Analysts say that several real estate firms plan to raise capital through non-convertible debentures (NCD) this year, despite rating agencies recently downgrading some past issues, saying investors still find the debt instrument attractive. Both large and mid-size developers are looking to raise money to pare debt, buy land or for financing the construction of their projects by selling NCDs to wealthy individuals and institutions.
To raise Rs 100 crore, Mumbai-based Marathon Realty recently sold NCDs to partly repay its debt and fund construction. To lower the potential of risk to investors, the firm established an escrow mechanism whereby lease rentals from 19 completed units of its office project, Future-X, in central Mumbai will go towards redemption of the NCDs.
Managing director Mayur Shah confirmed lease rentals from the completed portion of the project will be used to service the NCD issue. Marathon opened the escrow account with Kotak Mahindra Bank and appointed IL&FS Trust Co as the debenture trustee in the issue, Brickwork Ratings said in a note on April 12.
The agency has given Marathon’s NCD issue a BB (SO) rating, indicating moderate risk of default in payments. NCDs offer a lifeline to many real estate developers who haven’t been able to get loans from banks or need more money for repaying debt or buying land, for which banks typically don’t lend. But these debt issues by real estate firms have come in for some scrutiny recently.