Felled by liquidity crunch

The developer is running much behind schedule on many of its housing projects. High level of debt and taking on more projects than it could handle are the reasons behind the delay.

On their plans to deal with the fund crunch,Pradeep Jain,chairman of Parsvnath Developers,says: “We plan to raise around $100-150 million (Rs 500-700 crore) in the next few weeks.”

SCHEDULES GONE HAYWIRE

The cash crunch has hit the developer so hard that several of its landmark projects have been delayed. Exotica,a mega housing project in Gurgaon,which was announced in 2005,is yet to be completed. “The obvious reason behind these delays is lack of liquidity,” says a senior executive at a real-estate consulting firm on condition of anonymity as the developer is one of the clients.

Last year,Parsvnath picked up an equity stake in the much-hyped Nano City in Panchkula near Chandigarh for Rs 400 crore. To be named Parsvnath Nano City,this is a public-private partnership project. Haryana government holds 10 per cent equity stake through HSIIDC,38 per cent is held by Parsvnath,and the remaining 52 per cent by Sabeer Bhatia of Hotmail fame. But more than one-and-a-half years since its announcement,the project remains at a standstill as land is yet to be acquired from farmers. Jain says he got into this project as it appeared attractive then. However,he says,“We have put the project on hold and will review the status in future as today everyone is cynical about long-term investment returns and no one wants to block cash flows.”

GRIEVANCES GALORE

Meanwhile,complaints from investors continue to mount. Aggrieved buyers have formed online groups and collectively vent their grievances against the developer.

Sandeep Kumar,a Gurgaon-based IT professional,invested in the developer’s Parsvnath Pleasant project located on NH-8 (Delhi-Jaipur Highway). He says he made full payment way back in 2006,but even though 2009 has arrived construction of flats has not started. “I have written to the developer for a refund of my deposits but they have not complied with my request,” he says. Kumar is not alone. Deepak Arora,another disgruntled buyer,says the developer has unlawfully increased the area of flats in all its Noida and Greater Noida projects. “This is a common stratagem of this developer to extract more money from buyers,” he says.

Rahul Misra,a Delhi-based marketing professional,has paid over 90 per cent of the cost of the flat that he booked in Parsvnath Planet,Lucknow. He was promised delivery by June 2009. When the company did not respond to his numerous mails,he went to the project site to check its progress. To his utter shock,he found that no work was going on at the site. Not even a single representative of the company was present from whom he could enquire when the project was likely to be completed. He says he doesn’t know where and how to get redressal as the developer has been completely unresponsive. Another aggrieved buyer,who invested in Parsvnath’s Panchvati project in Agra,told The Indian Express that nearly five years have elapsed since he booked a flat but he has not received possession yet.

As for its much-hyped luxury residential condominium,La Tropicana in Civil Lines in North Delhi,the developer started booking flats in the project even before obtaining all the clearances from the concerned authorities and before putting in place the funding arrangements for developing the project. An upset buyer,who has paid two installments of Rs 30 lakh each,has already served a legal notice to the developer.

SCROUNGING FOR FUNDS

For developing La Tropicana,Parsvanath has entered into an agreement with Red Fort Capital,a private equity firm,which will invest Rs 90 crore into the project in lieu of an 18 per cent equity interest.

According to a source,“The company plans to issue fresh shares for the QIPs. After the issue,the promoter’s stake will come down by at least 15-20 per cent.” Jain confirmed that the company’s board of directors has already given approval for raising up to Rs 2,500 crore through various instruments,including issue of fresh securities to persons other than existing equity shareholders and through sale of equities to QIBs.

About 65 per cent of the funds thus raised are expected be utilised to reduce the company’s debt,which currently stands at about Rs 1,600 crore,and the remaining to complete ongoing projects. Parsvnath aims to reduce its debt to about Rs 600-700 crore by the end of this fiscal. Besides selling equity stakes in the company,it also plans to sell stakes in specific projects with the objecting of trimming debt to one-third by March 2010.

SHARES PLEDGED

At the beginning of the current fiscal year,Sicom,a lending institution owned by Maharashtra government,acquired over 0.27 per cent stake in Parsvnath after it invoked shares pledged by the promoters. In a disclosure made to the Bombay Stock Exchange,the developer said Sicom had acquired 5 lakh shares. “There is no actual sale of shares. But consequent to the invocation of pledged shares,the shares got transferred from Jain to Sicom,” the disclosure note said. Overall,Jain has pledged 3.10 crore shares representing 16.80 per cent stake in the company. All the promoters have cumulatively pledged close to 64 per cent of the equity capital of Parsvnath. Jain,who held 24.76 per cent stake in Parsvnath,is now left with 4.52 crore shares representing 24.49 per cent stake in the company.

Parsvnath Developer’s story is quite similar to that of several other real-estate companies operating in the National Capital Region. The plot has the usual turns: frenetic launch of projects,mega collection of money from customers at the height of the realty boom,failure to anticipate the downturn,the consequent liquidity crunch,and now,inability to deliver in time. The developer has not delivered even a single housing project in the last three years. Many of its hyper-ambitious projects have gone haywire. Where Parsvnath comes off worse is that even while the market was nose-diving,the developer failed to take stock of the new reality and continued to announce new projects. The promoters’ penchant for biting off more than they could chew has left the company in a quagmire of debt and led to the lowering of promoters’ equity stakes. How the company deals with the clamour of dissatisfied customers will now determine its future. l

(This article is the fourth in this weekly series by The Indian Express that investigates the status of housing projects by various companies.)

praveen.singh@expressindia.com