Bangalore: Lodha Developers Ltd is raising Rs 825 crore to buy back debentures issued to Deutsche Bank.
According to one analyst, Lodha risks losing prime land in Mumbai if it doesn’t purchase the debentures.
Deutsche Bank invested Rs 1,640 crore in Lodha in 2007 by subscribing to fully convertible debentures, or FCDs, issued by the realty firm’s subsidiary Cowtown Land Development Pvt. Ltd.
The FCDs are convertible into 99% of the share capital of Cowtown.
Lodha will raise the money through a non-convertible debenture issue (NCD) this year and use the proceeds to purchase the FCDs, credit rating agency Brickworks Ratings India Pvt. Ltd said in a recent note.
“The structure is such that Lodha Developers will raise the money and give the money to its subsidiary, which will buy back the FCDs,” said an analyst with another firm, asking not to be identified.
Lodha Developers in an email reply declined to comment on the NCD issue.
Brickwork said its BBB+ rating on Lodha’s proposed NCD issue is constrained by project execution risk, risk in timely launch and sale of new projects, high leverage, some delays in servicing debt and the slowing in the real estate sector.
Lodha’s Rs 825-crore NCD issue will have a tenure of 2 years, with payments starting in December, said Brickworks.
If Lodha does not buy back the FCDs from Deutsche Bank, it risks losing “control of several valuable land parcels” in Thane, Lower Parel and Malabar Hill, Nomura Financial Advisory and Securities (India) Pvt. Ltd said in an April report.
Several land parcels and upcoming projects of Lodha are mortgaged with Cowtown, according to Nomura.
“As per Lodha, they have now repaid 65% of the total amount through internal accruals and borrowings and will repay the rest soon,” the brokerage said.
Lodha Developers, run by brothers Abhisheck and Abhinandan and backed by their politician father Mangal Prabhat Lodha, owns more than 4,000 acres mostly in and around Mumbai and is developing 51.88 million sq.ft. of space.
Lodha has raised Rs 90 crore and Rs 65 crore this year through NCD issues.
At least 10 developers have raised or are raising nearly Rs 3,000 crore since 2009 through NCDs, a debt instrument that cannot be converted into corporate stock and which offers healthy yields of 14-18%.
There were hardly any NCD issues by real estate firms in 2009.
Analysts say unlisted, mid-size developers that haven’t been able to raise money by selling their shares to the public but need quick capital to complete projects, repay debt or pay for land are resorting to NCDs.
Lodha has regulatory approval for a Rs 2,800 crore initial public offering but hasn’t issued shares yet because of the volatility in the market.
“Increasingly, NCD issues are happening for late-stage projects as against greenfield projects because developers have realized that it is harder to sell to investors when projects are at the digging stage,” said Amit Goenka, national director-capital transactions, Knight Frank India, a real estate advisory.
“While earlier, developers issued NCDs for more risky projects with cash flow promises, now NCDs are being raised with more liquid projects as collateral, offering better returns.”
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