Saturday, October 04, 2008

BPTP - Indian Sub-Prime Company ?

India's most expensive real estate deal is in trouble yet again, this time for mere Rs 230 crore second installment payment. Recall BPTP has defaulted in April over the Noida Land deal. Then the sum was Rs 1,251 crore but now its a paltry Rs 230 crore and the company has sough an extention to pay the same.

Due to global liquidity crunch the company has failed to stike a deal for diluting its own equity. It has already sold 40% of the four IT SEZs to raise $160 mn and another 3% stake in the parent company to JP Morgan Chase for Rs 250 cr.

What you should know is that the company is still struggling to pay for the land and has started its defaults right from the first installment, seeking extension and paying interest. Now consider a Base Case secnario, assuming BPTP begs and some how manages to pay off for the Land. What about the Development of the property ? If JP Morgan or the other investor who has bought 40% stake in IT SEZ [fully developed] and BPTP defaults on development [requires Cash] and the investor invokes his rights / clauses, this will lead to massive unwinding and trouble will spell to all those who are directly or in-directly exposed to this deal. [We can't say this for sure unless we get to see the facts, but on fair assumption, the towers will collapse on drawing broad even before they rise in Noida]

This is not just the case of BPTP, their are several small and mid-size developers in similar situation in every Tier-I and Tier-II cities. The listed companies are surviving because they kind of looted innocent investors money in IPO.

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