Reliance Infrastructure to go slow on realty projects

TIGHT liquidity conditions have compelled Reliance Infrastructure, an Anil Dhirubhai Ambani Group (ADAG) company, to go slow on its real estate projects that were slated to get an investment of Rs 5,000 crore over the next five years. The company, however, has tied up required funds for its roads and metro projects, among others. "These investments amount to Rs 8,000 crore," CEO & whole-time director Lalit Jalan told ETon Wednesday.
    "We don't have to do real estate right away....there's still time for that. We have to only put in our equity now," said Mr Jalan, while explaining the priorities for the company, which recently obtained favourable financial terms for its metro train project. Reliance Infrastructure had earlier said it planned to raise funds for its first real estate project, which includes a trade tower and a commercial complex, in Hyderabad.
    The recent subprime crisis in the US and tightening liquidity in money as well as equity markets have dried the credit flow to the real estate sector. Property rates have also begun to soften in many states. However, select foreign investors are still convinced about the housing realty growth; Merrill Lynch on Tuesday said it has raised $2.65 billion for an Asian real estate fund that will invest in assets in India, Japan, China and South Korea. Reliance Infrastructure has five road projects in hand and all have achieved financial closure. For its Mumbai Metro
    project, Reliance Infrastructure has been able to get staggered payment options from banks with repayment terms linked directly with earnings.
    "Most of the debt drawn in such projects has a recourse to special purpose vehicles and passenger revenue," Mr Jalan said. Reliance Infrastructure is scheduled to spend Rs 30,000 crore in the next five to six years on various projects, including transmission and distribution plans. The company currently has an order backlog of Rs 21,000 crore.
    Reliance Infrastructure, along with its various special purpose vehicles, is slated to borrow Rs 1,500 crore to Rs 2,000 crore for all of its in the current financial year. The borrowing would be done mostly in the domestic sector, said Mr Jalan, adding the company has cash reserves of Rs 10,000 crore at present.
    In most infrastructure projects, including those for roads, companies can raise about 80% of the total cost as debt while putting in 20% as equity.