Liquidity crunch is causing friction between developers and private financiers
Slower sales, cash flow problems and expensive loans are pushing more and more builders into a liquidity trap. In the last four months, developers like Century Real Estate defaulted while credit rating agencies downgraded firms like Hubtown (formerly Ackruti City) and Housing Development & Infrastructure amid fears of possible default.
A tight money market is causing friction between developers and private financiers who have been the saviors till recently. The latest developer to join the league is Mantri Realty.
Differences have cropped up between the Sunil Mantri promoted company and SE Investments, a listed non-banking financial company, over interest payment on a . 19-crore loan issued by the NBFC between 2011 and 2012. Mantri Realty stopped paying interest on the loan five months ago after asking the NBFC to factor in its . 4 crore fixed deposit with the finance firm while calculating interest on the loan. The developer has moved the court seeking appointment of an arbitrator, while Delhi-based SE Investments has moved the court to restrain Mantri from selling 32 apartments.
According to Mantri, these apartments were never given as collateral against the ‘Mantri Serene’ project at Mumbai’s Goregaon suburb. The loan, according to the realtor, is unsecured and the sanction letter makes no mention of any collateral.
“These (arbitration for lower interest and collateral) are two separate matters. We are seeking an arbitrator at the level of high court judge. They have suggested an advocate. SE Investments is trying to show a link between these apartments and the loan,” said Sunil Mantri, chairman of Mantri Realty.
SE Investments, on the other hand, maintains that the collateral of 32 specific apartments was mentioned in the loan agreement.
“If it was not for collateral, why did Mantri Realty book these apartments worth . 80 lakh for total consideration of . 20 lakh?” said SE Investments spokesman. Countering this, Sunil Mantri said that these 32 apartments were booked by separate individuals known to SE Investments and had paid booking amount of . 20,000 each. However, the developer cancelled these bookings a few months ago due to non payment of further installments and refunded the booking amount without any forfeiture. The lender SE Investments has moved the Delhi High Court following this cancellation seeking a stay on creation of any further third-party rights on these.
“This is not a reducing balance loan, and it was so mentioned in the sanction letter too. The interest amount with 10.75% annual rate for the tenure of two years was added to the loan pushing the total repayment amount to . 23.25 crore,” said the SE Investments spokesman. “Irrespective of partial payment or any fixed deposit, the interest amount will not be lowered.”
The dispute between Mantri Realty and SE Investments is probably an indication of what is brewing in the sector and many more could come to the fore if sales stay sluggish.
“Many of the funding channels for real estate developers including bank loans and sales itself have dried up. That’s the reason NCDs have mushroomed. There was some improvement in sales in September-October. However, that was a brief window as volumes started to come off from January-February. Cash flow issues will keep cropping up periodically because of the sector’s cyclical nature,” said Mukesh Chhatani, manager, CARE Ratings.
In the past three years, close to . 12,000 crore have been raised by developers from Mumbai, Delhi and Bangalore through private placement to high net-worth individual (HNI) investors, corporate treasuries and finance companies.