Sebi clampdown to affect realty co valuations

Not only will Sebi's new norms force some real estate companies to rewrite their IPO documents, but in many cases, the valuations of these companies will reduce considerably, reports CNBC-TV18.
"There should be clear evidence that land bank is land bank and not a projection of something that is not rooted in reality," says M Damodaran, Chairman, Sebi.
Sebi is concerned that real estate companies include in their valuations land that they do not yet own. Worse still many offer future valuations as well.
In the case of Pune based Kolte Patil, property consultant Knight Frank has valued its 683 acre land bank at Rs 1,800 crore. But of the 19 projects valued, the company does not have a clear title or development rights for 9 and another 6 have not been fully acquired yet.
IVR Prime, on the other hand, has been valued at Rs 5,525 crores by Cushman & Wakefield, but the company's offer document clearly states that IVR fully owns only 5.08% or 117 acres of the 2300 acres that has been valued.
Mumbai based HDIL is armed with a valuation of Rs 22,000 crores for a total saleable area of 112 million square feet. But land for almost half of that has not yet been fully acquired. Only letters of intent, MoUs or development agreements have been signed.
"Definitely valuations will be impacted\nif it is based on aggressive assumptions about the land bank when they\ndon't even own or have the legal right to develop - how much it will\nimpact will be a case to case basis. But I think valuations on a\nrealistic assumption about land bank and based on factual accuracy are\nokay, so if you own land/title - legal right to develop, then it should\npart of land bank. But if you have no legal rights - ideally it should\nnot be included as part of land bank," explains Sanjiv Agrawal,\nPartner, Ernst & Young.Kolte Patil officials confirmed\nthat their merchant bankers have advised them to revalue their land\nassets and make disclosures in keeping with the new Sebi norms. However, as of now, all Sebi has asked\nfor is that real estate companies disclose all details on ownership and\nthat they make no future projections. The detailed guidelines are\nawaited but there's no doubt valuations will come down.

"Definitely valuations will be impacted if it is based on aggressive assumptions about the land bank when they don't even own or have the legal right to develop - how much it will impact will be a case to case basis. But I think valuations on a realistic assumption about land bank and based on factual accuracy are okay, so if you own land/title - legal right to develop, then it should part of land bank. But if you have no legal rights - ideally it should not be included as part of land bank," explains Sanjiv Agrawal, Partner, Ernst & Young. Kolte Patil officials confirmed that their merchant bankers have advised them to revalue their land assets and make disclosures in keeping with the new Sebi norms.
However, as of now, all Sebi has asked for is that real estate companies disclose all details on ownership and that they make no future projections. The detailed guidelines are awaited but there's no doubt valuations will come down.