The asteroid that hit Mumbai-based realtor HDIL

Housing Development and Infrastructure Ltd (HDIL), at one point of time the third largest Indian real estate firm by market value, has seen better days. But the Mumbai-based realtor witnessed its share price crumble in the recent past and crashed some 20 per cent on Wednesday (March 20) alone, after a credit rating downgrade on a non-convertible debenture.

The stock is marginally up on Thursday, in line with the broader market, but it is still a shadow of its past. It lost half its value in the past one year when the S&P BSE Realty Index had actually shown a positive movement, given the undercurrent of an industry revival.

We had earlier captured how the debt-laden firm was looking at asset sales to tide over the problems. Here’s a look at what’s wrong with HDIL.

What ails HDIL?

The real estate company, which claims to have developed close to 100 million sq. ft. till date, has been battling liquidity concerns of its investors, contractors and analysts alike.

Only yesterday (March 20, 2013), rating agency CARE downgraded HDIL’s non-convertible debentures I of Rs 227.87 crore to CARE D. Instruments with D rating are in default or are expected to be in default soon.

The same was earlier assigned a BBB+ rating, which is considered to have above-moderate degree of safety regarding timely servicing of financial obligations.

CARE has also downgraded its non-convertible debentures II of Rs 1,667.50 crore from BBB+ to D and the short-term non-convertible debentures of Rs 200 crore to D from its earlier rating of CARE A3+.

Its short-term lenders include Punjab & Maharashtra Co-op Bank Ltd, Central Bank of India, Punjab National Bank, Allahabad Bank, Syndicate Bank, UCO Bank, Oriental Bank of Commerce and The Jammu and Kashmir Bank. Its term loans are from financial institutions such as LIC Housing Finance and IL&FS.

“The revision in the ratings of Housing Development and Infrastructure Ltd (HDIL) reflects the ongoing delays in servicing its non-convertible debentures obligations,” CARE cited in its downgrading rating rational.

However, HDIL notified the exchanges that “the company has not accepted the said rating assigned by CARE and would like to reiterate the company’s strong financial & operational performance and sound fundamentals that the company has submitted to CARE to review/restore the rating.”

But the company’s clarifications fell on deaf ears as stock traders started short selling the stock heavily during the trading hours on Wednesday.

Debt woes have been an industry-wide phenomenon with some firms like the DLF finally pressing the accelerator on asset sales to cut the burgeoning debt pile.

HDIL indicated that the company’s standalone debt stood at Rs 3,466.94 crore as on December 31, 2012. However, the standalone debt is expected to decline by approximately Rs 200 crore on account of sales from its Mumbai-based project called Metropolis in the fourth quarter ending March 31, 2013.

Consolidated net debt stood at Rs 3,920.14 crore by the end of the last quarter. It got Rs 800 crore of loan sanctioned with the tenure of eight years and moratorium of four years in a subsidiary company. Earlier, HDIL was also looking to raise close to Rs 450-500 crore from asset monetisation but it is yet to fructify.

Also, last month, Sarang Wadhawan (aka Sunny Wadhawan), the promoter of the company, sold shares worth Rs 57 crore in the open market. It was another negative trigger as analysts say when a promoter sells his/her shares, the company is either in distress or the promoter does not have faith in his own company.

As markets hammered the HDIL stock, Wadhawan and his finance team went for an analyst call to dispel the fears. The management clarified that the promoter sold shares to buy a plot at the Byculla locality in Mumbai.

To add to HDIL’s woes, its promoter share pledging is one of the highest in the market. The promoters own 36.12 per cent in the company and 96.24 per cent of that is pledged and encumbered with financial institutions.

Media reports also indicated that HDIL could lose its rehabilitation project associated with the Mumbai airport, but analysts have long discounted the project from their valuations for the company.

“All the money that has gone into that project will have to be written down some day, but that’s still better than keep on pumping money in that project where nothing is moving,” an analyst, who has removed HDIL from the coverage some time ago, said on the condition of anonymity.

HDIL has already built slum rehabilitation components for nearly 25,000 families – tenements of around 269 sq. ft. The developer was supposed to rehabilitate close to 80,000-85,000 families. But according to HDIL’s investor presentation in June 2012, only 1,500 families have relocated. HDIL’s deadline to shift the families was September 2009.

Since 2011, HDIL also started selling off its land parcels that it had purchased as part of the rehabilitation project related to the Mumbai airport. The land parcels were sold to other developers.

There were also payment issues with sub-contractors. In August 2011, Vascon Engineers, the construction company which had the contract for developing HDIL’s commercial project in Kurla, told analysts in a conference call that it had stopped working on the project due to payment issues.

It is unlikely that HDIL will recover soon from the financial cesspool. But the realty market is showing signs of revival and the overall sentiment is positive. But analysts are certainly watching whether HDIL can get its asset sales going and show some positive moves in cutting the debt flab.

(Edited by Sanghamitra Mandal)

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