Balance land under TDR to be monetised gradually: HDIL

Regarding the termination of a slum rehabilitation project that was expected to be the main generator of transfer of development rights (TDR) sales, Sarang Wadhawan MD, Housing Development and Infrastructure (HDIL) says the company already has about 1 million sqft of land under TDR.

Talking to CNBC-TV18, he says the ongoing projects, which were part of the airport development scheme will not get affected. The balance TDR will be sold and monetised over the next year or so, he says. Below is the edited transcript of the interview on CNBC-TV18 Q: I will come your earnings in a bit, but this is a big disappointment for you, the termination of this project and it was expected to be the main generator of transfer of development rights (TDR) sales for a long time now. The project has been stalled for a bit, but now finally the termination has come through. Just take us through what went wrong? Why did you get this termination and now that this significant chunk of revenue generator is out of the way, what happens to TDR sales? A: As far as the airport project is concerned, we entered into the contract in 2008 and we were supposed to rehabilitate the eligible slum dwellers during a particular time. This was divided in phases. The first phase was about 26,000-28,000 tenements. They have now got amended in between. We tried to amend the law as far as the eligibility of the slum dwellers is concerned and since we were getting only 40 percent eligibility, we approached the government of Maharashtra, who came out with an amendment to the regulation in 2011-2012, but failed to actually finalise the eligibility norms even till today. As such, since we could not pick up the individuals and shift them into the tenements that we had already created, this issue crept up and we ourselves have been waiting along with Mumbai International Airport Limited (MIAL) that the Government of Maharashtra would amend the eligibility, but they failed to do so. Because of this, MIAL has served a termination notice. We are going to approach the courts, and yes, it was generating a lot of TDR for us. But at the end of the day, HDIL has several projects to generate. TDR, the airport project was one of them. We have other schemes, we will continue to do so and generate TDR from them. Q: How much balance TDR do you have out of this project and what happens to that now? A: We have about 1 million square feet of TDR which is left which will be generated, which will be sold. As such the ongoing projects which were part of the airport scheme do not get affected. We are going to try and see not to put any other future projects into the airport scheme. The balance TDR will be sold and monetise over the next year or so. Q: This has just been one of your problems. You know very well that the debt issue continues to loom large for you. I heard you mention a while back that your debt has been scaled down a tad bit, but it is still at Rs 4,000 crore. What are you planning to do? What is the game plan now in terms of reducing your debt and how much do you think you could reduce your debt between now and the end of FY14 either in terms of monetising more assets? A: The company has several assets whether within Mumbai city or outside. We have assets in Hyderabad, Kochi and Delhi. We are planning to monetise all of those assets. At the end of the day, the scenario of where the economy is placed, even real estate assets are going through a tough time. We are trying to monetise those assets and our debt reduction is based on monetising of several assets whether these are land parcels or Floor Space Index (FSI) transactions. We are trying to pare down our debt over the next year. We hope to further continue to at least reduce it between 15-20 percent. That has been our effort over the last year as well. Q: We have seen that your consolidated debt has reduced by only Rs 100 crore, but your standalone debt has reduced by close to around Rs 500 crore. How does this actually work? Has there been another subsidiary where we have seen some kind of debt increase? A: The subsidiary has been able to raise long-term debt of approximately 8 years and that has helped in reducing the standalone debt. Q: This long-term debt has been rated at what interest rates? A: At the same interest rates which were prevailing even for the earlier term loans. Q: On the Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA) front we have reported a positive EBITDA, but there appears that there is a huge amount of inventory of Rs 300 crore plus. If I take that away it would have been a negative EBITDA. Just explain me what exactly is this inventory? A: I will have to revert back to you on that one. Basically it should be related to the Mumbai International Airport (MIAL) project itself. Q: Earlier, there was some talk about you receiving some funds from Adani which would help you to aid your debt reduction. Anything like that may come through? A: That continues. That is part of the self-liquidating debt that we have. Q: How much will you be receiving from Adani and by when? A: It is a self-liquidating date. It will continue over the next one year and