Mumbai: For many developers, bonds were touted as a strategy to reduce costly debts.
However, some key developers like DLF and Lodha who were trying to tap the bond market find themselves in choppy waters either due to tepid investor response or regulatory glitches.
Several banks which were also tapping large real estate firms for bond issues point out that asset-backed structure were finding few takers as a corporate funding tool.
Anuj Puri, Chairman and Country Head, Jones Lang Lasalle said, “Bond as an instrument is not for all developers. Very few developers have a low-risk profile and bond by its very nature is low in risk. However, once they are able to tap it, it provides an economical funding option”.
Last week, Lodha Developers pushed its plan to raise funds from the overseas bond market to 2015 after its maiden dollar bond issue failed to garner strong response from investors.
“We have decided to postpone the issuance to early 2015 in view of the current market conditions for other Indian bonds,” said the company in a statement.
Others like IDFC and DLF were also looking to raise money through bonds.
The bond prices of Indian companies had fallen in the last week. Meanwhile, the RBI too, had clamped down on companies raising funds via overseas subsidiaries and then bringing them back to India without complying with the RBI’s external commercial borrowing restrictions. The central bank had found that some companies route overseas funds through such bond issues to domestic operations that are not allowed under current rules.
DLF was also gearing to raise money in a bond backed by lease rentals from two malls. The company’s ratings took a beating following ban on its top brass from accessing the market for three years.
Others like Indiabulls Real Estate had tapped the bond issues through its subsidiary Century Ltd. The company raised $175 million after scaling down the targeted size of $250 million.
“[The] Risk is high and risk-appetite is low in the real estate sector. Market is jittery. The Chinese stock market has crashed and nobody per se wants to invest in a jittery market,” Abhishek Ranganathan, Vice President, Phillip Capital said.