street banks and boutique firms funneled billions of dollars from pension funds and other big investors into highly levered bets on office buildings, shopping malls, warehouses and other commercial property around the world.
Funds at Goldman Sachs Group Inc., Morgan Stanley and elsewhere have been marked down by more than half their equity value. Industry experts and investors, known as limited partners, expect the losses to mount.