With the continuing slackness in the equity market, real estate players plan to raise capital to mop up funds through issue of non-convertible debentures (NCD) in 2013-14.
Real estate firms want to raise capital through NCDs in order to repay their debt, buy land and also to finance their existing projects.
Marathon Realty, a Mumbai-based firm, recently sold NCDs to raise Rs 100 crore to partly repay its debt and fund construction.
Some analysts feel that until investor sentiments turn positive and they are willing to take equity exposure in real estate, capital raising through NCDs may continue.
In order to attract investors to their NCDs, realty firms plan to assure debt servicing by creating an escrow account. Real estate companies would deposit their cash flows from the existing and future projects in the escrow account and this would be repaid to the NCD holders.
Some industry sources informed that non banking finance companies (NBFCs) are willing to lend to developers who own the land.
But sources from some NBFCs opine that while developers are putting in place measures such as an escrow system to minimize the inherent risk in NCD issues, investors should be cautious.
Investors need to be more careful about the track record and delivery capability of a developer because some projects fail to take off, or suffer poor sales.