Bangalore: Delhi-based Parsvnath Developers Ltd plans to raise up to 360 crore through a non-convertible debenture issue (NCD) to pay for land it bought a couple of years ago, two people familiar with the development said.

The realty firm had bid for a prime piece of railway land in the national capital in 2010 and paid 1,651 crore for it. The land, near the Sarai Rohilla railway station, around 5km from Connaught Place in Delhi, was auctioned by the Railway Land Development Authority (RLDA).

Parsvnath will use the money from the NCD issue to pay the second instalment of the payment, chairman and managing director Pradeep Jain said, without disclosing when this is due.

Payment for the land has to be made in six annual instalments, and the first, of around 330 crore, was made in early 2011.

Parsvnath Railway Land Project Pvt. Ltd (PRLPPL), a subsidiary created as a special purpose vehicle (SPV) to develop the railway land area, will issue the secured, redeemable NCDs. “The project is currently at the stage of acquiring sanctions and will largely be a residential development," said Jain.

Brickwork Ratings has assigned a C- rating for the NCD issue. Instruments with this rating are considered to have very high risk of default.

The rating takes into account several instances of delays in debt repayments in 2011-12 by Parsvnath, which Brickwork said reflected the real estate firm’s weak cash flows, weak debt service coverage ratio, and decline in its profitability during the period.

“The company is yet to apply for necessary regulatory approvals. Further, as the completion time of the project is about 10 years, the cash flows from the project are sensitive to adverse business conditions including subdued economic growth, competition, escalation in construction costs and project execution risk," Brickwork Ratings said in a note issued in December.

Parsvnath, which has a debt of 2,100 crore, plans to service its loans using cash flows from ongoing projects, sales of its 1.2-acre land near Connaught Place, and sales of non-core assets, Crisil Research said in a December report. The firm also plans to restructure some of its loans, the rating agency said, adding, “In case it is not able to sell land parcels and other non-core assets and if there is no pick-up in bookings, it may be difficult to service its obligations."

But Crisil also said that Parsvnath plans to ramp up the execution of its projects and has strong bookings, and that these coupled with its focus on plot sales are expected to drive up cash flows.

Property analysts said a number of large and mid-sized 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.

NCDs, which typically cannot be converted to stock, offer yields of 14-20%.

“In real estate, we will see more NCD issues this year because when markets are uncertain, lenders resort to fixed returns instruments like these," said Raja Kaushal, managing director, BNP Paribas Real Estate and Infrastructure Advisory Services Pvt. Ltd.

Kaushal said NCDs typically work better for residential projects that for office space development, where demand is depressed and returns are uncertain. “If the project isn’t going to deliver any significant returns, then it will be difficult for a developer to service the issue and would run into high risk," he said.