In This Issue:
- Editor’s Column – Equity can be a Better Bet than High Yield Bonds
- DLF Ltd Credit Note
- Weekly Issuer Data – AA and Below
- Rating Upgrades, Downgrades, and Other Data
- Current Quotes – Corporate Bonds
- Other Data
Editor’s Column – Equity can be a Better Bet than High Yield Bonds
In theory , debt is deemed safer than equity as debt investors get preference over equity investors when a company is liquidated. Like all theory that has not changed with times, the theory of debt being safer than equities does not really hold good in most cases where there have been defaults and companies have gone bankrupt. The singular case in point is the NPA;’s faced by the Indian banking system, where bad loans have ballooned to high double digit levels as % of advances, and banks are continuously writing off the loans and even in recovery they are receiving pittance for every Rupee given as loan.
In the case of high yield markets, when a company raises debt at higher interest rates than other healthier borrowers, there is a reason for the company willing to pay higher rates. Reasons include higher requirements for working capital as capacity utilization increases on more demand for products, capex investments as company sees future growth in demand, funding for repayment of maturing debt, funding for carrying forward unsold inventories and mergers and acquisitions.
In cases where business growth looks strong, investments in debt and equity will do well, more so equity as valuations improve and prices shoot up. Healthier balance sheets will help improve rating outlook and credit spreads will come off leading to good return on debt.
In cases of refinancing debt or financing unsold inventory, equity will not do well as business outlook is still clouded while debt can be risky given weak business outlook. Similarly, other cases of borrowing will have to be treated on its own merits and demerits where both equity or debt could give good returns or either one could give better returns or both could give poor returns.
High yield investors may require to rethink their objectives on why they are going for finite and fixed returns on high yield investments if the fundamental difference between the risk and return profile of debt and equity is becoming blurred.
We have space where transactors can place their Bids or Offers for High Yield Bonds.
Please do send your comments to firstname.lastname@example.org on this newsletter, which will help us better the offering as we go along.
DLF Ltd Credit Note
Credit – Positives and Negatives
- DLF debt outstanding reduced significantly after the promoters infused funds in DLF, post sale of their 40% stake in DLF Cyber City Developers Limited (DCCDL).
- As of March 2018, DLF has an unsold inventory of Rs 140 billion, most of these are attributable to finished inventory and expected to be handed over in the near term, which will support the cash flows.
- DLF has a wide presence in all the real estate segments and across various locations in the country.
- The large part of inventory is in Gurgaon, where demand has been sluggish over the last few years.
- A significant portion of debt is to be paid in the next 2 years and in the absence of strong sales, cash flows may get affected.
- Further increase in interest rates may result in muted demand for real estate.
Table 2 Rating History
DLF debt outstanding reduced significantly after the promoters infused funds in DLF, post sale of their 40% stake in DLF Cyber City Developers Limited (DCCDL). DLF net debt reduced from Rs 120 biilion to Rs 62 billion at the end of March 2018.
Qualified Institutional Placement(QIP) and warrants conversion will be two key equity raising events, which will help DLF debt reduction programme. DLF has plans for QIP and is expected to be concluded in H2- FY19. Conversion of warrants issued to promoters by June 2019 would lead to an inflow of Rs 22.5 billion.
DLF has a presence in all the segments (retail, commercial, residential) and across the country, which enables the company to address a wider buyer market. DLF land banks are characterized by low acquisition cost and good locations, which can be used in case of emergency. Recent land acquisition by DLF is largely paid and the remaining committed payments are evenly spread over the medium term.
DLF projects have seen healthy sales wherein Occupation Certificate (OC) has been received, OC is a document issued by a l
DLF large proportion of the debt is coming up for repayment over the near to medium term, but DLF has a cash balance of Rs 32 billion, plus proceeds from QIP and warrants will support the debt repayments as well as the debt reduction programme of DLF
The real estate sector continues to be in a phase of stabilization and consolidation, post the structural transformation like RERA, GST, and demonetization. However recent scenario indicates a clear shift in favor of Tier-1 developers. The sector is also expected to witness an upward rise in the number of real estate deals in 2018 on the back of policy changes that have made the market more transparent.
Real Estate sector is expected to reach $180 billion by 2020 with a contribution of the housing sector to the national GDP rising to 11%. Retail, hospitality and commercial real estate are also growing significantly, providing the much-needed infrastructure for India’s growing needs. New housing launches across top seven cities in India increased 27% YoY in January-March 2018.
Sectors such as IT and ITeS, retail, consulting and e-commerce have registered high demand for office space in recent times. Office space demand in the country increased 23% YoY in January-March 2018 with office space absorption at 11.4 million square feet during the quarter. Private equity inflows in office and IT/ITES real estate have grown 150% between 2014 and 2017 backed by a strong attraction towards the office sector.
Commercial sector continues to clock in robust growth and is witnessing unparalleled demand from long term institutional capital. But uncertainty around domestic inflation resulted in further increase of Repo rate by 25 bps, which may result in slight muting of demand. However, the economy is still expected to grow at over 7.5% per annum resulting in improved demand for quality homes and offices.
DLF Ltd – Company Profile
DLF Limited is one of the largest domestic real estate developers in India with more than 70 years of experience in developing real estate. DLF has developed more than 250 million (mn) sq.ft. DLF primary business is development of residential, commercial and retail properties. DLF has exposure across businesses segments and geographies, which mitigates down-cycles in the market. DLF has developed 22 major colonies in Delhi, and now DLF is present across 15 states – 24 cities in India.
Chart 1 Shareholding Pattern
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