Realtors made mistake in asset valuations for IPO

Venue—Hotel Kohinoor Continental

Moderator—Pranay Vakil, Chairman, Knight Frank India

Panelists—Kruti Jain, Director, Kumar Urban Developers

Sunil Dahiya, MD, Vigneshwara Developers

Atul Modak, Head, Kohinoor City

Ravi Sinha, CEO & Managing Editor, Track2Realty

Ravi Sinha: One issue which Sunil raised on funding mechanism that it was a strategic mistake by certain developers to raise money through IPOs. I would like to rake this issue again and seek the panel’s view.

Atul Modak: I don’t think that was a mistake, but to raise the capital the kind of land bank everyone has to create and for that again the kind of vulture fund that you have to explore and later the question is raised how the money is spent, that is very critical. Normally when you see your own money or the money you get through a bank loan, you know the value of that money. In case of IPO, I think people have gone berserk and then they created the problem. Other than that, I don’t think the IPO route is wrong to raise money.

Kruti Jain: I too don’t think that the IPO route is wrong and I don’t agree that people got it wrong. I feel that we entered in to the market at a time when a lot of demand was there for a paper from real estate. People thought that these guys make a lot of money, why they are not going public with their companies. The minute that happened, the bluffers saw that there is definitely a mismatch in demand and supply and that for a change was quite flattering to at least the established players who had the money but did not have the respect of an industrialist. And for most people, the reason for going public was not only to raise money but was to make the brand immortal. Going public is a philosophy, it has nothing to do with the short term benefit of money.

There were many issues to how much you dilute, many issues with how you do evaluation, problem was others who were already in the market were established industrialists who were already regulated in a different way, not the way we are, we have 300 licenses to get.

Going for an IPO is a philosophy and sustaining it because at the end of it, the coming generations of the family will get to run it. Where things went wrong was because we were all guinea pigs because we did not understand the financial game. People did not understand that valuing the assets we are going to construct after 10 years today and going to the market with that will not only make us lose our reputation but will also lead to company valuations of lesser than the actual asset value in the worst case scenario.

Those developers who went public did not know how to value their assets, they did not know whether to have all their land into one kitty while going public. Problem arose because we were not allowed to have land outside our kitty, we were not allowed to have a competitive business. No one questions the established Tata’s and Birla’s because they went public long ago. So they can have parallel businesses and parallel assets. But the fact remains that because we were guinea pigs, these issues came out.

……to be continued