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Last Updated : | Source: Moneycontrol.com

Monetising real estate assets can help corporate India retire long term debt of $341 billion: JLL

One of the probable reasons for this debt is lower profits generated from the assets invested in, the JLL report said

Representative image
Representative image

With the current pandemic further worsening asset utilisation and profitability, the need of the hour for corporates is to monetise them and help reduce substantial debt. If this is done, it can help companies retire long term debt of $341 billion, according to JLL Research.

As many as 2.45 lakh non-government and non-financial companies have long term debt of $341 billion, as per RBI data for FY 2018-19. Real estate land and building assets valued at $141 billion in FY 2018-19 can reduce outstanding long-term debt, it said.

Sale and lease-back of assets can provide long term steady rental yields for funds with patient long-term capital, it said.


“With the fall in economic activity, COVID-19 has impacted asset utilisation and profitability tremendously. In the current unprecedented circumstances, sale and lease-back of assets are likely to provide long term steady rental yields for funds with patient long term capital as monetization of these assets could reduce substantial debt, and funds generated through the sale of these assets could be high enough to cover the entire debt,” said Samantak Das, chief economist and head of research & REIS India, JLL.

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However, banks have an overhang of non-performing loans for the last few years. RBI data on India’s economic and financial position in FY 2018-19 reveals that the value of land stood at $52 billion and buildings stood at $89 billion. This total of $141 billion is 41 percent of the outstanding long-term debt of $341 billion.

One of the probable reasons for this situation is lower profits generated from the assets invested in, the report said.

An uncertain economic scenario has forced corporate finance heads to reimagine real estate assets as sources of funds to reduce debt. The aggregate financials of approximately 2.45 lakh non-government, non-financial companies indicate that debt accounts for less than 50 percent of their net worth, it said.

Land values are recorded at historical prices in the balance sheet, while their market value could be substantially higher. Similarly, the sale value of the buildings would be higher than stated in the books of accounts. Funds generated through the sale of these assets could be high enough to cover the entire debt. The sale and leaseback of these assets will result in no impact on business operations.

One of the biggest challenges is the mindset of corporates, who feel that owning real estate is of utmost importance. In many cases, since land is allocated under various state industrial policies, the option of sale and leaseback is not considered.

However, in today’s uncertain economic environment, corporate finance heads are likely to look at options using real estate as a source of liquidity. Investors may face challenges on account of ownership titles and valuation. Such deals could take longer time to close due to documentation and taxation issues, the Research said.
First Published on Nov 19, 2020 01:29 pm