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May 27, 2010Emaar MGF has been trying to do an IPO for the last 3 years without success.Recent news suggest that is has reduced its planned offering by 20% and may have to refile the prospectus the IPO with SEBI.Even other big real estate developers are facing hurdles as sentiment towards Realty companies has been extremely negative.
Recent Real Estate IPOs showing 20% losses
The last Two Real Estate IPO’s Nitesh Estates and Jaypee Infratech are trading at 20% below their listing price. Jaypee Infratech managed to list at the lower end of its book-building bank despite hiring Nine Investment Banks and has rewarded its investors with a 20% loss.However the Managment does not seem too perturbed attributing it to Bad Market Conditions.Nitesh Estates is one of the lowest quality offerings I have seen in recent times.It had to revise its listing price to a lower band and has still managed to trade even lower.
Lack of confidence in Real Estate Companies
Even professional Fund Managers are avoiding the real estate companies due to a lack of trust in the management and the financial statements they publish.It is very tough to come up with a decent valuation of the real estate sector given this lack of trust.The recent correction in the stock market has seen the Realty Index underperform the market by a significant amount despite an improving real estate market
Large Numbers of Real Estate Companies waiting in the wings to do an IPO
There is a deluge of real estate IPOs waiting in the wings to repay their debt obligations.Most of these companies have large amounts of debt on their Balance Sheet which they hope to repay through equity stake sales.However the lack of trust in the whole sector has made their task difficult.Investment bankers are confident that the market volatility will subside allowing for the IPOs to proceed.What they fail to understand is that “market volatility” is not the issue but “lack of trust” is the main issue
Realty IPOs face fresh market heat – Rediff
The deterioration in the market mood has directly impacted fund-raising plans of real estate developers, many of whom have either delayed their initial public offers or have decided to go slow.While Lodha Developers and Emaar MGF have pressed the pause button on their IPOs, firms such as Oberoi, Neptune and Sahara have reduced their fund raising ambitions, investment bankers and developers said.At least a dozen real estate IPOs worth over Rs 12,000 crore are in the pipeline, with developers having received Sebi nod. They were, however, waiting for the market conditions to improve further before starting the sale process.
Reflecting the investor fatigue in realty stocks, the BSE Realty Index has fallen over 15 per cent since April this year, making it the second largest fall among sectoral indices after metals. The benchmark BSE Sensex had fallen by 7 per cent during the period.
The timing and relevance of IPOs is crucial, as most of the aspirants are banking on public issues to repay their debt. During the current financial year, developers, both listed and unlisted, need to pay around Rs 25,000 crore towards debt repayments.For instance, Emaar MGF, which had a debt of Rs 5,807 crore (as per its prospectus), plans to use 33 per cent of the IPO proceeds to repay debt.Another Delhi-based developer, BPTP, plans to use a fourth of its funds to repay and pre-pay debt.
“The volatility in the markets is so much that developers can decide on valuations and dates only when the uncertainty ends,” said Ambar Maheshwari, director of investments at international property consultant DTZ.However, some investment bankers are confident of investors returning to the markets in the near future.