Maytas May Lose Hyderabad Metro Deal

General | By mahendra | 2009 Trackbacks (0) Add comment   

Despite government-appointed directors taking over charge of Maytas Infra, its only key project Hyderabad Metro is once again in trouble with the Andhra Pradesh government weighing whether to take the project forward with or without Maytas.According to sources, the state government is more or less convinced that Maytas Infra would not be able to take the Rs 12,000 crore project forward on its own.  Though taken up on a public-private partnership model, the company had agreed for a reverse grant to pay the government a certain amount without opting for viability gap funding. However, after its key promoter and Satyam Computer founder B Ramalinga Raju confessed to financial fraud Maytas Infra too was caught up in the ensuing storm.

The company is being probed for fund diversion from Satyam. Maytas Infra failed to achieve financial closure for the Hyderabad Metro by March 17, the deadline for fixing up funds. Citing difficulties, the company had sought extension of the deadline. Though the government is yet to take a decision on that, sources said the scope for Maytas to raise funds looks limited. "For about Rs 1,700 crore loans that it has, it is seeking a debt restructuring and its potential to raise further debt looks unlikely," an official source said. Given this situation, the Andhra government is learnt to have been examining options to take the project forward without having to depend on Maytas. "The state government sees the metro as a prestigious project. It can't wait for Maytas to come out of troubles... There are options to take it forward," an official said.However, one source said, the government is working on three options.One is to ask the Centre to fund the entire project.

The other option is to ask the Hyderabad Metro consortium, including Maytas, Nav Bharat, Ital Thai and IL&FS, to change the lead partner. "Currently, Maytas is the lead partner. Since its ability to raise funds is under question.. if any of the other partners come forward to take the responsibility, the project can be reworked," a source said. The third option, which is said to be under active consideration, is to cancel the bid awarded to the Maytas consortium and go in for re-tendering. "We are yet to take a decision. But we definitely want to explore the option of looking for central support to fund the project," an official said. Analysts feel Hyderabad metro remains a lifeline for Maytas Infra and would have a significant impact on the company if it is allowed to continue with the project. The existing pipeline of Rs 13,000 crore projects would not match the single metro project considering the by-products the project would offer."It is not just the metro Maytas would be developing. There is a significant real estate value along with the project. Losing this project would be a back-breaker for the ailing company," a source said.

Investors Wary As Share Sales Mushroom

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With its investor roadshow complete, India's GMR Infrastructure Ltd has managed to attract just over half the $1 billion (around Rs4,750 crore) it was initially hoping to raise, according to banking sources-an ominous sign for issuers looking to cash in on a stock market rally. While share sales are beginning to flow after a 15 month drought as India's main index has surged 90% from its 2009 low in March, wary investors are concerned the run-up has been too fast. Rapid surge: The BSE building in Mumbai. The Sensex has gained 90% from its 2009 low in March. Ashesh Shah / Mint "Clearly quality is coming into play now," said Jayesh Shroff, who oversees $1.3 billion for SBI Mutual Fund. "There will be some inflection point. Some issues may not sail through at some prices." So far in 2009, 11 Indian firms have raised nearly $2.6 billion, mostly in the last two months. Another three dozen firms, including GVK Power Ltd and JSW Steel Ltd, have announced their intentions to raise $8.5 billion in share sales, Thomson Reuters data showed.

Property and construction firms, reeling from debt-heavy balance sheets, form a majority of this group. Most are opting for the sales of shares to institutional funds, which can be done faster than a standard follow-on offering. Bankers reckon as few as one-third of the planned offers will succeed as investors are faced with multiple choices and stocks are no longer cheap. Shares in top real estate firm DLF Ltd have jumped nearly three-quarters since its founders raised $780 million in mid-May, handing out handsome returns to its investors.But new investors in GMR, which operates two of India's biggest airports in New Delhi and Hyderabad, would be buying into a firm that has already at least doubled in value since February and trades at 93 times its forecast earnings for fiscal 2010. "We are concerned with a run-up (in prices). Investors don't like this," said Ashutosh Agarwala, GMR's chief financial officer for strategic finance. "But having said that, I don't think it will matter. We haven't decided the pricing, but all I can say is the (placement) will be investor friendly," he said. GMR still cannot launch its offer due to restrictions on pricing from the market regulator. Under pricing rules for share sales to institutions, offers must be priced at a minimum of the average price in the past two weeks or six months, whichever is higher, making newer issues dearer following the recent rally. GMR's current market price of Rs158 is well below the regulator's floor price of around Rs185.

Overseas heavyweights including HSBC Holdings Plc., Government of Singapore Investment Corp. Pte Ltd, the UK's Prudential Plc. and T. Rowe Price Group Inc. have been among the most active investors in recent offers in India, bankers said, and are expected to become more cautious after sharp run-up in share prices. Most of the share sales so far have gone towards retiring high-cost debt and would not help in generating fresh cash, eventually diluting earnings on expanded capital, analysts said. Even for firms working on new projects, returns will flow only after a few years, as in the case of GMR, which plans to use the proceeds to finance a slew of new road and power projects. "Indian industry is hungry for capital. If investors are indicating prices are high, companies will have to value it. Pricing power is still with the investors," said Girish Nadkarni, executive director at Avendus Capital, an investment bank. But firms such as Gammon Infrastructure Projects Ltd, which is debt free and plans to invest in new projects, insist offerings that will deliver strong cash flows are attractive enough for investors. "I have a queue of these guys waiting," said Parvez Umrigar, managing director at Gammon, which aims to sell shares worth $105 million.

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Home Demand On Rise But Realty Recovery Still A Distant Dream

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Homes sales in India are trickling back in some sections of the  real estate market, but industry watchers say a rebound is months away as buyers in the world's second-most populous country await further price corrections. Builders have begun new projects after a year-long hiatus, and are also swapping older premium project proposals for cheaper ones to restart sales as they try to beat a severe cash crunch. "While the market has turned up, I don't expect it to be back to 2007 or 2008-beginning levels for another 6 months or 8 months," said Rajesh Goenka, Chairman, Axiom Estates, real estate agency, servicing overseas Indians mostly in the earning bracket of $100,000-$300,000 a year. Indian real estate developers have spent months battling a severe cash crunch as high interest rates and an economic slowdown kept buyers away and funding from investors dried up.

But, a spate of interest rate cuts and a sentiment revival has encouraged builders to focus on middle-income buyers by launching new projects or re-market older ones as mid-income properties. Unitech, Parsvnath Developers as well as India's top listed real estate firm DLF redesigned projects and cut costs to appeal to a wider consumer base. Demand is swaying towards affordable housing and buyers of luxury properties are staying on the sidelines, holding out for a further drop in prices. In the quarter to March, half of the homes sold were in 114 new projects of the 2,000 available for sale, according to estimates by realty rating and research agency, Liases Foras. Realty firms are also using the momentum to tap investors for money. Real estate firms alone have raised $1.7 billion this year so far, Thomson Reuters data showed, to beat a cash crunch.

In cue, India's realty index has almost tripled, outperforming the 82 percent rise since March 6 in the benchmark 30-share BSE index when it saw its 2009 low. Despite a cautious revival in demand for homes, the sales taking place now are not spread evenly despite prices falling by 40 percent from their peak for under-construction houses mainly in southern and northern India, analysts say.

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