Tata to invest Rs 580 cr in realty biz for new projects, debt reduction

This investment will be in addition to the Rs 1,200-crore already pumped in by Tata Sons in the loss-making subsidiary - Tata Realty and Infrastructure, till June this year

With the real estate sector facing acute liquidity crisis, the Tata Group holding firm — Tata Sons — is investing an additional Rs 580 crore in Tata Realty and Infrastructure (TRIL) by the end of the current financial year, so that the company can pare its debt and invest in new projects.

This investment will be in addition to the Rs 1,200-crore already pumped in by Tata Sons in the loss-making subsidiary till June this year. Another subsidiary of Tata Sons — Tata Housing Development Company (THDC) — also received separate equity infusion of Rs 1,300 crore in 2018-19 (FY19) from Tata Sons.

Tata Sons is planning a merge the group’s realty and infrastructure businesses and bring it under one umbrella.  This would, according to company insiders, simplify the organisational structure, leverage synergies, and reduce debt of both companies.

The investment is being made at a time when TRIL’s financial metrics have deteriorated for FY19, compared to the previous year.  

According to disclosures made by TRIL, the company has reported a loss of Rs 186.3 crore on operating income of Rs 264.7 crore for the financial year ended March 2019. In the financial year ended March 2018, TRIL’s operating income was Rs 176.7 crore and had made a loss of Rs 180.3 crore.

TRIL has a large under-construction portfolio comprising five commercial real estate projects, one residential real estate project, two road projects, three ropeway projects, and the Pune Metro project. The additional fund infusion from Tata Sons will depend on the progress of these projects and will also be used to trim its debt.

When contacted, Tata Sons spokesperson declined to comment on the additional investment to be made by Tata Sons in TRIL.  

The consolidated debt of THDC was Rs 4,200 crore in FY19 and Tata Sons equity investment was used to pay off bank loans. THDC’s sales in 2017-18 (FY18) was Rs 751 crore, while loss was Rs 376 crore.

On the other hand, TRIL’s debt was Rs 2,420 crore as of FY18. The high level of debt of both companies is attributed to low sales of completed projects and slowing infrastructure projects. The sizeable debt repayment obligations — both at a standalone level as well as for its special purpose vehicles — has resulted in Tata’s real estate arms depending on loan refinancing and equity infusion.

In the coming quarters, the Tata Group plans to enter commercial real estate development and is scouting for viable projects in Pune, Bengaluru, and Chennai for Rs 1,200-1,400 crore.  “The top priority is to reduce debt of both companies. Till then, both companies will focus on completing the existing projects. If possible, TRIL would even look at selling stake in some of the existing projects,” said a source close to the development.

Recently, TRIL entered into an agreement with Army Welfare Housing Organisation to promote its ready possession properties in the country. TRIL also has a joint venture with UK-based private equity firm Actis.