Recent Housing finance scandal likely to be a setback to realty companies

NEW DELHI: The ongoing investigation of LIC Housing Finance and some public sector banks is set to impact realty companies, which are already facing a crisis of confidence among institutional investors. The development will adversely impact their ability to raise resources either through debt or equity. Given their market performance this fiscal, realty stocks are finding few buyers.
Moreover, as per industry estimates, a massive debt-burden of Rs.25000 crores to public & private sector banks, is jeopardizing the stability of real estate companies. Most of the proposed equity issues are aimed to repay debt. There are at least six firms that have got the market regulator’s approval to launch their initial public offers (IPO) to raise Rs 9,841.16 crores. Many realty firms such as Emaar MGF , Lodha Developers and Ambience are lying in wait to hit the market. Moreover, Vatika Group, which had planned to raise upto Rs 1,000 crores from an IPO by selling around 20% earlier this year, has now postponed its plan to December next year. The other three companies, namely Oberoi Realty , Ashoka Buildcon and Prestige Estates that mobilized Rs 2,500 crores, are trading marginally below their offer price.
The Housing finance scandal negatively affected the stock markets also, as soon after the scam became public, the Sensex was down 0.73%, while the realty index dropped by 5.4%. Banks are estimated to have outstanding loans of Rs 75,000 crores to the real estate sector, of which Rs 25,000 crores will have to be repaid by March 2011.
Stung with the ongoing investigation, banks are set to be more cautious in taking fresh exposure in real estate firms in order to avoid any such future scandal, tarnishing their credibility, as the present one.





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