DLF goes deep into the hole, Crisil lowers Ratings with a finger on further downgrades

DLF goes deep into the hole, Crisil lowers Ratings with a finger on further downgrades

DLF, the country's largest real estate company, today said that it has deferred several residential, hotel and commercial projects and retrenched an unspecified number of staff due to the lack of demand for housing.

DLF Chairman K P Singh said the real estate sector would witness massive job losses unless steps were taken to boost housing demand by reducing the rate of interest on home loans to around 7 per cent.

Singh said the real estate sector supports the livelihood of many people and stalled projects meant people will lose their jobs. He added that his company may have laid off some people, but did not give any numbers. Other developers like Unitech and Parsvnath Developers are also reported to have retrenched staff in the recent past.

Singh's remarks, made on the sidelines of the India Economic Summit organised by the World Economic Forum, come at a time when there are reports of real estate firms laying off employees, as part of their cost-cutting drive.

Developers have been facing liquidity crunch for over a year now. One of the reasons for this is the high risk weightage for bank loans to real estate and the ban on them from borrowing funds overseas.

However, the government has asked developers to slash prices of their projects to boost demand in the sector. Singh said the lack of demand has already led to lower prices.

Meanwhile, Crisil has lowered its rating on DLF's non-convertible debenture programme and long-term bank facilities to AA-/Stable from AA/Stable. The rating agency said the revision was prompted by a weakening of the company's debt protection measures and higher-than-expected gearings.

The weakening was on account of higher debt funding of receivables from DLF Assets (DAL) and increased payments made for land.

The rating agency said it may revise its outlook on DLF to 'negative' if the receivables from DAL increase significantly beyond current levels. Conversely, the outlook may be revised to 'positive' if there is a significant improvement in the company’s capital structure and debt protection measures.

Crisil's rating derives support from the company’s policy of reducing its gearing to about 0.5 times. "These rating strengths are partially offset by the risks and cyclicality inherent to the real estate sector, DLF’s aggressive plans of diversification into non-real-estate businesses, and the high levels of receivables from DAL," said Crisil.

GVK POWER and Infrastructure (GVKPIL) is planning to divest 25% stake in its energy vertical.

GVK POWER and Infrastructure (GVKPIL) is planning to divest 25% stake in its energy vertical.

The company is in talks with some global private equity funds and a European bank for the proposed deal, which is valued at around $500-700 million. “We have got five confirmed term-sheets from four global private equity funds and one foreign bank. We hope to sew up the deal with one of them after our power plants commence operations by the year-end,” said a top official of the company who did not wish to be named. A term-sheet is a non-binding agreement setting forth the basic terms. The company is waiting for gas supplies from Mukesh Ambani-led Reliance Gas Corporation for two of its power plants in the state. “We will settle the transaction once the Vemagiri and Gautami power plants in east Godavari district start generating power,” said the official. Currently, these two power plants are lying idle. Reliance Gas Corporation has entered into an agreement with GVKPIL to supply 8.94 million cubic metres of gas per day for the gas-based power plants in Andhra Pradesh. The Mumbai-based company would be producing 40 million cubic metres per day of gas in the first phase. GVK Power & Infrastructure, an arm of the GVK group, has diversified businesses. It has a focus on infrastructure and urban infrastructure projects, besides interests in the hospitality, services and manufacturing sectors. The company owns, operates and maintains power plants by itself and through its subsidiaries. In February 2008, the GVKPIL incorporated GVK Energy as its wholly-owned subsidiary. Later, the company acquired both GVK Energy and GVK Developmental Projects.