Firms need to do a reality check before they raise more funds



By Lalatendu Mishra

Once the new ULIP guidelines are in place, the returns in many cases could be much lower. But the insurers dispute this
Illustration: Samia Singh

SETBACKS IN the stock markets for big time developers have not deterred two more real estate companies to try to tap them, and many more are waiting in the line. Yes, though this hasn’t been the best of times for realty companies, Embassy Property Developers and Entertainment World Developers have applied to the Securities and Exchange Board of India (SEBI) to raise over Rs. 3,000 crore.

They have done this at a time when over a dozen realtors have waited for nearly a year to raise an estimated Rs. 20,000 crore — deterred by lack of investor appetite.

Embassy Property, which reported sales of just Rs. 383 crore in 2009-10, wants to raise Rs. 2,400 crore to fund ongoing projects, while Entertainment World, a mall developer, that has drawn investment from a host of private equity firms, is planning to raise Rs. 600 crore.

How the two will fare is anybody’s guess. SEBI is already processing several applications for new share sales, including one from Sahara India Group’s Sahara Prime City, which had last year sought permission to raise Rs. 3,000 crore from an initial public offering (IPO).

It’s a growing list: the Mumbai-based Lodha Group and Delhi’s Emaar MGF Land Ltd, that have got the nod but are waiting for better valuations. The two want to tap Rs. 3,000 crore each. Delhi-based BPTP Ltd plans to raise Rs. 1,500 crore and Mumbai-based Oberoi Realty and Raheja Universal are looking to garner Rs. 1,500 crore and Rs. 850 crore respectively. What has given the companies fresh hope are the rising real estate prices.

Even so, analysts remain sceptical. “The market does not have the capacity to absorb them. Institutions are unwilling to pay high premiums because they have lost money in previous realty IPOS,” says Pankaj Kapoor, chief executive officer, Liases Foras, a real estate research firm. “The market is getting better, but only developers with a good track record will be able to raise funds. The valuation has to be right,” adds Anuj Puri, chairman and country head of Jones Lang LaSalle. Puri was referring to the high prices that developers are demanding.

According to them and others, the wise thing for realtors to do is to conduct a reality check before making fresh moves.



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