Corporate India can shed long -term debt of $341 billion by monetising real estate, according to JLL, a real estate and investment management firm.

An uncertain economic scenario has forced corporate finance heads to re-imagine real estate assets as sources of funds to reduce debt.

The aggregate financials of approximately 2.45 lakh non-government, non-financial companies indicate that debt accounts for less than 50 per cent of their net worth.

RBI data on economic financial position in 2018-19 reveals that the value of land stood at $52 billion and that of buildings at $89 billion. This total of $141 billion is 41 per cent of the outstanding long-term debt of $341 billion.

One of the probable reasons for this situation is lower profits generated from the assets they had invested in.

Samantak Das, chief economist and head of research & REIS India, JLL, said: “With the fall in economic activity, Covid-19 has impacted asset utilisation and profitability tremendously.

“In the current circumstances, sale and lease-back of assets is likely to provide long term steady rental yield... monetisation of these assets could reduce substantial debt. Funds generated from the sale of these assets could be high enough to cover the entire debt.”

However, one of the biggest challenges is the mindset of corporate houses, who feel that owning real estate is of utmost importance. In many cases, since land is allocated under various state industrial policies, the option of sale and leaseback is not even considered.

However, in today’s uncertain economic environment, corporate finance heads are likely to look at options of using real estate as a source of liquidity.

Investors may face challenges on account of ownership titles and valuation. Such deals could take longer to close because of documentation and taxation issues.