Realty QIPs likely to get delayed

Despite the surge in qualified institutional placements (QIPs) by real estate developers in recent times, analysts feel many of the issues will be delayed till the stock prices recover.

A QIP is a means whereby a listed company can issue equity shares, fully and partly convertible debentures, or any securities other than warrants which are convertible to equity shares to a qualified institutional buyer.

The route is popular with developers as they seek to get out of the credit crunch they are facing since the collapse of Lehman Brothers in September last year. Mumbai-based Housing Development and Infrastructure (HDIL) and Bangalore’s Sobha Developers on Wednesday received shareholders approval to raise money through the QIP route.

“Nobody wants to comment on the time frame when they would issue the QIP because realty stocks have been quite volatile. Companies don’t want to get into a situation where they are unable to raise the money desired as they wouldn’t be able to go back to private equity funds or banks to ask for money,” said an analyst tracking the sector.
The real estate index has fallen 16% since June 1, 2009, while the BSE Sensex fell just 2% in the period.

Market analysts add that, while the QIP may help developers pay off their short-term debt, such an issue leads to a dilution in the company’s earnings per share (EPS).

EPS is the portion of a company’s profit allocated to each outstanding share of common stock. It serves as an indicator of a company’s profitability. So any increase in the number of outstanding shares decreases the company’s EPS.

HDIL’s plan to issue 101 million shares would dilute its EPS by 27%, while Sobha’s EPS will fall by 41% as it plans to issue 51 million shares. But the biggest fall (59%) in EPS will be seen in Parsvnath Developers.

“A large dose of fresh equity has had a dampening effect on the EPS of real estate players. The extent of earnings dilution is in the range of 26% to 59%. It must be remembered that the dilution has come on top of the earnings deterioration over the last few quarters,” says a recent report by First Global analysts Hitesh Kuvelkar.

Sarang Wadhawan, managing director, HDIL, said, “I have met a few investors who have shown interest. We expect the issue to pass without any hitch.”

Though he did not divulge any specific date when the issue would be opened, he added, “primarily the money will be used for debt repayments and for project completion.”
HDIL has a total debt of Rs 4,143 crore. It has received shareholder approval to raise Rs 2,685 crore and to issue 2.6 crore warrants on preferential basis to Rakesh Wadhawan, one of the promoters of the company.

Sobha’s management remained unavailable for comment even after repeated attempts to get in touch. Sobha’s shareholders on Wednesday approved a QIP of Rs 1,500 crore and an increase in the limit of foreign institutional investor’s investment in the equity shares of the company up to 100%