Indian companies, including real estate developers and infrastructure firms, might sell assets to pare debt amid shrinking opportunities to raise funds, the nation’s top adviser for equity offerings said.
“Companies need to correct balance sheet leverage,” Ravi Kapoor, the Mumbai-based head of investment banking at Citigroup Inc, said in an interview at his office on August 8 without naming any firms. “The equity markets are not around, so they will consider merging with companies with healthy balance sheets or try to divest assets.”
The highest interest rate among major Asian economies has resulted in a jump in borrowing costs for companies, prompting them to put expansion plans on hold. Dollar bond issuance has halved and initial public offerings are down 75 per cent this year, according to data compiled by Bloomberg.
The value of mergers and acquisitions in India has tripled this year from the same period in 2011, according to data compiled by Bloomberg. DLF Ltd, the country’s biggest real estate company, which had Rs 20,200 crore ($3.6 billion) debt as of March, sold a unit to a rival, according to an exchange filing yesterday. The developer plans to raise as much as Rs 7,000 crore from sales in the next three years to reduce debt, DLF has said.
“Infrastructure and real estate developers are among sectors with high debt levels,” Kapoor said. Faltering earnings growth will become a “trigger for consolidation.”
DLF, which has risen 19 per cent this year, gained 3.5 per cent to Rs 217.7 in Mumbai yesterday. Unitech Ltd, India’s second-largest developer, which has Rs 5,530 crore of debt, gained 2.1 per cent to Rs 21.5.
Deal value
Indian companies raised $7.3 billion over 39 local acquisitions in 2012, compared with $2 billion through 54 such deals in the same period last year, data show.
The nation’s $1.8 trillion economy grew at a rate of 5.3 per cent in the three months ended March, from a year earlier. Below-average rainfall is stoking farm prices and preventing the Reserve Bank of India from cutting borrowing costs.
The central bank kept its benchmark repurchase rate at eight per cent in the last review on July 31. Governor Duvvuri Subbarao said his focus was to control inflation which climbed 7.25 per cent in June.
“The next few quarters are expected to be challenging for most corporates,” Krishna Kumar Karwa, managing director of Emkay Global Financial Services Ltd, told Bloomberg TV India on August 13.
