Nomura
DB Realty-On Extremely Shaky Ground
On the 2G telecom license, it believes cancellation of the license is likely to be very difficult as it could lead to long, drawn-out litigation. Even if the licenses are
cancelled, investors in Etisalat DB would have to write off their investment. DB Realty has given a corporate guarantee for a Rs8bn loan taken by a shareholder of
Etisalat DB which would be the only impact on the company.
The company is currently linked to both the 2G telecom scam (through a group firm) and the property loan scam, where a debt syndication intermediary it used has
been accused of bribing officials responsible for sanctioning loans.
The company thinks that the current scams are unlikely to have any impact on either demand or price of property in Mumbai. It also has a sanctioned limit of
Rs9bn from banks, which it expects banks to allow it to draw down when necessary. We think this might be a bit optimistic.
The company contests that it cannot control the actions of an intermediary whom it paid a commission by cheque and has asserted that it has not paid any bribe.
On the 2G telecom license, it believes cancellation of the license is likely to be very difficult as it could lead to long, drawn-out litigation. Even if the licenses are
cancelled, investors in Etisalat DB would have to write off their investment. DB Realty has given a corporate guarantee for a Rs8bn loan taken by a shareholder of
Etisalat DB which would be the only impact on the company.
DB aims to sell Rs40bn worth of property in FY11 and has said that it has already fulfilled 66% of the target. Its sales in November were worth Rs3bn. It also expects
cashflow of Rs20bn in FY11.
It continues to hold its view that TDR prices will be under pressure once the FSI increase is notified and hence has moved out of selling TDR. In our view, this move
does reduce the competition for HDIL in the market.
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