“We have already infused a substantial amount of our own equity into the project, and have obtained debt funding for the balance from Standard Chartered Bank,” said Aditya Chellaram, executive director, Featherlite Developers. “The deal was structured as a hybrid combination of a project finance loan and lease rental discounting of other rental assets that we own.”
While Chellaram did not comment on the size of the loan, Standard Chartered Bank declined to comment.
Real estate developers have been facing a funding freeze owing to debt repayment worries around the infrastructure leasing and financial services Dewan Housing Finance and the Zee Group, which had pushed funding costs for non-bank financial companies (NBFCs) to multi-year highs. Spreads on top-rated fiveyear bonds of Indian non-banking lenders rose 90 basis points, or 0.9 percentage points, in one year but cooled off in the past two months.
“This is one of the few loan disbursals to any developer since the NBFC liquidity crisis last year made funding dearer to developers,” said Praveen Nair, associate general manager-capital markets, Colliers International, the advisor to the deal. “The total value of the project is Rs 300 crore and StanChart is contributing upwards of 40 per cent; the rest is coming from the developer.”
he developer has managed to secure the funding below 10 per cent interest rate for its 0.6 million square feet office project planned in Chennai, said a person cited earlier. Funding costs for developers had gone up 100 basis points after the fallout of the IL&FS crisis in August last year, with interest costs hovering around 10.5-11.5 per cent for most developers.
ET had reported on April 29 that real estate funding was undergoing a major change with banks and home financiers focusing on the quality and liquidity of real estate assets instead of indiscriminate lending meant to inflate their loan books.
Featherlite gets Rs 135-cr Loan from StanChart
Some bankers are also insisting on rental income from finished commercial projects as collateral in lieu of lower interest costs.
Developers need to pay nearly Rs 1.29 lakh crore a year on outstanding debt but generate less than half the amount in income that can be used for repayments, according to an analysis of about 11,000 companies by research firm Liases Foras. Experts say that rolling over loans and tapping into private equity funds will be a struggle for all but the established builders.
With the banking sector in doldrums, a risk of a potential crisis developing between fraught lenders and troubled developers persists. The drying up of liquidity comes on top of years of sluggish home sales, mounting inventories and falling prices. The difficulties were masked as NBFCs rapidly increased exposure to developer loans not protected by rental revenues in recent years, according to Jefferies Group LLC.