Companies & Sectors
India's lifeline for stressed realty industry
The government's latest policy package to revive and boost the cash-strapped construction and realty sector by putting in place a mechanism to release funds that are stuck in arbitration is a significant move for the industry and the economy.
 
Under the new norms, 75 percent of the amount against guarantee will be released in cases where a given award has been contested by government authorities. This is a big relief for the sector that has around Rs 1 lakh crore under arbitration. The notable, related reform measure -- granting permanent residency status to foreign investors aimed at facilitating greater investment -- will further bolster liquidity.
 
The government's stimulus reflects its priority to the construction sector and is quite justified, considering that it contributes eight percent to the GDP and generates huge employment to revitalise the economy. That's precisely why Prime Minister Narendra Modi has gone on record as saying that the three-year period (2011-12 to 2013-14) of stagnation, with large number of stalled projects, had badly hit the economy.
 
The new policy is aimed at reducing the debt and meeting working capital requirements to revive stalled projects and start new ones. It has come as a big breather for construction companies, reflected in the immediate spurt in their stock prices. The positive impact can be gauged from the fact that big construction companies like HCC will be able to reduce their debt by half as revealed by its Chairman Ajit Gulabchand.
 
Industry experts like Sushil Mittal, Chairman of the Association of Certified Realtors of India, are also upbeat about the policy decision, saying that it is a win-win situation for infrastructure companies, financial institutions and the government.
 
The new policy measures are perfectly in line with the government's policy to push infrastructure and boost economic activity. As private investments are not forthcoming, the government is banking on public investment, with a spending target of Rs 7 lakh crore. Even in the national budget, the focus has been on infrastructure, as the total value of stalled projects stood at seven percent of GDP.
 
The Centre for Monitoring Indian Economy (CMIE) put stalled projects at Rs 11.36 lakh crore, with projects worth Rs 70,000 crore under arbitration. The government has an uphill task ahead to build 100 smart cities and 60 million new houses under its flagship 'Housing for All' programme. And the key to achieving all this is the good financial health of the construction and realty sector.
 
Anuj Puri, Chairman of global real estate advisory JLL India, believes that at a time when we are focusing on infrastructure creation and real estate boosting, the government's twin measures of providing continuous liquidity and switching over to the globally accepted EPC (Engineering, Procurement, Construction) mode of contracts, promising higher degree of certainty in relation to cost and time, will result in infrastructure capacity-building by giving a fillip to private participation and investment.
 
Today, the biggest bane of the construction and realty sector is debt-ridden developers. That's why the whole focus of the new policy is to de-stress the developers while at the same time helping financial institutions to recover their loans on time to control bad debts so that they are in a position to not only restructure loans of stressed players but also offer them loans for new projects.
 
Industry statistics show that banks have an exposure of about 45 percent to the construction sector. The total loan outstanding of the real estate sector is Rs 9.60 lakh crore with 1.6 percent bad loans, amounting to Rs 16,000 crore. According to premier rating agency, Crisil, the debt of real estate developers for residential projects shot up to Rs 61,000 crore in 2014-15. It estimates that top real estate companies face the challenge of paying about Rs 30,000 crore of borrowings maturing in the immediate future.
 
It is in this backdrop that private equity entities have come to the rescue of developers of stressed projects. Piramal has recently funded Rs 15,000 crore to over half a dozen developers and has a target of disbursing Rs 1,500 crore of credit to realty companies every month. Big global private equities like KKR, Blackstone and Altico are also extending credit to stressed developers to finish stalled projects. That's also the reason why the Department of Financial Services under the Finance Ministry, and the Reserve Bank of India (RBI), have announced the need for a one-time scheme to address stressed bank loans in the real estate sector.
 
The new policy prescription also opens up opportunities for realty companies and developers to partner with construction companies and contractors to take up infrastructure projects like roads and highways. In a recent conference of Naredco (National Council of Real Estate Developers), Road Transport and Highways Minister Nitin Gadkari had also suggested that real estate developers facing a slowdown should leverage massive opportunities of undertaking roads and highways projects by partnering with established infrastructure players.
 