it is directly being paid off to the bankers. It is approximately to the tune of around Rs 220 crore. Q: What happens to your interest costs? Your interest cost this quarter has gone down a tad bit on a sequential basis. But on a year-on-year it is still quite high. What kind of a run-rate are you hoping to clock in? A: Interest rates did increase over the last one year substantially and the debt was at a much higher level. We are hoping that keeping the current economic scenario in mind, we will able to raise a little bit of cheaper debt. Non-convertible debentures (NCD) were an option and now we will have to see what the other options available to company are. _PAGEBREAK_ Q: What exactly is the outlook now? You have seen that Mumbai International Airport Limited (MIAL) project has gone out of the window. What exactly are you looking at going ahead and what can we expect in the first half of FY14? A: We have a lot of residential projects and other commercial projects. The MIAL project was just one of the projects that was a part of the company's land bank. We have other projects in the Slum Rehabilitation Authority (SRA) field and other residential projects which are nearing completion. We will be accounting for those over the next year. We have almost 6 projects which we will be completing next year. So as far as revenues are concerned we have no issues accounting them over the next year. The future projects that are in line the company continues and will endeavour to get those projects as we go along. Q: It is not so much about your profit and loss issue, but it is more about the balance sheet. The liquidity issues have been at its peak in this particular year. If I am not wrong you, you had about Rs 880 crore of debtors and inventories worth around Rs 11,700 crore in FY12. By the end of FY13 what are the figures, both in terms of debtors and inventories? How much do you plan to bring them down? A: Our trade receivables are Rs 418.89 crore and this is on a standalone basis. The consolidated figure as of 31st December, 2012 was Rs 983 crore. As of 31st March, 2013 the trade receivable stands at Rs 806 crore. Q: Within this calendar year, what will the asset sales look like? Where are the talks on? A: That is the future guidance which I cannot give you right now. My point is that the monetisation process is a long-drawn process. The company endeavours to sell floor space index (FSI) and has been successful in selling FSI over the last few years. We have been successful in selling transfer of development rights (TDR) monetising our land banks as per acreage as well. We will continue to do so, but to give you an actual guidance on the figure would be really difficult. Q: Your stock started sliding from that Rs 120-level. That was on the back of some stake by the promoter which was around Rs 50-60 crore. Your investors were expecting you to increase the stake again. Can you take us through this? Will there be any kind of buyback? Will the promoters look at purchasing from the open market? A: Honestly, as per insider trading norms, promoters cannot purchase shares for six months. So I will have to wait till that time is over to actually come out and buy shares again. July is the time when I can actually re-enter the market and pick up at the most 5 percent of the stake. We will have to see the promoter situation at that time. If the promoters can fund the company directly or through some other means we will prefer to do that. Q: What is the cash on the books currently? A: The cash on the books is Rs 270 crore. Q: How do you see going ahead in terms of both launches and realisations? You have had a couple of new launches in the residential space in Mulund of one million square feet in the last month. What are the kind of launches that you are expecting to see in this calendar year and the kind of realisations are you hoping to clock in? A: We are hoping to launch approximately 3 million square feet in the residential segment this is in four projects in Bandra (West), Vikhroli, Kurla and Ghatkopar. These will be launched over the next couple of quarters. The prices are at an all-time high in Mumbai and especially because of the taxes that are levied. We are unable to bring down the prices substantially. But there are certain areas where we try and give benefits to buyers by giving incentivising schemes. We will try and monetise or launch the projects accordingly. Q: There was a downgrade by Credit Analysis and Research (CARE) a couple of months ago where they alleged that you delayed your service payment obligations. What would your view be on that in terms of servicing your non-convertible debentures (NCDs) to your debtors? What is the update? A: On the NCD front, a single day’s delay also is a delay. The share rating agency went by that norm and we were actually subject to attachments from the income tax department and the service tax department from September onwards. Because of that we were delayed in the servicing of interest by a couple of days and the rating agency was forced to actually downgrade us. As such, there have been no issues on the NCDs front and I am pretty sure that our lenders are now also very comfortable.