Sobha Developers debt restructuring kicks in

May face hurdles in leasing out prime land in Bangalore.

Sobha Developers’, the Bangalore-based real estate developer, efforts to restructure 45 per cent of its close to Rs 1,900 crore debt is understood to be underway. The company which is actively courting banks and financial institutions to restructure around Rs 850 crore debt is understood to have got the nod for this exercise from three financial institutions to restructure around Rs 100 crore debt to start with.

The company, which has a land bank of 3,000 acres, primarily in South India, is in discussions with 12 banks and financial institutions to restructure around Rs 850 crore of its debt.

The company is hoping that the exercise to restructure debt will be completed within the end of the first quarter of next fiscal. Nearly Rs 400 crore of debt is due to be paid during the present calendar. Company officials detail that these debts are all on projects which are either underway or nearing completion or against inventory backlog. The average rate of interest is around 13.72 per cent.

The company, which is among the top real estate developers in South India, is taking the step when real estate demand has fallen sharply and companies are faced with pressures to pay back debt. Sobha Developers is leveraged a little over 1.6 per cent on its equity and is taking active measures to reduce its debt burden and has a debt-equity ratio of 1:1. A few top real estate companies in Bangalore state that they have seen their sales dip 50-75 per cent during the past quarter.

Sobha Developers, in addition to restructuring debt, is also actively involved in selling around 200 acres of its land bank, rope in investment for projects through the special purpose vehicle route and get in an investor into the company through preferential allotment. The company hopes to raise close to Rs 750 crore through these steps to reduce its debt burden. However, according to sources, Sobha Developers’ plan to re-sell a 63-year lease on a prime commercial property in the Central Business District of Bangalore is likely to run into trouble. Sources indicate that this nearly 75,000 square feet of space on which Sobha Developers wanted to put up a hospitality project is under litigation as the land is owned by an educational trust and there are lots of hurdles in using that land for any other purpose.

According to real estate analysts in Bangalore, this property can fetch as much as Rs 15,000 per square feet and the total value of the land parcel can be pegged at Rs 110 crore.