Bangalore: Peninsula Land Ltd plans to raise 525 crore by selling non-convertible debentures (NCDs) to complete its acquisition of a defunct mill land in Mumbai’s Byculla area, said two people familiar with the development.

The Mumbai-based developer won an auction last year to buy the five-acre land from Mahindra Lifespace Developers Ltd and the Kanoria family, joint owners, for about 650 crore. The land housed the now defunct New Great Eastern Spinning and Weaving Co. mill.

Peninsula Land, under its special purpose vehicle Goodtime Real Estate Development Pvt. Ltd, also plans to induct an investor in the project.

The investor is expected to own around 45% in the project and Peninsula Land the remaining interest, Brickwork Ratings India Pvt. Ltd said in a recent note.

Mahindra Lifespace and the Kanoria family are in an advanced stage of getting all necessary approvals for selling the land, it said.

Rajeev Piramal, managing director and vice-chairman of Peninsula Land, said he will not comment till the transaction is completed.

“Peninsula Land has made part-payment for the land, but the rest of the money has to be paid. The developer plans to build high-end residences on the plot and will get around 600,000 sq. ft for development," said one of the two people cited above, who didn’t want to be named.

Brickwork has given a “B" rating with a “stable" outlook to the proposed, secured NCD issue. Instruments with this rating are considered to have high risk of default regarding timely servicing of the financial obligations.

Peninsula Land’s ability to expedite the process of acquiring land and executing the project according to schedule will be the key trigger in the rating of the issue.

“The rating is constrained by major approvals relating to acquisition of land still in process, high project execution risk as the project is at a very nascent stage, current economic slowdown resulting in subdued demand in the real estate market and business risk and cyclicality in the real estate industry thereby affecting saleability of its projects," Brickwork said in its note.

The experienced promoter group and its ability to complete large-scale residential and commercial office projects work in its favour.

Peninsula Land has projects in Lonavala, Alibaug, Goa, Pune and Nashik and has acquired land in Bangalore, according to a November 2013 company presentation. Having completed 6.4 million sq. ft of development and with five projects in the pipeline, the firm’s focus is on Mumbai.

The developer is known for acquiring prime city-centric properties. In 2011, it bought the Bishopsgate property in South Mumbai for 272 crore and picked up stake in a 18-acre property in Sewri where IL&FS Investment Managers Ltd and HEM Bhattad Developers were the other stakeholders.

NCDs have been a popular debt instrument among real estate developers in the past three years. NCDs typically cannot be converted to stock and offer yields of 14-20%.

Rajeev Bairathi, executive director, capital transaction group and north India, Knight Frank India, a property advisory, said 70% of the developers are mainly issuing debentures to repay bank debt that may be due for payment.

These are instances where project sales may be slow and cash flows have dried up, making it tough for a developer to repay loans, he said. “The remaining would be cases where the developer has healthy cash flows, but needs more capital to invest in strategic land parcels and projects, but that’s only a handful of them," said Bairathi.

Recently, IIFL Holdings Ltd’s non-banking financial company, India Infoline Finance Ltd, and some of its wealthy clients bought debentures worth 150 crore issued by the Wadhwa Group in a 500-acre Navi Mumbai township project for developing the land.

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