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Rich dividends for real estate companies’ promoters

by Team Presidency

Posted on: Wednesday, July 04, 2012

The current crisis in the real estate market has not prevented listed companies in the sector from doling out liberal dividends for the fiscal year 2012 and helping their promoters to make a killing even as the companies struggled to pare debt.

According to an ET analysis, 26 listed companies—most having a 50% or more promoter holding—recommended an aggregate dividend of Rs 722 crore in the year. The country’s biggest real estate firm, DLF, which has a total debt of Rs 22,725 crore, made for half the payout—Rs 339.7 crore. Promoter holding in DLF is more than 75%.

Realty developers like DLF, Godrej Properties, Marathon Nextgen Realty, Phoenix Mills, Sobha Developers, Mahindra Lifespace Developers, Prestige Estates Projects and Puravankara Projects are among developers that have distributed significant dividends. In all of these companies, the promoter holding is more than 50% and in companies like DLF, Prestige Estates and Puravankara Projects, it is more than 75%. What is more surprising is that most of these companies have decided to reward shareholders at a time when they are seeking funds from external sources to cut their debt.

As of March end, aggregate net debt of eleven real estate companies stood at Rs 41,400 crore as against Rs 41,700 crore a quarter ago, showed a report by brokerage Edelweiss Securities. Although the debt burden has eased marginally since the last quarter, sales volume has not picked up dramatically. However,most of the companies continued to hold that they might not be under severe pressure to repay debt. A sound financial decision for a debt-ridden company would be to conserve cash and use it to reduce its liabilities. Minority shareholders also usually prefer this to getting a nominal reward for their investment in the company.

Last year, in one such instance, shareholders of Unitech refused to approve a resolution to pay dividend on equity shares for the fiscal year 2011 at the company’s annual general meeting. Most of the companies that were contacted for this story did not respond to the emails sent by ET. Among those who did like Peninsula Land and Marathon Nextgen Realty are largely ones who have low debt profile.

“Considering that the real estate sector is capital-intensive industry, the company has always followed a conservative dividend policy as per which, about 25% of profit is distributed as dividend. Accordingly, during the period ended March 2012, the company declared a dividend of Rs 1.1 per share which works out to 22% payout.” said Mahesh Gupta, group managing director, Ashok Piramal Group that owns Peninsula Land.

Companies like Oberoi Realty and Marathon Nextgen Realty can still afford to distribute dividend as they have no or little debt on their books. Oberoi is a no-debt company with a cash-pile of around Rs 1,500 crore. Marathon’s total long-term debt level has reduced from Rs. 66 crore in 2011 to Rs 37 crore in 2012 with a cash reserves aggregating to Rs 410 crore.

According to analysts, the decision to pay dividend even during tough times is usually aimed at avoiding further deterioration in market valuations.

Source: The Economic Times, Bangalore


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