Realtor QIPs a short-term respite: Crisil

Realtors’ new financial mantra — qualified institutional placement (QIP) — has not only improved their leverage ratio, but also improved the overall outlook of investors towards the sector.

However, this is only a short-term solution, says Crisil Research in its latest realty report.
“QIP route should not be considered a fund-raising tool, but as the last and undesirable alternative to internal accruals. Nevertheless, as of now, QIPs have helped to grant a significant and much needed, albeit short-term, respite to the real estate industry,” said Prashu Bareda, analyst, Crisil Research.

If the sector has to recover from past miscalculations, a strong rebound in demand is imperative. “In majority of recent QIP issues, the amount raised has been used to repay debt, as most developers were being pressurised greatly by banks and institutions to repay their short-term borrowings. Thus, the funds helped them reduce the short-term liquidity pressures,” Sudhir Nair, head-Crisil Research, said in the report.

The analysts feel QIPs dilute the shareholders’ stake. Take Unitech for example. Promoter shareholding in the New Delhi-based realtor declined from 64.5% to 43.8% after two successive QIP issues earlier this year.

“Thus, it is always a tradeoff between stake dilution and raising money, and hence, it is the last resort to generate funds,” said Binaifer Jehani, team leader, Crisil Research.
Among realtors that raised QIP till mid-August 2009, include Unitech (two issues), Indiabulls Real Estate, HDIL and Sobha Developers. The promoters of DLF also offloaded some part of their stake to QIBs, but not through QIP, as the existing equity was diluted and no fresh issues were made.