The financial troubles in Dubai, the desert state which over the last few years had gotten used to showcasing its grand real estate properties like Burj Dubai and The Palm to the world’s billionaires, could be a warning sign for all real estate investors. After all the current debt rollover, which many say is technically a default, has its roots in those grand real estate projects.
The ill-effects of blowing up of this construction-led bubble in the desert could soon be felt on the IPO street in India too. With investor sentiment related to real estate IPOs not at in a comfort zone, from now on the going could tough for merchant bankers and promoters of real estate companies that are planning to tap investors for funds.
Nine real estate companies have already filed their draft prospectus with Sebi, planning to tap investors to raise an estimated Rs 15,000 crore over the next few months. Although merchant bankers are trying to put up a brave face saying that Dubai’s troubles will mostly be limited to the region, brokers and dealers, who directly deal with investors on a daily basis, feel otherwise. “Currently investor sentiment is quite low. And it’s very difficult to raise money, whether it is a real estate company or a company from any other sector” head of a domestic financial services company, who was recently involved with a number of IPOs, said.
“The Dubai factor will affect investor sentiment and they will be more cautious,” the official said. The not-so-good performance of several real estate IPOs will also play on investors’ mind when these offers hit the street. Stocks of some of the realty companies that had gone public during the 2005-2007 boom period, are currently trading at discounts as high as 75%. The excessive supply of stocks of realty companies could also affect forthcoming IPOs, market players said.
One of the way out could be slash the IPO price drastically, a move that many feel unlikely to go down easily with the promoters of these companies. For investors however this could prove to be a good opportunity to pick up fundamentally good realty stocks at attractive valuations, said an independent investment analyst.