In a bid to deleverage balance sheets, debt-laden corporates are turning their focus groundward and trying to monetise their land holdings. A couple of corporate houses, sitting on substantial land assets, are hoping to get the most out of them by developing townships, commercial properties and hotels, instead of simply selling the plots. They are opting to develop the land themselves or through joint ventures since projects fetch better realisations.
While Reliance Communications hopes to earn close to R12,000 crore by developing 140 acres in Navi Mumbai and New Delhi, Adani Enterprises plans to develop a 600-acre integrated township called Shantigram between Ahmedabad and Gandhinagar, across 40 million square feet, valued at over R5,000 crore. Gammon India is hoping to raise R2,000 crore by building townships on 200 acres in and around Mumbai and Bhopal. The plans were detailed as part of the firm?s R13,500-crore corporate debt restructuring (CDR) package.
The choice of townships over commercial space is partly explained by the spurt in prices of residential property in Mumbai and the National Capital Region by 26% and 67%, respectively, between March 2011 and 2013, according to Liases Foras data.
Anuj Nangpal, MD (investor services), DTZ India, says since infrastructure companies already have procurement and engineering skills, entering the realty segment is just a business diversification. ?Real estate is after all a sub-set of infrastructure, and by roping in a realty partner, skill gap if any, is also filled,? he said.
In December 2012, Anil Dhirubhai Ambani Group had formed a joint venture with Chinese real estate developer Wanda Group to undertake real estate projects focussed on developing integrated townships.
Apart from the 600-acre Ahmedabad project, Adani jointly with Delhi-based developer M2K has undertaken a residential project spread over 41 acres, along the Dwaraka Manesar Expressway in Gurgaon.
?If you already have the land, there is minimal working capital required in the real estate business, because then, the construction of the project can be funded through customer advances,? says Ambar Maheshwari, MD (corporate finance), Jones Lang LaSalle India, explaining why cash-strapped firms are choosing to develop projects rather than going in for an outright sale of the land.
However, the timelines for such monetisation will be long, say others. ?A lot will depend on choosing the right partner, if the company lacks in-house development skills. Mitigating execution risks like getting timely approvals and the economic situation at the time of project launch will also be key, as these developments will take many years,? says Neeraj Bansal, partner (real estate and construction), KPMG.
GMR Infra and GVK?s plans to develop land as part of their airport projects have met with little success. Both have been looking to develop retail, commercial and hospitality projects. GMR has 230 acres, on a 30-year lease around the Delhi airport. For GVK, about 20 million square feet of hospitality, office and retail development, spread over 200 acres near the Mumbai airport, is expected to fetch over R1,000 crore, say sources. While GMR refuses to comment on earnings from sub-leasing around 45 acres, sources say it would be around R1,400 crore. As on March 31, GVK?s borrowings were at R17,000 crore, GMR?s debt was over R33,700 crore.
Adani?s Ahmedabad project, launched in 2010-2011 has already started sales, but Gammon will take 7-10 years to earn R2,000 crore, while RCom has not even given any timeline for the proposed development.
Infrastructure firms are among the worst-hit and account for 40% of the CDR in the first half of FY13.
