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It's Pay Back Time

Short-term borrowings of real estate companies are causing them long-term problems as they scramble to repay loans

The best way to be remembered for a long time is to borrow a huge sum of money. By doing thus, lenders can't forget you; rather at all times, you will always be there at the top of their minds. That's precisely going to be the case with Indian real estate companies, which are deep in the debt; this debt will keep them afresh in the memories of their lenders.

The short-term borrowings of real estate players, which had witnessed astronomical growth in the last 12-18 months, has made their lives miserable as servicing the loans has, and will be, difficult.

Adding to their problems is that despite a sharp drop in demand, real estate developers haven't lowered their prices enough to spur growth. Instead, many of them are stalling projects and laying off employees in response to the slowdown. Furthermore, customer advances have also dried up and it's no secret that demand won't recover anytime soon. The question remains - do they have or will they have enough cash flow to pay back their short-term loans?

We analysed the debt structure of real estate firms that form a part of the BSE Realty Index to get a clear picture of maturity, quantum and their ability to pay back the debt. Companies that have seen their short-term bank borrowings almost double in the last one year are Phoenix Mills, Omaxe, Ansal Properties & Infrastructure, Sobha Developers and Housing Development & Infrastructure Ltd. The same is reflected in the interest burden of these companies (see table: At The Expense of Interest).

The most astonishing part of the debt mix of a few companies is that the short-term borrowings are almost equal to their long-term borrowings, which only increases the strain on the finances of these companies, as you need to have a sufficient and regular steam of cash flows to survive that outstanding debt. Akruti City, Parsvnath Developers, Ansal Properties & Infrastructure and Housing Development & Infrastructure are some of the companies that have short-term borrowings as heavy has the long-term borrowings on their balance sheet.

Moreover, many of them have loan repayments due in the near future as well as payments for land purchases. But looking at the sales pattern of 2008 and sitting at the threshold of 2009, the situation is only expected to go from bad to worse. Companies such as Parsvnath, Ansal Properties & Infrastructure and Sobha Developers have higher payouts in the year ahead compared with estimated revenues for the period.

Real Estate Debt Hangover
      Sep-08  Sep-08    Short term
  Short-term Borrowings    Long-term   Short-term/  Sep 07-Sep 08  Borrowing as
Company  Sep-07  Sep-08  Borrwings  Long-term %   PBDIT  % of PBDIT
Akruti City  79.67 113.62 113.8 99.84 798.67 14.23
Anant Raj Industries   8.53 47.68 17.89 765.57 1.11
Ansal Prop & Infrastructure  24.53 149.03 172.46 86.41 181.04 82.32
DLF  1,062.40 1,740.62 3,906.17 44.56 3,879.35 44.87
HDIL   866.67 771.08 112.4 2,404.72 36.04
Indiabulls Real Estate    2.24  143.69 
Mahindra Lifespace Dev  0.29    73.64 
Omaxe  34.55 116.31 517.26 22.49 225.44 51.59
Orbit Corporation    82.11  155.83 
Parsvnath Developers  259.27 382.5 515.81 74.16 466.16 82.05
Peninsula Land    77.96  194.31 
Phoenix Mills  15.66 36.21 118.59 30.53 279.12 12.97
Sobha Developers  2.19 307.65 876.32 35.11 412.67 74.55
Unitech   685.05 2,998.97 22.84 2,132.17 32.13
Source : CMIE, Rs cr