Indiabulls Real Estate today announced plans to restructure its business by creating a separate venture for commercial and leasing operations in an attempt to sharpen focus on each segment. Post-announcement, the company’s share price jumped 40 per cent to close at Rs 148.15 apiece on the BSE. The Mumbai-based developer plans to hive off commercial and leasing business into a separate entity ‘Indiabulls Commercial Assets Ltd’, according to a regulatory filing. The board has constituted a restructuring committee to examine and evaluate the feasibility of and options to implement the restructuring or reorganisation of the business. The panel will submit a draft proposal on the same for board’s approval.
“The company’s board in its meeting today considered the possibility of streamlining its existing residential, commercial and leasing businesses by segregating ‘commercial & leasing’ business carried on by itself and/or through its SPVs and vesting the same into Indiabulls Commercial Assets Ltd (ICAL),” the company said. The restructuring/reorganising of its businesses could be through placing ICAL as a separate holding company, under the Indiabulls Real Estate, to hold assets and investments relating to ‘commercial & leasing’ business segment.
ICAL would undertake the operations of ‘commercial & leasing’ business segment and/or explore opportunities to bring in strategic investments. Indiabulls said it could also reorganise its existing businesses by way of a demerger of the undertakings, business, activities and operations pertaining to its ‘commercial & leasing’ business segment. ICAL would be primarily focussed on annuity business through rental income of existing portfolio, under-development projects and future projects.
The housing vertical would be primarily focused on earning profits and return on equity from the business of selling of properties that are developed, under developed and from future projects. Post-restructuring, the net worth of ICAL will be Rs 2,311 crore while net debt Rs 3,950 crore. The annuity revenue from completed properties of 5.2 million sq ft with 91 per cent occupancy is expected at Rs 692 crore in 2017-18 and the same will rise to Rs 1,357 crore by 2020-21.
After carving out the commercial and leasing business, Indiabulls Real Estate’s net worth will be Rs 2,380 crore and a net debt of Rs 4,395 crore. “Blu project in Worli is scheduled for completion in the current fiscal. Pending construction costs in Blu project are Rs 612 crore. The pending collections and value of unsold area in Blu project is Rs 3,341 crore.
“The net surplus of Rs 2,729 crore accruing from Blu project will reduce the net debt of IBREL (post restructuring) to less than Rs 2,000 crore in next 12-18 months. Going forward, IBREL will then maintain a net debt position of not exceeding Rs 2,000 crore,” the filing said. The other 16 ongoing projects will contribute profits, and net surplus as they get completed. As main strategy, IBREL (post restructuring) will focus on growth of business through JV developments with land owners without incurring any significant upfront land acquisition costs. “This model of growth along with net debt capped at Rs 2,000 crore will allow IBREL (post restructuring) to have superior earnings and higher ROE from the development business going forward,” it added.