In conclusion, the government's new progressive policy has a healthy prescription of short-term to long-term measures to revive the construction sector, especially as, going forward, it also seeks to bring changes in the bid documents and propose model contracts, besides focusing on greater conciliation to boost the sector.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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COMMENTS

SRINIVAS SHENOY

1 year ago

What do you think?... Write your comments. Hopefully, we hope that the future turns bright for the ailing infrastructure sector. But the government should also take steps, to set it's own house in order. At the recently held seminar, I had the privilege, of discussing with a former police official regarding CIDCO issuing a false occupancy Certificate, which he would not believe, until I told him that I have pursued the matter, submitting on each occasion a copy of the occupancy Certificate under the RTI Act 2005, which has not been contested by them, while providing the relevant information, admitting that water supply, electricity and drainage, roadwork in the sector is incomplete. The internal work in my flat at Ulwe, Navi Mumbai when I inspected lately was incomplete. I feel that the government should also initiate steps to set it's own organization in order, to ensure that the common man does not suffer, in this regard, and it's widely propagated ideals of good governance is also met.

SRINIVAS SHENOY

1 year ago

What do you think?... Write your comments. Hopefully, we hope that the future turns bright for the ailing infrastructure sector. But the government should also take steps, to set it's own house in order. At the recently held seminar, I had the privilege, of discussing with a former police official regarding CIDCO issuing a false occupancy Certificate, which he would not believe, until I told him that I have pursued the matter, submitting on each occasion a copy of the occupancy Certificate under the RTI Act 2005, which has not been contested by them, while providing the relevant information, admitting that water supply, electricity and drainage, roadwork in the sector is incomplete. The internal work in my flat at Ulwe, Navi Mumbai when I inspected lately was incomplete. I feel that the government should also initiate steps to set it's own organization in order, to ensure that the common man does not suffer, in this regard, and it's widely propagated ideals of good governance is also met.

Deepak Narain

1 year ago

It is a government for and by industrialists, realters/builders, mine owners, and the like. It is working for their real benefit. All else is window-dressing

manoharlalsharma

1 year ago

why not takeover by leading bankers the entire stock by discounting the project cost and market by creating SPV?it will be the win-win situation as well security to consumer.

Abhishek Singh

1 year ago

I think the author is confusing infrastructure with real estate.
Best way the govt could help this sector is by not delaying the required approvals (by making it transparent, rule based and online)...

Rajan Vaswani

1 year ago

Where is the sale? No sale means no cash flow into the business and therefore, no outflow into completing projects. Common business sense and unable to fathom the win-win.

Vivek Naik

1 year ago

How this could be a win-win situation?

Vivek Naik

1 year ago

How this could be a win-win situation?

Start-up Deadpool: Government says it's only a lean phase
Despite reports claiming that a Start-up Deadpool is an Indian reality, with as many as 800 new tech ventures closing shop or on death row in the past 3-4 years, the government contends it is only a lean phase and far from a bust.
 
"I don't see any bust or any such thing. Start-ups are in various fields, like healthcare, etc. Maybe the dotcom phase is not doing well right now. There is no bust, only a lean phase," Department of Industrial Policy and Promotion Joint Secretary Shailendra Singh told IANS.
 
Data analytics firm Tracxn Technologies had recently compiled a list of close to 800 technology start-ups founded post-2011 that have failed or are shutting operations.
 
The list is similar to the one created by a website called F**ked Company after the internet bust of the early 2000s. The site itself was a take-off on a magazine called Fast Company and compiled a list of dotcom failures that came to be known as the Dotcom Deadpool.
 
On the Tracxn list -- what could be called a Start-up Deadpool -- for example, is online grocery store PepperTap, with $51.2-million funding, which has confirmed it is shutting down core operations, while start-ups like BeStylish, a fashion accessory online store, with $10 million funding, is already down and out.
 
