HDIL IS GOING TO BANKRUPT?

 Mumbai-based real estate firm Housing Development and Infrastructure (HDIL) has tanked  23 percent in four consecutive sessions to touch a new 52-week low of Rs 46.30 today after rating agency CARE  downgraded the company’s Non Convertible Debentures to ‘default’. 

The rating assigned to HDIL’s tranche I (Rs 227.87 crore) and tranche II (Rs 1,667.5 crore) non-convertible debentures (NCDs) has been revised downwards from BBB+ to D by CARE, which indicates that instruments are in default or going to default soon. In NCDs developers offer land as security as it is a very real and tangible collateral. The trend is to offer two times the value of funds raised.

“The revision in the ratings of Housing Development and Infrastructure Limited (HDIL) reflects the ongoing delays in servicing its Non- Convertible Debentures obligations,” said Care analyst Mahendra Patil in a statement.

However, HDIL has asked the credit agency to review the downgrade.

Urging Care to reconsider its rating, HDIL said since the interest payment was due in Feb 2013, HDIL has paid it this month. The company defaulted on payments as its accounts were frozen temporarily, the real estate major told CNBC-TV18.

“The company has not accepted the said rating assigned by CARE and would like to reiterate the company’s strong financial and operational performance and sound fundamentals,” HDIL said in a statement.

The company has a debt around of Rs 4000 crore with interest liability of over Rs 500 crore.

And even though the management has denied bankruptcy threats, investor concerns are not allayed. Analysts say the company is facing a  severe cash crunch. Despite having transfer development rights, no new launches  have been announced by the company. Delays in the MIAL (Mumbai International Airport Project) project too added to the woes.

“HDIL’s incremental cash generation has remained weak given limited movement on the airport project. Policy clarity on eligibility norms
for the airport project is still awaited. Further launch activity for the company hasn’t picked up materially as yet despite an approval recovery cycle seen in the city,” said JP Morgan in a research report.

Execution had been adversely impacted due to approval issues in Mumbai last year, thereby resulting in 9-12 months delay in delivery timelines for ongoing  projects. And even while approvals have now started to come in the airport project, however, still faces policy uncertainty and the initial phase is still awaiting shifting of families in rehab buildings due to uncertainty around the eligibility norms.

Payments from pre-sales are often delayed too, which means the company is booking sales, but money isn’t coming into its books.

“Whilst the stock valuations are cheap, underlying cash flows need to improve and there are non real estate related issues weighing on the share price,” added the report.

Most of promoters shares are pledged and the stock fell sharply last month on concerns that promoters pledged shares were liquidated on margin calls pressure. According to a report in the Business Standard, the  promoters have pledged almost 98 percent of their shares to banks and financial institutions as collateral in exchange for loans or working capital, raising concern about the company’s high debt.

The stock has fallen 57 percent since January 21 when promoter Sarang Wadhawan offloaded partial stake in the company. He sold 50 lakh shares of the company to raise Rs 57 crore to acquire 15 acres land parcel of NTC Digvijay Mills at Lalbaug near Chinchpokli. Questions were raised over the need for a stake sale to raise just Rs 57 crore  when the market capitalisation of  stood at approximately Rs 5000 crore.

Citigroup and Credit Suisse too off-loaded major chunks of their shares probably because  promoter selling stake in his company to fund land acquisition is unusual, unless the company is in a very difficult financial position.

by Sunainaa Chadha