Kotak Mahindra Bank is subscribing to non-convertible debentures (NCDs) worth Rs 200 crore being issued by Bangalore-based Century Real Estate Holdings Pvt Ltd. Kotak has already completed the first leg of this transaction estimated at Rs 100 crore last week, while it is holding talks with Century for a similar tranche of NCDs that is on the way.
Kotak, in turn, will be selling down almost 80% of the book to its high networth individual (HNI) clients. The three year-old bonds have 16.5% yield and is backed by Century's 4-5 upcoming residential projects.
Century Real Estate is raising the cash for its working capital requirements, as it is stepping up development of residential projects on the back of recovering demand. The developer, which is backed by real estate entrepreneur Dayanand Pai, currently has nine ongoing projects with a total built-up area of 1.2 mn sqft in various parts of Bangalore. It plans to launch another seven projects with a built-up area of 1.7mn sqft in the next 8 months. Nishith Desai Associates was the legal counsel to the investors in the first tranche of Rs 100 crore.
These projects will increase its existing inventory of 1,200 apartments by another 1,500 apartments. Century, which has a land bank of about 3,000 acres around Bangalore, has raised $75 million private equity investment from Fortress, and had also brought in Goldman Sachs as a majority investor in a luxury hotel project. According to the company website, its land bank alone will be worth $2 billion in assets.
Kotak's move to sell down a part of the book to HNIs comes at a time when the latter is increasingly looking at alternative investment classes like real estate and private equity. There have been a few deals where HNIs have subscribed to debentures of a real estate company which give them predictable returns.
Kotak Mahindra Bank is tapping HNI clients for direct co-investing opportunities and sees this as a big opportunity for its wealth management business, reported Financial Chronicle recently. The bank is eyeing opportunities of over Rs 5 crore.
Another similar deal was when clients of India Infoline Private Wealth Management Ltd subscribed to debenture of Vijay Associates (Wadhwa) Constructions, which used the funds to buyout the stake of existing investor Wachovia.
With demand reviving, the liquidity concerns that plauged real estate sector is easing in a big way. In fact, private equity funds are looking at the asset class with innovative deal structures even though many of them prefer an assured return. Similarly, banks are also open to funding developers through securitisation deals.
Recently, Mantri Developers Pvt Ltd, another Bangalore firm, struck Rs 550-crore shopping mall rental securitization deal with SBI-led consortium to raise capex for the upcoming projects.