Credit rating agencies, which have downgraded as many as 20 real estate companies in the past six months, have stepped up their monitoring in view of the uncertain environment.
Rating companies are now seeking monthly — and even weekly — information from real estate companies and their bankers to monitor the cash flow position.
“The monitoring has been intensified to factor in the change in the financial profile of a company,” Vikas Aggarwal, senior vice president, ICRA, said.
Real estate developers relied heavily on borrowed funds to expand their reach in anticipation of higher demand, but the global slowdown and stock market slump have put paid to their plans.
The overleveraged position and short-term borrowings have forced many developers to seek rollovers. The banking sector’s exposure to the real estate sector is Rs 75,000 crore, including lease rental discount. Real estate companies have also borrowed Rs 17,800 crore from HDFC and LIC Housing Finance.
DLF alone has short-term debt of Rs 2,000 crore, while Unitech has Rs 700 crore of short-term liability maturing by the fiscal year-end.
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“For certain cases we are reviewing the financial position on a monthly basis,” Rakesh Valecha, senior director, Fitch Ratings, said.
Rating agencies are giving more weightage to a company’s ability to meet repayment obligations. The questions being asked are whether they have enough cash flows or whether the current sales book is sufficient to meet debt repayment, said Aggarwal.
Rating companies are also viewing the developers’ move to restructure debt as a negative as it highlights the distress in the cash flow position.
“Restructuring of debt is a negative though the restructured debt may provide them with liquidity cushion for the short-term,” said Valecha. “I am not sure about the long-term effect.”
Also read: REAL ESTATE INDEX HITS ALL-TIME LOW
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