"To make any detailed statement on the reasons for failure of these start-ups, we need to study the report. We will be talking to Tracxn this month to find out about the basis of the report, the reasons for failure, and analyse," Singh said.
 
Talking about the likely reason for the failure of these start-ups, he said it could be their inability to scale up during a global slowdown.
 
"All start-ups need to be scaled up. In the global slowdown -- seeing the grim market situation -- the scaling up is not possible. But it is not a cause of worry as these are cyclical changes. But it (failure of 800 start-ups) is only a small story," he said.
 
Tracxn, the Bengaluru-based firm, also says that the failure to scale up is one of the likely reasons for the shutdowns, as in the case of e-commerce and food technology start-ups that face a surge in digital marketing expenses due to increased competition.
 
"But they (the start-ups) failed to scale up due to standardisation or funding issues. Bigger players like Flipkart, PayTM, Snapdeal offer a better variety and price due to their scales and the amount of funding," a Tracxn spokesperson told IANS.
 
"Replicating the foreign model without indigenisation, focusing on customer acquisition without becoming self-sustainable and 'me-too' syndrome of copying a popular format has led to many failures of startups," says Amit Jindal, Partner, Felix Advisory.
 
"The Start-up Deadpool though is a reality but not a cause of worry," added Nikhil Donde, Managing Director of consultancy firm Protiviti India.
 
"Experiementation and innovativeness are the keys to success for any start-up. The start-ups which failed (did so) either due to lack of funding, faulty business model or were mistimed against the market demand," Donde told IANS.
 
On being asked if funding could be one of the reasons of failure, Industry Ministry's Singh said, "No, funding is not an issue. Funds are constantly coming in through angel funding and venture funding. Government is also making available about Rs 2,500 crore funds every year for start-ups. In fact, it will be difficult for start-ups to absorb all the funds."
 
According to research firm Preqin, $8.9 billion investments in 2015 were made in India via venture funds. But so far in 2016, only $3.2 billion has been invested in start-ups by venture capitalists.
 
"The funding surely saw a slight slowdown. For instance, in the first half of 2015 $2.9 billion was invested, while in first half of 2016 only $2.1 billion was invested. But the overall funding scene is not as grave. The early-stage activity has notably increased with many more micro funds and angels stepping up," Tracxn co-founder Neha Singh told IANS.
 
Overall, it looks healthy for the eco-system because more number of companies are getting launching capital, but with more later-stage investors being cautious, it is forcing companies to rethink about getting their economics right early on in a more sustainable manner, she said.
 
Confident that the Indian start-ups story is still intact, Singh said: "We are regularly interacting with start-ups. There is a big boost to start-ups. We have to provide the right ecosystem for the start-ups, a common platform and hand-holding."
 
The silver lining for the failed start-up teams is that corporates are looking at hiring of experienced entrepreneurial teams.
 
"Most founders of deadpooled companies have people with strong hands-on experience in knowing what works and doesn't in a practice area or market. Failure is no longer a taboo, and the entrepreneurial mindset is highly valued among investors and corporates," Tracxn said.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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Reliance Jio launch: Ind-Ra cuts outlook on telecom sector
India Ratings and Research (Ind-Ra) has revised its outlook for FY17 the telecommunications services sector to stable-to-negative from stable. The agency expects launch of Reliance Jio Infocomm Ltd (RJio)'s service to intensify competition, which will squeeze the market share, earnings before interest, taxes, depreciation and amortisation (EBITDA) margins and credit metrics of incumbents. Ind-Ra expects voice revenue to moderate in FY17 on stagnant minutes of usage (MoU) and further competition in call realisations.
 
"A stable sector outlook could result from a lower-than-expected moderation in industry profitability after the RJio launch so that the financial profiles remain healthy to sustain capex requirements. Highly competitive biddings to acquire spectrum in upcoming auctions thereby impacting operators’ debt profiles could lead to revising the sector outlook to negative," Ind-Ra says in a research report.
 
