Dubai crisis may not impact Indian realty market

A majority of big real-estate developers in India on Friday said that they are insulated from the financial crisis in Dubai and the developments in the emirate will not have any impact on the country's property market, reports PTI.

DLF Ltd, Unitech Ltd, Parsvnath Developers Ltd and Emaar MGF Ltd have all said that they have no exposure in Dubai, while Omaxe has said that it has an investment of Rs40 crore for which it has asked for a refund.
 
But consultant Jones Lang LaSalle Meghraj country head Anuj Puri cautioned that if the corporate debt default in Dubai turns into a sovereign default, there would be real economic issues, which may not only hit India but other international markets too.
 
"(The) Indian property market is very robust and largely dominated by internal demand. So there will be no adverse impact on us," DLF executive director Rajiv Talwar told PTI.
 
Emaar MGF, a joint venture between Dubai-based Emaar Properties and India's MGF, said its operations are only in India and the developments in Dubai would have no impact on its operations.
 
"Our business and funding plans are on track," a company statement said. Emaar MGF is in the process of coming up with an initial public offer.
 
"Emaar has not asked for any external support and maintains good financial strength. Emaar Properties remains committed to its investments and Emaar MGF's business in India," it added.
 
Faced with a funding crisis, the Dubai government on Wednesday had asked creditors of State-owned Dubai World and property group Nakheel for a six-month ‘standstill’ on interest payments on debts amounting to $80 billion.
 
Unitech vice president for corporate planning and strategy R Nagaraju said that Indian real-estate developers have little exposure in Dubai, so there will be no impact of the crisis.
 
Expressing similar views, Parsvnath Developers chairman, Pradeep Jain said, "I do not forsee any concern in the Indian real-estate market as it is entirely different from the Dubai property market. In India almost 100% demand is from (domestic) end-users but in Dubai only 10% is local demand."
 
Mumbai-based Hiranandani Group, which is developing a 90-storey housing project in Dubai through a joint venture with the ETA-ASCON group, said the financial crisis there will not have any impact on its operations.
 
Hiranandani Developers managing director Niranjan Hiranandani said, "Already we have sold 97% of the project and received 70% of the money. Almost 85% of the construction has been completed. The project will be completed by June next year." The company has no debt in Dubai, he said, adding, "We don't see any negative impact on ourselves".
 
Omaxe chairman Rohtas Goel said the company had made an upfront payment of Rs40 crore for two property projects in Dubai to Nakheel, but since it has been put on hold the company has asked for refund of the amount. "We hope to get a refund within one month's time," Mr Goel said.
 
The projects were envisaged to have a total cost of Rs1,500 crore with estimated revenues of about Rs2,850 crore, Mr Goel added.
–Yogesh Sapkale

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The Dubai debt saga

Dubai, the paradise of investors, has mired all markets across the globe with its debt restructuring plans. The emirate of Dubai has external debts of about $80 billion, out of which, nearly 75% is owned by Dubai World, its biggest holding company.

In something that may turn out to be the biggest sovereign default since Argentina in 2001, the Dubai government has asked the creditors of Dubai World and developer Nakheel group to accept a moratorium on debt that runs into billions of dollars until at least May 2010 because of the crisis triggered by real-estate slump. According to a statement issued by the Dubai Financial Support Fund, "Dubai World intends to ask all providers of financing to Dubai World and Nakheel to (agree to) a 'standstill’ and extend maturities until at least 30 May 2010.”
 
However, the government clarified that DP World, the world's fourth-largest port operator, and its debt would not be a part of the restructuring of Dubai World. As of August 2009, Dubai World, the conglomerate that spearheaded the emirate's breakneck growth, had some $59 billion in liabilities, while Nakheel Properties, the world’s biggest privately held real-estate company, is also due to pay off about $3.50 billion in maturing Islamic bonds in December 2009.
 
Dubai World is closely related to all government-linked companies, following its high rise in a short period. At the same time, the company is also closely associated with the huge debt that has followed.
 
Earlier, in August, Dubai World hired an advisory firm to help it explore options to improve the financial position of its US-based luxury chain unit Barneys New York.
 
According to a news report from Al Jazeera, the emirate accumulated its debt as it expanded into the banking and real-estate sectors before the global financial crisis dried up available financing.
 
"Restructuring its government-linked debts is now a top priority as the government seeks to assure a rebound for its trade, tourism and services-focused economy and recover from the precipitous property crash,” the Al Jazeera report said.
 
