Realty owners and developers have been selling off their assets at distress value under pressure from banks and financial institutions to repay their loans.
Vibor Properties, a subsidiary of Vibor Bikas Bank, recently sold the Rabi Bhawan Boutique Hotel and Mansion, a property spread over 45 ropanis, to Surya Housing for Rs 1.23 billion.
Senior officials of Vibor Properties said they lost Rs 150 million in the deal.
According to Vibor, it has spent Rs 1.38 billion on developing the property with Rs 800 billion as debt financing from banks, Rs 460 million as equity financing and Rs 120 million as interest capitalization. A consortium of 10 commercial banks led by Siddhartha Bank had provided Rs 800 million to Vibor Properties to develop the property in August 2009.
With Vibor Properties struggling to pay the interest since mid-July 2011, the consortium of banks asked it to pay back the loan by selling off the property at distress value. According to Vibor sources, the company even tried to bring new investors including a number of foreign financiers to develop the property, but it was unsuccessful.
One of the prospective investors was a Hong Kong-based investment company which showed willingness to invest US$ 25 million to develop the property but later pulled back. Another company from Bangladesh had also showed interest, but the deal failed to take off, said Vibor sources. Vibor officials complained that the banks unilaterally increased the interest rate to 16.5 percent while the loan deal had stated 12 percent. “Our request to the consortium banks to restructure the loan was ignored and we were forced to sell it.”
Vibor said the banks even threatened to publish the names of the owners in the papers and auction off the property if they didn’t repay the loan soon.
“The banks behaved in the way of traditional money lenders, and we had no option but to sell the property at a loss,” said the source. “Vibor Properties and other portfolio partners owning the property lost Rs 150 million while selling the property at the aforementioned price.”
Meanwhile, the bankers said that they had no option but to push Vibor Properties to repay the loan. “We know realty developers are having a difficult time, but we have our own problems too,” said one of the bankers in the consortium. “Selling the property at distress value was the best option at present; and developers should think about surviving, not about profit making.”
Sources said other banks in the consortium even pressurized their leader Siddhartha Bank to recover the loan. “In the future, the market will see more instances of selling at distress value,” said the banker.
Source: Kantipur
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