Asset-Backed Bonds

New Delhi: Indian real estate majors are gearing up to sell the country’s first bonds backed by the rental income form their offices and shopping malls. The new bonds will come as heels of new norms for the developers allowing them to raise money through REITs.

The property and infra lender IDFC is ready to sell a minimum of Rs 3 billion in a debt security from an IT park in Noida and a SEZ in Pune.

The real estate major DLF, is in discussions to raise up to Rs 10 billion in a bond backed lease rentals from two malls in later part of the year.

Credit Suisse and JP Morgan are among banks who are tapping property firms and investors to put their interest in the structure.

Bankers have pitched deals for IDFC and DLF and are assessing the risk of the product and waiting for the ratings. IDFC is likely to issue such bond within a month time.

The bond structure is totally different from the mortgage backed security of other countries. Rather, DLF and IDFC proposed bonds would be same to call as lease-rental discounting, sold in a bond. Both the companies are considering the bond with 5-year maturity period and an option to extend the period to 7 years. The debt would carry a credit rating of the developer.

DLF earns more than 20 billion rupees in rent every year and the firm has also been selling non-core assets to reduce its debt.

Indian developers, especially family-run, usually rely on bank loans and selling equity to fund their operations.

India`s corporate bond market has conventionally lacked the depth and liquidity to serve as a major funding source. More exotic bond products, have failed to take off because of low investor craving and the Government restrictions that prevent many investors such as pension funds from buying riskier assets.