Real Estate Companies Target to Raise Rs 11,100cr through IPOs

September 30, 2009	(Be the first to rate this story!)  Loading ...
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The speedy turnaround in the stock market in the last six months has attracted a host of large real estate firms to tap the IPO route. Together four firms — Delhi-based Emaar MGF and Ambience, Lucknow-based Sahara Prime City, and Mumbai-based Lodha Builders are eyeing to raise Rs 11,100 crore from the market. All have filed draft prospectus with Sebi.

This sudden rush towards raising money from the market, to a large extent, is driven by the recent lessons the realty firms got from the financial crisis, a top official from the sector said. While the going was good, from 2005 till 2007, a host of realty firms had taken huge debt on their books but in comparison had very less equity money. This raised their debt-equity ratio to above 1:1 level.

So as the markets turned towards worse, these companies, with high level of debt, did not have enough money at their disposal — neither from its equity funds nor from selling its properties — to service the debt. As a result some were nearly bankrupt, the official explained. So while the market is good, realty firms are rushing to build their war chest by raising equity capital. A common reason for all the four realty firms to tap the IPO route is to retire high-cost debts.

To some extent, these fund raising plans are also being driven by an expected move by RBI to raise risk weight for banks lending to commercial real estate companies, market sources said. In case the central bank increases this risk weight to 125%, the cost of borrowing for realty companies could rise by about 100-150 basis points (100 basis points = 1%) per annum.

With the current indications that interest rate in the economy has bottomed out, going forward cost of borrowing for realty firms could rise further. So instead of incurring such high costs for borrowed money, real estate firms are now eyeing funds from Dalal Street, market players said. The timing of the realty IPOs has also been influenced by the recent, albeit slow, revival in the housing sector in most metros. All the four companies also plan to utilise part of the IPO money to meet the funding requirement for ongoing projects.

Emaar MGF filed its IPO prospectus to raise up to Rs 3,850 crore. The other big IPO will be Sahara Prime City, which is planning to raise Rs 3,000 crore through this issue. The company is also keeping a green shoe option to retain an additional Rs 450 crore in case of oversubscription. For Sahara Prime City, this is the second coming. Between late-2007 and early-2008 the company was considering to raise up to Rs 5,000 crore for housing projects in 179 cities across India.

News Published Under:   Real Estate India |

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