The ratings agency says it sees voice realisation moderating and strong competition impacting data average revenue per user (ARPU) for telecom companies post RJio launch. Ind-Ra also expects data revenue to remain stagnant on a 30%-40% decline in data realisations per megabyte (MB) in FY17 driven by RJio’s launch, while support from data consumption growth to data ARPU will be gradual. "The operators’ debt profile will deteriorate in FY17 as we expect them to incur high capex on network expansion and acquisition of additional spectrum through trading largely to compete with RJio," it added.
 
According to Ind-Ra, RJio incurred aggregate pre-launch capex of around $15 billion or Rs98,000 crore signifying the magnitude of its potential reach and capabilities. It also expects RJio to contend for market share out of the existing pie of subscribers, which are being serviced by incumbent operators.
 
In effect, the announcements from Reliance Industries Ltd (RIL) Chairman Mukesh Ambani on Thursday point to a commercial launch from 1 January 2017 even though no specific mention was made in this regard. This was also keenly awaited since Reliance Industries has invested as much as $21 billion on Jio -- its largest ever capital expenditure on a single project.
 
Taking the current tariff war and competition in India's telecom space to a new level, the RIL Chairman announced that domestic voice calls on the Jio network will be free forever. "The era of paying for voice calls is ending," Ambani told the 39th Annual General Meeting of the company, post its listing. "No Jio customer will ever have to pay for voice calls again." he added, devoting around an hour of his 90 minute speech to Jio.
 
The announcements came against the backdrop of a series of discounts and freebies offered by existing layers like Airtel, Vodafone and Idea during the past month, ostensibly to ensure customers stay with them, even after the commercial launch of Jio.
 
 
Ind-Ra says it sees voice revenue to decline in FY17 due to market maturity and competitive pricing. "MoU and voice revenue are flattish as the voice market has matured. Airtel and Idea reduced voice tariffs by 8%-10% over 2015 in order to arrest declining MoU and to counter competition. Voice also faces threat from data cannibalization; however, we expect it to be a credible risk only in the medium term," it added.
 
Data tariffs to see a major correction
Following the launch of RJio, there will be a major correction in data tariff, while the benefits from higher data volumes as well as subscriber growth will be back-ended. 
 
 
During the third quarter of FY16, data realisations per MB for the top two listed entities Bharti Airtel Ltd (Airtel) and Idea Cellular Ltd (Idea) declined by 4.5%-5.5% quarter-on-quarter (qoq). Ind-Ra says it believes this price decline was in anticipation of the RJio launch, and therefore expects a further softening of data tariffs in FY17. "An 8%-10% qoq growth in data volumes consumption shall not be sufficient to support data ARPUs which shall therefore moderate in FY17," it added.
 
Higher Capex to Subdue Credit Metrics
Ind-Ra says it expects the credit metrics of incumbent operators to stretch in FY17. 
 
 
"They are likely to increase investments in FY17 to upgrade, install and augment network capability sensing a long-term opportunity in broadband and threat from RJio. While the operators would upgrade their infrastructure to meet data requirement, they would also be required to install infrastructure to roll out newer technologies. They shall also follow debt-driven acquisitions of further spectrum to augment their holdings," the ratings agency says.
 
Spectrum-Driven Consolidation
According to Ind-Ra, spectrum will drive consolidation in the sector in line with the long-term roll-out plans of these operators. It says, "The recent guidelines allowing spectrum sharing and trading transactions within industry participants is a positive move for the sector as smaller players will be able to monetise their spectrum assets while bigger players enhance their spectrum holdings. A few spectrum trading deals were reported in FY16 which will gain momentum in FY17."
 

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COMMENTS

ramprasath l.a

1 year ago

First I enjoy with gadgets

ramprasath l.a

1 year ago

First I enjoy with gadgets

Nanda Patel

1 year ago

moral of the story..

time to exit from all Telcom stocks if you have not already...

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