The Hindu Business Line : Seeking more from the rejig

The RBI’s announcement last month allowing banks to extend concessional treatment to commercial real estate loans restructured up to June 2009 has come as a shot in the arm for builders hit by the cash crunch and slump in demand. This means banks retain the asset classification under the ‘standard category’, and the accounts would not be considered non-performing assets (NPAs).

Banks expect requests for rescheduling loans would be made in the coming months as developers work out their individual strategies. “We have got only one-two requests so far, as the announcement is quite recent and companies have time till June for applying. Moreover, for some companies, the principal amount payment may not have fallen due just yet. But we are definitely expecting more companies to apply in coming days,” says a senior official of a leading public sector bank.

The industry is asking for clarity on issues such as the moratorium period of repayment and the interest on the re-scheduled loans. The industry, which recently met the Planning Commission Deputy Chairperson, Mr Montek Singh Ahluwalia, has also pitched for extending the validity of the rescheduling package up to December 2009.

Requests on the wish-list

Leading the wish-list is the length of the moratorium period before repayment starts.

“The RBI can give a minimum directive outlining a 12-month moratorium, and banks can have the flexibility to consider 12-24 month moratorium on case-to-case basis,” says Mr Pradeep Jain, Chairman, Parsvnath Developers and Senior Vice-President, National Real Estate Development Council (Naredco).

The industry has also urged that the date of submission of application to the bank be considered as the date for the existing classification of assets in the books of the bank. This means if there is a delay in banks processing the rescheduling or restructuring, then the loans would not be classified NPA in the interim period. .

Continue loans

Further, as part of restructuring, the bank should also consider giving more loans to meet the gap in cash flows for the same project, as the market meltdown has hit the internal cash flow requirements, says an industry representative who was present at the meeting with the Planning Commission.

“We feel that restructuring should be done on the original terms and conditions of the sanction and no increase in the rate of interest or other charges should be stipulated by the banks. This is particularly relevant in the current scenario where the interest rates have been cooling off,” Mr Sanjeev Srivastava, Managing Director, Assotech, a realty firm, said.

Leading developers such as Parsvnath and Unitech have approached banks for re-scheduling loans for specific projects. A Unitech official confirmed that the company has approached five-six public sector banks for rescheduling its loan.

“Some of these loans are to be repaid in the next six months, and we may seek an extension for about one year. It is still early days and we still do not know how much will be rescheduled…It depends on the banks,” an official said but did not divulge the quantum of debt to be restructured.

However, he said that Unitech’s immediate priority is “reducing” its overall debt.

The company has already stated that it would mobilise up to Rs 4,000 crore through the sale of some assets and equity in order to repay part of its Rs 8,400-crore debt by March 2009. “Rescheduling can only help to the extent of deferring the liability for some time, whereas we are aiming to bring down the absolute level of debt,” the official pointed out.

Meanwhile, banks say that it is too early to gauge the full impact of the move, as realtors are still assessing their loan positions and drawing up plans to approach existing lenders.

Mr Sachin Khandelwal, Head – Retail Assets, ICICI Bank, says, “Only those builders whose loans would have become overdue in December would have applied immediately. The rest, I feel, will wait. If the market continues to be stretched, these companies may apply in the coming months, so we will see most of the action between January and March,” he said.

Our Chennai Bureau adds: Chennai-based IT space developers who did not want to be named said that most companies — with completed projects and projects in the pipeline whether on schedule or delayed — would opt for the restructure proposal in the coming weeks. It is an option to postpone repayment of the debt at least by about a year or more. It would provide a welcome relief under the present circumstance.

When the loans are rescheduled, developers expect a relief on principal repayments at least up to April 2010. Even companies with finished projects and generating lease incomes would opt to restructure their loans as they are wary of what 2009 holds for them. Tenants may vacate, cut down on space occupied or exit businesses, which would result in vacant space with no immediate prospects of being filled, they say.

While the large real-estate developers based in the NCR and Mumbai have either taken up the offer or are examining options, the momentum is yet to build up in the South. Banks too need to promote the resettlement package — it ensures their own capital is not blocked, they say.

A limitation

However, a limitation is that the RBI package does not provide for a second restructuring for commercial real-estate loans. Most IT space developers have opted for one restructure with their banks and this condition now disqualifies them, said a developer.

They are hoping that infrastructure projects such as IT parks, hotels, SEZs should be given one more chance to restructure.

For now, the resettlement is only option available to developers for some relief on funding.

A leading IT space developer said like others in the industry he was also keen on bringing down debt by diluting his equity. But there are no takers offering reasonable valuations. IT space now fetches less than a third of the value it commanded a few months ago.

At these levels, developers can barely hope to cover their debts but make no margins on their investments.

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