Builders turn to PE & NBFCs to refinance their huge debts

Q: Due to slow home sales in the last couple of years and banks becoming cautious about lending to the industry, real estate developers are now turning to PE and NBFCs companies to refinance their debt.

Himani,

21st August 2015

Real estate News in Mumbai

mumbai real estate

indiabulls asset management company

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xander group

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non-banking finance companies

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Replies (3)

Hey folks,
Developers take a hit on their fundamentally expected margins when they have to refinance a project, while the refinancer needs to make sure that a developer has plenty of excitement left to complete the project. Investors are taking different strategies to make sure this.

pradyumanapte, Mumbai

21st August 2015

Comment

Yes, and many non-banking finance companies, too, are using this opportunity to enter projects with good income visibility. PE investors confirm that proposals for such deals from builders are on the rise. They have been getting proposals for deals involving refinancing and the numbers of such proposals are on rise particularly in residential sector.

Bulbul Verma,

21st August 2015

The passiveness in the market, availability of refinancing at lower rates and top up needed to take the projects further are essentially three factors behind such deals.

pradyumanapte, Mumbai

21st August 2015

Comment

Right Pradyuman,
A lot of pressure has built up on the Indian real estate market over the last 2 yrs. A recent report by property advisory firm Knight Frank put the aggregate nationwide unsold inventory of residential projects at 706900 units, which would take more than 3 yrs to sell. In the last one year, Indian real estate market has seen a 40% drop in new residential project launches and a 20% dip in home sales.

Bulbul Verma,

21st August 2015

At the same time, banks unwilling to lend, developers were forced to raise money from private moneylenders, family offices, private equity funds and NBFCs at high interest rates of as much as 25% to discharge their debt and meet working capital requirement. Now they are looking to refinance these high cost debt.

pradyumanapte, Mumbai

21st August 2015

@Pradyuman,
It is not new, refinancing deals are going up for a long time ago. A private equity player that had invested at land acquisition or pre-approval stage may have to exit now because of the fund's time period. It is a good opening for them as the project now has better revenue visibility post approvals and maturing of the project.

Himani,

21st August 2015

Yes, PE investment in the real estate sector increase nearly three-fold Y-O-Y in the first half of this calendar year and a larger part of that money has gone into debt refinancing, While builders need money to service debt, provide exits to earlier investors and to complete some projects.

Bulbul Verma,

21st August 2015

Comment

It's true Bulbul,
On the other hand, investors are attracted by lower risks because most these projects are closer to completion, have all required approvals, and they can also drive a hard bargain with financially weak builders on costing.

Himani,

21st August 2015