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As a matter of fact, the sector as a whole has also been marred by stringent RBI regulations which does not make life any easier for players like Omaxe. The central bank has increased interest rates to control inflation, besides restricting fund flows in it. “As the availability of funds from banking sector is being restricted for the Real estate players – both big and mid-size players are compelled to borrow from the High Net-worth Individuals (HNIs) at high interest rates of about 20% which is not helping their cause anyway,” explains Wadhwa. Omaxe and party have got another setback from foreign inflows too with the global crisis looming large over and with the investors keeping doors locked in the wake of the US financial crisis.
Nevertheless, Omaxe seems to have solved the cash-crunch puzzle to fund its mega projects. It has strategically opted for debentures to accelerate the pace of completion of its projects as Goel explains, “To mobilise large funds, Omaxe has taken the route of debentures for the consistent endeavour of completing all our projects on time.” Strengthening the financial standing of the company, Omaxe has also paid 60% of the total term facility of Rs.3.0 billion taken from Indiabulls Financial Services Limited. Also it has paid-up the entire outstanding sum on debentures issued to LIC Mutual Fund. Despite the fact that the term facility was for a period of 3 years, this was done to strategically prepay the loan in order to free up the equity. Omaxe is also planning to retire the outstanding of Rs.1.2 billion shortly. So in the face of such a cash crunch, is the plan of ‘going public’ in the pipeline too? “No,” confirms Goel. Issuing an Initial Public Offering (IPO) is one aspect of fund raising which the company wants to stay clear of looking at the currently volatile market. Moreover the company’s total debt of $600 million (which carries an annual interest rate of 16%), also has to be taken care of, as investors get restless by the day.
Omaxe has also unleashed plans to concentrate more on affordable housing projects in the price range of Rs.3 lakh to Rs.10 lakh to fight the dying demand in high-end housing. It has planned out investments totalling $20 billion to develop 10 lakh ‘affordable’ homes for low-income consumers. “The need for affordable housing is driving the real estate industry now. Our prefabricated township and affordable rate & reservation based allotment are the USP of the project making it a hot cake,” explains D. P. Srivastava, Vice President, Omaxe Limited.
So there you are – troubles indeed for Omaxe and others in the realty market, but one ray of hope is the mid and low-income Indians who may just be willing to spare their dimes for some value-for-money asset as Srivastava further justifies, “Omaxe will develop the corridor and build affordable housing units by using cost-effective technologies and using land-sharing techniques...” All is therefore not lost. With the RBI slashing CRR rate twice in quick succession, about Rs.600 billion is expected to be pumped into this sector. Troubles galore, but that ray of hope on the horizon may just keep Omaxe and party going. “Never say die... till you’re dead,” is the way to be for all in the sector; for now...
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Source : IIPM Editorial, 2008
An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).
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