Global alternative funds are making most of the demand for credit from property developers . In recent months, they have signed a spate of structured debt deals with real estate developers in India.
These funds include, Ares Management Corporation, Varde Partners, PAG, among others who have lent over Rs 1,500 crore, sources in the know said.
The global funds are lending for different kind of purposes from refinancing old loans to pre appoval expenses to rescuing distressed assets towards which banks are not allowed to lend. The limited amount of lending by non-banking financial companies to real estate is also helping global investors to cut deals , experts said.
For example, HDFC Capital along with Ares Management Corp has lent about Rs 500 crore to Bengaluru based Adarsh Developers.
“It is for refinancing existing debt and additional growth capital for the company,” said sources. HDFC Capital did not comment on the subject while Ares declined to comment. However, B M Jayeshankar, chairman and managing director of Adarsh Developers confirmed the development
US based alternative investment fund Ares has done a couple of deals in the recent past.
Late last year, Ares backed Acre Asset Reconstruction Co (ARC) purchased a handful of loan accounts including that or Vatika group ane Nirmal Lifestyle from Housing Development Finance Corp (HDFC) aggregating to Rs 1,180 crore, reports said.
PAG, Asia ‘s biggest multi asset manager, has lent about $1.3 billion to property developers in the last four years of which 90 per cent was in last two years, fe had reported earlier.
Earlier this year, PAG collaborated with Shapoorji Pallonji Real estate, Indiabulls Housing Finance and Lokhandwala Kataria Constructions for reviving Minerva luxury project in South Mumbai which was a stressed property.
Last year it lent Rs 900 crore to Elan group for acquisition and growth purposes. It manages capital on behalf of nearly 300 institutional fund investors, and manages over $50 billion in assets under management.
Another global investor Varde Partners has lent about Rs 750 crore to Hyderabad based developer Phoenix Group through a mezannine debt transaction, said sources in the know . The money would be used towards construction, sources said , adding that the developer is converting a special economic zone project into non SEZ and banks are not allowed to lend if purpose of loan is changed , hence it is borrowing from a private lender, they said.
US based Varde Partners is betting big on India. Late last year, it’s managing director Sandeep Chandak said the firm is looking to invest $800 million to $1 billion across six to eight deals. Last year, It lent Rs 440 crore to Delhi based developer Omaxe and lent Rs 400 crore ro Chennai based Casagrand to buy land parcels.
Experts said global investors are making use of the rising demand for credit since the IL&FS crisis post which non banking lenders went slow in lending to property developers to clean their balance sheet and shore up liquidity.
Vishal Shrivastava , executive director at Anarock Capital said that the access to capital from domestic players is still constrained and no significant let up in NBFC lending was witnessed in the last three to four years post IL&FS crisis in 2018.
“Additionally, post September 2022, NBFC are not permitted to lend for pre approval expenses. All this is resulting in global funds being only available source for such funding,” Shrivastava said.
He said interest rates have generally gone up globally in last 12-15 months. “Owing to US Fed rates hovering around 5%, US investments are returning 10-11% return. It is only prudent to expect a 15% dollar return in India, which results in 19-20% IRR (internal rate of return) for developers,” he said.
Demand for credit remain robust more so with many restrictions faced by banks and NBFCs in lending to real estate, he said.