Debt woes compel companies to sell assets

Debt ridden companies are increasingly resorting to selling assets to dig themselves out of the hole, reports CNBC-TV18's Priyanka Ghosh.

Landbank, property, plant & machinery are among assets that can be sold to reduce debt. Kingfisher Airlines has been directed by the finance ministry to liquidate some of its assets to help clear its bills. But this may be easier said than done.
Companies that are currently engaged in restructuring their debt, are looking to sell assets and raise over USD 2 billion dollars. These include Kingfisher Airlines, Hotel Leela , HCC and Air India.
 
Throw in some others like DLF and DB Group who are trying to hive off non-core assets to improve their balance sheet, and   this number exceeds USD 3 billion.
 
Experts say the current market scenario cannot support such high volume of asset transactions as most corporates and financial institutions are treading cautious on expansion and investments.
 
Shortage of buyers is not the only problem. Unlike land, the value growth of commercial assets has not kept pace with debt accumulation. In many cases, experts say asset values have actually dropped, while debt has continued to rise.
Anuj Puri, country head at Jones Lang LaSalle Meghraj says, "Office is the other way around. Its prices are at a discount to where 2007 levels were. So, we are 15 - 20% lower than 2007 and we are five years away trading 20% lower. So, clearly the debt has had a much higher yield than the asset itself."
So HCC, DLF, Hotel Leela among others have their work cut out for them.
HCC's debt is around Rs 7,000 crore while the 26% stake that it is looking to sell in its mumbai headquarters is valued around Rs 300 crore.
Similarly, by selling its Mumbai land, DLF is expected to raise Rs 2,500 crore. Pittance, against its debt of nearly Rs 23,000 crore.
Hotel Leela too is trying to sell a hotel valued at Rs 500 crores, when its debt is Rs 4,000 crore.
There is also the added problem that asset sales don't happen overnight. Typically, asset sales take over a year to fructify.
 
While buyers and sellers continue to haggle over valuations, market analysts point out that the more important factor to consider is the payment schedule, generally, the more the upfront payment, the lesser the total value. Companies tend to focus more on valuations, and this means a smaller immediate impact on their balance sheet. Also watch the accompanying video.