Even for Nakheel, the developer who built the famous Palm islands, it would be difficult to repay debts due next month. With work on many of Nakheel's high-profile properties either slowing down or completely stopped, it still remains to be seen from where it would get the funds, other than a government bail-out, to repay its $3.50 billion debt maturing next month.
 
Indian construction companies, like Nagarjuna Construction Ltd and Simplex Infrastructure, with exposure to Dubai could thus witness project cancellations, and delayed execution and payment timelines.
 
"We believe Dubai exposure has long been discounted in (various) valuations. Strong order inflows and now, attractive valuations make NCC a good pick in our view. The event-based correction also presents a good opportunity to enter into L&T and Voltas, who will be relatively unscathed by the developments in Dubai," said Religare Capital Markets Ltd in a note.
 
The financial crisis in Dubai may not impact remittances sent by Indian expatriates in the Gulf country back to their home nation. India gets nearly a quarter of its total remittances from the United Arab Emirates (UAE). "Remittances from expats didn't suffer during the period when the larger crisis was on. So whether this would have an impact in terms of employment, in terms of salaries and therefore in terms of remittances is somewhat unlikely," finance secretary Ashok Chawla told reporters in New Delhi.
 
Speaking with PTI, former RBI governor YV Reddy said, "On the basis of past evidence, the recent development in the Middle East should not have any serious impact on Indian remittances."
 
Although the debt problems in Dubai are related to the real-estate market, mostly driven by supply rather than demand, it may not lead to sovereign default. In this context, it would be necessary to observe whether the situation in Dubai remains confined to Dubai World and Nakheel or if it escalates into a full-blown sovereign default. -Yogesh Sapkale [email protected]
 

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Shady IPO deals continue unabated

Activities in the Indian IPO space have a fair share of greedy promoters and underhand dealings. Issues continue to be priced irrationally, partly because of a misplaced perception of future performance and investor interest, and partly to feed the egos of power-hungry promoters. Adding to this, the nexus between company promoters and merchant bankers to the issue makes the picture even murkier. In such a scenario, who would blame the retail investor for not taking interest in the primary markets?

Retail investor response to recent IPOs has been tepid at best. These issues have been subscribed fully only through ‘discount deals’ with large institutional investors and merchant bankers, who demand a hefty discount of 30%-50% in order to help close the issue and soothe frayed nerves of panic-stricken promoters. This is one of the primary reasons explaining the mystery of IPOs listing at substantial discounts to the issue price. This may be just the tip of the iceberg, though, as other worrying trends are surfacing within the IPO arena. There are instances of promoters doling out cash to arm-twisting merchant bankers seeking upfront rewards for closing out under-subscribed issues. Other reports indicate merchant bankers applying in huge volumes to IPOs where investor response is muted, keeping promoters at their mercy till the last date of the book closure.

Of the 16 IPOs that have come up so far in 2009, only six are trading above the issue price. Others have plunged steeply against the issue price. Den Networks, which listed on 24 November, closed at a discount of 16.36% to the issue price of Rs195. It is currently trading at nearly 20% below offer price. Although the offer was oversubscribed 1.04 times, retail portion was subscribed only 0.0963 times. Investor interest was also muted in the offers by Oil India, Raj Oil Mills and Globus Spirits. Others are struggling to provide positive returns despite being oversubscribed. Euro Multivision and Rishabhdev Technocable are currently trading roughly 61% and 47% respectively below their issue prices. Indiabulls Power, which attracted huge attention even from retail investors, is down 27% over its issue price. Globus Spirits, Adani Power and NHPC also suffer from the same fate.

This IPO debacle has not gone unnoticed at various equity research firms, where some analysts are, for once, sounding off investors against putting money in IPOs of companies lacking enough credibility. Even companies with strong fundamentals are being scrutinised in greater depth. IPO price bands of Adani Power, Oil India and Raj Oil Mills were considered steep by some brokerage firms despite healthy prospects. Pipavav Shipyard IPO was actually assigned an ‘avoid’ rating in one of the research reports.

Amidst all this, the government is drawing up blueprints for follow-on issues for PSUs. However, before the government decides to immerse its feet in choppy waters, it should have a closer look at the goings-on to avoid being taken for a ride by the investment banking community. 
 

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COMMENTS

vijaipratap

6 years ago

sir,

interesting article but the author has failed to highlight one of the basic problems:
'aggressive' pricing.
most ipos have settled down at their true value, post listing.
thx.

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