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Commentary

Readings: DLF Overpriced, Greek Default, RE Losses

Subramoney on Losses in Real Estate Deals. (But success stories are equally incredulous. I have seen money doubled between a pre-construction purchase, waiting for three years until it’s evident builder isn’t anywhere close to finishing, and then selling off the flat; and the flat is still a LONGGGG way from completion)

Monika Halan on why banks should not be allowed to be insurance agents. (or must be liable for their mis-selling)

A Veritas Report (I don’t have a copy) says DLF is overpriced and it should be worth Rs. 100. They claim “aggressive accounting” overstated profits. They used to sell what they built to DAL at inflated prices to show profits, eventually having to buy the promoter owned DAL back at an extremely high valuation. They’ve given up on projects (Bidadi, Dankuni, NCR convention center etc). A stretched balance sheet, no free cash flow, and a slowing real estate market are quoted as reasons to downgrade. These are not unknown – both DLF and Unitech have been momentum stocks, and the DAL Dud Deal was known from the IPO. It was just assumed that the owners would carry DLF through; but the stock has fallen from the 1,200 levels in 2008, to 200.

The telegraph claims that Greece may actually default, by invoking Collective Action Clauses (CACs) if 90% of the lenders do not agree to the voluntary losses of 70% of the “face value” of privately owned Greek debt. The CACs allow Greece to force the haircut on to everyone, and that would make it involuntary which will definitely trigger bond insurance. This insurance has been sold by overleveraged banks who it is surmised will have another crisis if the insurance is “triggered”.