Tycoon’s Fund Warns Indian Realty Bad-Loan Crisis to Get Messier
Kotak Realty Fund has asked lenders to recognize soured debt and take a haircut on the credit given to apartment builders
(Bloomberg) -- A realty fund controlled by billionaire banker Uday Kotak wants lenders to acknowledge that they are facing a $65 billion bad-loan crisis in the nation’s real estate sector.
Kotak Realty Fund has asked lenders to recognize soured debt and take a haircut on the credit given to apartment builders. That will spur fresh credit and revive cash flow for realty companies, Chief Executive Officer Vikas Chimakurthy said.
The $1.8. billion fund hasn’t managed to lend to any of the stalled residential projects because lenders balked at accepting the crisis, he said. The delay is adding to the mounting default risk of developers, with as many as 560,000 homes worth of 4.5 trillion rupees ($65 billion) stuck or delayed across the top seven Indian cities mainly due to the dearth of funds, according to Anarock Property Consultants.
“Lenders should realize that they have to resolve these loans before the problem gets messier,” Chimakurthy said. “It is in a kind of gridlock situation. I think by March, things will become more difficult, and lenders need to resolve these issues immediately.”
Developers either have to access fresh loans to complete the buildings or raise equity and infuse funds into these stuck projects, to ensure that the stuck construction projects get in to cash flow generation mode. Without existing lenders recognizing the stress and taking haircuts this won’t be possible, Chimakurthy said.
A 10-member S&P BSE Realty Index fell for the fourth-straight day in Mumbai trading on Thursday, extending its 6% drop in July.
Financiers have been unwilling to take haircuts on stressed loans as they prefer to bring in stronger developers into stalled projects and sell off assets kept as collateral than taking upfront haircuts, according to a July 9 Goldman Sach note. Recognizing the loans as soured and talking haircuts will add to the provisions and worsen capital ratios of the lenders.
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