Rs 30K-crore realty debt at risk of high refinancing cost: Crisil

Mumbai: Rating agency Crisil has warned that Rs 30,000 crore debt of the top 25 realtors is at the risk of higher refinancing cost amid a continued slump in the realty space owing to high prices and dependence of the companies on high-return demanding private equity players.

"An analysis of the top 25 realtors, comprising around 95 percent of the market capitalisation of the sector, shows that Rs 30,000 crore of their debt obligations will face high refinancing risks with demand in respective markets expected to be tepid over medium-term," Crisil said in a note Wednesday.

These 25 developers account for half of bank lending to the sector, and most of those facing high refinancing risk are in Delhi-NCR, Crisil said.

With the net exposure of banks to the realty sector expected to come down by 5 percent for the first time this fiscal, an increasing proportion of the funding gap is being bridged by costlier NCDs and private equity money, it said.

Banks met around 90 percent of the requirement of these realtors till last year.

The report expects the demand revival and price increases to be marginal in the medium term, thereby further narrowing the cashflow. However, most of the realtors have been in the past two years refinancing their principal and interest obligations by leveraging the cushion available in their operational commercial portfolio.

But the problem gets compounded with construction cost outpacing customer advances of late, and the developers seem to be caught in a debt spiral, says the Crisil report.

However, the report notes that the recent regulatory measures like FDI relaxation and recourse to funding through non-convertible debentures and private equity are expected to provide some respite in the short-term.