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Realty firms seek funds from PE to tide over debt

Sobia Khan & Paramita Chatterjee, Bangalore/New Delhi, The Economic Times

April 04, 2011

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Realty firms are making a beeline to private equity investors for money to repay mounting debt portfolios. With commercial banks turning cautious about lending to the real estate sector, industry players strapped for cash are seeking equity capital to ease the liquidity crunch.

As per estimates, real estate firms have debt of about Rs 75,000 crore of which at least Rs 20,000 crore had come up for repayment at the end of March 31, 2011, this includes both principal and accrued interest.

"The pressure on repayment of debt is building. There are very few options available with developers and they are increasingly borrowing from non-banking financial institutions (NBFCs) and raising capital from private equity investors ," said Amit Goenka, national director (capital transactions) at property consultant Knight Frank.

Given the pressure on the developers, private equity firms are negotiating hard to get attractive valuations for money invested. "In the last 3-4 weeks, we have held discussions with more than 15 builders across the country, and many of them have asked for specific refinancing situations," said V Hari Krishna, director at Kotak Realty Fund.

Earlier only one out of 10 developers would opt for private equity funding but now with every second developer looking to raise money, investors who earlier looked for a 20% return on investment (ROI) are now closing deals at 30% ROI, said analysts tracking the sector. NBFCs, on the other hand, are lending at 14-19 % return on investment.

"We have seen a significant increase in the number of developers approaching us from Delhi, Mumbai and Bangalore," he added but declined to cite individual cases due to non-disclosure agreement with the builders.

Lodha Developers is apparently in talks with Standard Chartered Private Equity to raise Rs 400-500 crore. Lodha, which had earlier borrowed about Rs 1,500 crore from Deustche Bank, has paid about Rs 1,200 crore. It had also borrowed around Rs 500 crore from HDFC of which close to Rs 300 crore came from internal accruals. In addition, it had borrowed another Rs 400 crore approximately from an NBFC. According to insiders in the real estate industry, Ackruti City has availed private equity money to roll earlier debt although the exact amount could not be ascertained.

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