Tata Realty to raise ₹1,400 crore via non-convertible debentures2 min read . Updated: 27 Jul 2012, 01:09 AM IST
Tata Realty to raise ₹1,400 crore via non-convertible debentures
Bangalore: Tata Realty and Infrastructure Ltd (TRIL), a subsidiary of Tata Sons, is raising ₹ 1,400 crore through a non-convertible debenture (NCD) issue to replace debt in a project in Chennai with long-term, cheaper borrowing.
“The entire money will be used to replace the debt we already have on the project and not for funding of the project," said managing director and chief executive Sanjay Ubale. “The investors in the issue are mostly foreign investors."
The project is under construction, with about 1.4 million sq. ft of office space leased and operational and another 2 million sq. ft be to be developed. At a later stage, a 100 room serviced apartment building will also be built, Ubale said.
Standard Chartered Bank is the arranger in the issue, while Aditya Birla Finance Ltd is the co-arranger, said TRIL chief financial officer Niyant Maru.
TRIL’s NCD issue opened and closed on the same day last week, indicating that investors had been identified and the issue received good response, said analysts.
NCDs typically cannot be converted to stock and offer yields of 14-20%.
The real estate sector has been flooded with a number of NCD issues as developers are trying to raise capital for a variety of reasons including debt repayment and land payments.
NCDs are an effective instrument to bring in foreign funds in the form of debt, said Ambar Maheshwari, managing director, corporate finance, at property advisory Jones Lang LaSalle.
Issues of the instrument are mostly taking place in late-stage projects as against greenfield ones because developers have realized that it is harder to sell to investors when projects are at the digging stage, analysts added.
Brickwork Ratings India Pvt. Ltd has assigned a provisional rating of A (SO) with stable outlook for TRIL Infopark’s proposed NCD issue. Instruments with this rating are considered to have an adequate degree of safety regarding timely servicing of financial obligations and carry low credit risk.
The structured obligation suffix is added considering the escrow of lease rental receivables and the maintenance of a debt service reserve account with a minimum of three months interest under the control of the debenture trustee.
Rajalakshmi R., manager, research, Brickwork Ratings, said high interest rates and limits on banks’ exposure to commercial real estate have seen realty firms accessing capital markets via NCDs.
“A number of real estate companies seek to replace high cost funds with NCDs. Sometimes credit enhancements provided, such as an escrow of receivables, explicit support from parent company etc, see the credit quality of the instrument increase and render them more viable for investors," she said. “The success of an NCD issue depends on the project type and status, promoters’ background, investor appetite for the sector, current economic scenario, pricing, etc."
In recent months, Bangalore-based developers Golden Gate Properties Ltd and Century Real Estate Holdings Pvt. Ltd raised ₹ 200 crore and ₹ 100 crore, respectively, from JM Financial Ltd.