Promoters tank up on preferential allotments in Sistema Shyam

Promoters of various companies have been known to pamper themselves by allotting preferential shares at prices significantly lower than prevailing market prices. With equity markets enjoying a solid run, greedy promoters seek to make a killing by allotting shares of the company to themselves at a steep discount, while selling existing holdings at an enormous profit.

In much the same manner, promoters of Sistema Shyam Teleservices, a mobile service provider, are looking to cash in on the current boom, at the cost of minority shareholders of the company. Recently, the Department of Telecom (DoT) gave its nod to the Russian government bid to pick up a 20% stake in the service provider for an estimated Rs3,200 crore. Sistema Shyam has said it could subscribe ‘‘fresh equity shares of nominal value of Rs 10 each at the rate of Rs 49.31 per share approximately for an investment of up to $676 million.” This will come as a rude shock to the minority shareholders of the company (forming 2.5% of total shareholding), who will be left watching from the sidelines as the promoters make a quick buck in the secondary markets. The company has called for an extra-ordinary general meeting (EGM) on 10 December 2009, for discussion of the proposal.
 
Although SEBI had in 1994 tightened rules for preferential allotment to deter promoters from taking unjust advantage at the cost of minority shareholders, promoters continue to find ways to manipulate the system to their benefit. Although such allotments are completely legal and within the framework of SEBI guidelines, they are still unfair to the minority shareholders of the company.
 
Sistema Shyam offers its mobile telephony services under the MTS brand name in the country. Russian telecom giant Sistema has a 74% stake in the joint venture with Indian based Shyam Telecom, which has more than 2 million fixed-line and mobile subscribers in seven circles of the country.
 
Interestingly, Sistema was looking at merging Sistema Shyam with its main asset and top Russian mobile operator, MTS, earlier this year. The decision to merge the Indian entity was to be based on its capability to deliver appropriate returns.
–Sanket Dhanorkar
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Office rents are falling in Tier I cities

After witnessing astronomically high premiums, office rents in central business districts (CBDs) of all major Tier I cities are falling and there are some offices available on rent for as low as Rs20 per sq ft, said property dealers.

“The total market revival across the key real estate market, marked by increasing absorption and reducing vacancy is likely to be achieved by the second quarter of FY10 for most Indian cities,” said Anshul Jain, chief executive, DTZ International Property.

The supply in the office space arena is increasing and the demand is suppressed. The slowdown has also contributed to the availability of office space as companies started retrenching staff and reorganising their resources, resulting in additional office space being available with such firms.

According to a report by DTZ, the CBD in Delhi, including the National Capital Region (NCR), has around 52 million sq ft (msf) of office space, out of which 41% is vacant. Similarly, in Mumbai’s CBD out of the total 48 msf, 29% is vacant, while in Bengaluru 23% out of 76 msf office space remains vacant. Kolkata has 13 msf office space, out of which 16% is vacant. Pune and Chennai, with an office space of 36 msf and 38 msf respectively, have the percentage of vacant space at 34% and 36% respectively, the report said.

Even the rates for many Information Technology (IT) parks have fallen drastically. “Old Mahabalipuram Road (OMR), the famous IT corridor in Chennai, quotes a lease rent of Rs20 per sq ft. The rates can’t go lower than this and also won’t increase in the next seven months,” said Sorabh K Jain, principal, Sun Apollo Real Estate Advisors Pvt Ltd.

According to industry sources, the IT Parks at OMR are leasing the space for ceremonies like marriages to earn some money till they can rent it to some tenant. The irony is, during the boom time in 2007, the same location used to attract rents as high as Rs7,500 per sq ft.

In Mumbai too, office rents have fallen and many institutions located at main business areas like Nariman Point are looking at shifting to other places where the rent is lower. Many of these institutions are planning to move to suburban areas instead of paying rents as high as Rs300 per sq ft for Nariman Point properties. Recently, SBI Life Insurance Ltd took about 50% office space in Andheri-based office complex Rustomjee Natraj for Rs80 per sq ft. Earlier, the same office complex developed by the Keystone group used to attract office rent of around Rs140 per sq ft.

Despite falling office rentals, some overseas property investors are planning to invest in these CBDs. Property investment and development group Hongkong Land Ltd, a $12 million company is planning to invest $500,000 in Tier I cities. 
— Pallabika Ganguly
 

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2&3BHK home sales on the rise in Tier I cities

Sales of 2&3BHK homes are picking up in Mumbai, Delhi, Pune, Bengaluru, Chennai and Hyderabad

Real-estate developers and consultants have been claiming that one bedroom-hall-kitchen (1BHK) homes were the best-selling product during the July-September 2009 quarter. But this trend does not seem to be playing out in Tier I cities. According to data from real-estate research firm Liases Foras, sales of two- and three-BHK homes are on the rise in Mumbai, Delhi, Pune, Bengaluru, Chennai and Hyderabad.

“In these six cities, 2 & 3BHK homes have reported more sales than 1BHK homes; 1BHK is no longer driving sales for developers,” said Pankaj Kapoor, founder and chief executive officer, Liases Foras.

During the second quarter to September 2009, Mumbai Metropolitan Region (MMR) reported sales of 1,33,416 2BHK units, 5,855 3BHK units and 45,625 1BHK units. In the National Capital Region (NCR), 2BHK sales were 29,838 units, 3BHK sales were 4,932 units and 1BHK sales were at just 1,446 units. Similarly, in Pune, 2BHK sales were 10,843 units while 3BHK and 1BHK sales were 63,008 and 20,108 units, respectively. 
 
The trend is slightly different in Hyderabad where 1&2BHKs are driving the market. The city reported sales of 27,055 2BHK units, 24,966 1BHK units and 1,879 3BHK units. In Chennai and Bengaluru, 3BHK was the top-selling category. Chennai reported sales of 79,756 3BHK units while Bengaluru reported sales of 24,201 3BHK units. In the 2BHK category, Bengaluru reported sales of 19,705 units and Chennai reported sales of 59,047 units.
 
Developers will be keenly tracking the ongoing uptrend in the 2&3BHK segments. “This kind of data will help us to know which segment is reporting more sales, so we can design products and increase our supply accordingly,” said Niranjan Hiranandani, chairman of Hiranandani Constructions.

At the end of the September 2009 quarter, Chennai reported an inventory of 550,821 3BHK units and 321,984 2BHK units. Bengaluru had an inventory of 35,922 3BHK units and 212,887 2BHK units. NCR had an inventory of 3,31,023 3BHK units and 2,03,519 2BHK units. Hyderabad had an inventory of 2,88,771 3BHK units and 3,69,369 2BHK units. Pune had an inventory of 25,442 3BHK units and 3,65,017 2BHK units. MMR had an inventory of 3,04,344 3BHK units and 61.8196 2BHK units.

The improving market sentiment has reportedly prompted a few developers to increase prices by 5%-10%. However, they seemed to have learned a fundamental lesson during the economic slowdown of the past 18 months: that a sharp increase in prices is counter-productive. 
— Pallabika Ganguly [email protected]
 

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