Bangalore: Lodha Developers Ltd has tied up Rs. 1,950 crore in bank loans for three projects at prime locations in Mumbai, even as banks remain wary of the real estate sector because of its various struggles the past few years, mainly with declining sales.
The long-term loans for Lodha’s projects are primarily for financing their construction, the company said.
Mumbai-based Lodha, known for its large land acquisitions and high-end residential projects, is borrowing Rs.1,450 crore for its Blue Moon project announced earlier this year. The project will come up on a 17-acre plot in central Mumbai bought from DLF Ltd last year for Rs.2,700 crore.
It is borrowing another Rs.275 crore for its Lodha Venezia projects in Kalachowkie and Rs.225 crore for its Washington House project.
“We raise funds for construction purposes from time to time from various banks and financial institutions. Our strong track record in timely payments, sales and execution enables us to raise funding at attractive rates from almost all the financial institutions in India and is reflected in the ratings,” managing director Abhisheck Lodha said in an email response, adding that the company had net sales of Rs.9,000 crore in 2012-13.
He declined to name the banks Lodha Developers is borrowing from, saying: “Being a private company, we would not like to comment on fund-raising for any specific project.”
Large bank loans to individual developers have become a rarity also because of issues such as delayed project executions and regulatory approvals.
Banks are being “extremely discerning” about the quality of developers they are lending to and monitoring the end use of the capital themselves, said Ambar Maheshwari, managing director, corporate finance, at property advisory Jones Lang LaSalle India.
“Only good-quality developers with a solid line-up of projects are getting some construction finance, which is crucial to all real estate firms to execute projects,” he said.
Hatim Broachwala, a banking analyst at Karvy Stock Broking Ltd, said banks are still cautious about lending to real estate firms. “Debt levels are still high in the sector and banks can’t afford to lend to riskier segments such as real estate. At least for a year or so, incremental lending to riskier sectors should be further moderated,” said Broachwala.
As a results of banks being cautious, developers have been approaching non-banking financial companies (NBFCs) and private equity (PE) funds for high-cost debt.
Banks currently lend to real estate developers at interest rates of 13-14%, according to Broachwala.
Brickwork Ratings has assigned BBB+ ratings to the fresh long-term loan facilities of the three Lodha Group entities. A BBB+ rating indicates a moderate degree of safety regarding timely servicing of financial obligations.
“The rating factors, inter alia, the experienced management team of Lodha Developers Ltd, its healthy order book position and dominance in residential segment. The rating is however constrained by project execution risk, high leverage, and the current situation in the real estate industry,” Brickwork said in an 8 April rating note.
“The rating is sensitive to the company obtaining requisite regulatory approvals for all its projects, ability to launch and deliver projects on time, infusion of equity,” it said.