CRISIL assigns stable rating to India’s first CMBS issue worth $150M

Rating agency CRISIL has assigned stable rating to India’s first commercial mortgage-backed securities (CMBS) to be issued by two units of DLF, India’s top realtor by market capitalisation. The instrument marks an innovative step in corporate bond market and opens up a new fundraising avenue for the real estate sector.

The CMBS are being issued by DLF Emporio Ltd and DLF Promenade Ltd, both step-down subsidiaries of DLF Ltd, operating two malls in south Delhi.

The NCDs have been assigned AA(SO)/Stable ratings to Rs 525 crore and Rs 375 crore NCDs by DLF Emporio and DLF Promenade, respectively.

Under CMBS, funds available with the issuer during the tenure of the instrument are higher than lease rental-discounting loans from banks as these loans have a structure where principal repayment is amortised whereas CMBS instruments give the option of bullet repayment. Further, CMBS instruments have the benefit of fixed interest rates and usually have lower funding costs.

“This first CMBS issuance in India shows how realtors can diversify their funding source. The corporate bond market can facilitate access to fixed-rate, long-term finance for realtors who have a portfolio of steady lease-income-generating assets. The CMBS structure provides a fine balance between the issuer’s need for funding and the investor’s need for safety,” said Pawan Agarwal, senior director, CRISIL Ratings.

Investors draw comfort from a healthy interest service coverage ratio, because CMBS has minimal principal repayment during its tenure. This leads to enhancement of instrument’s ability to withstand volatility in rental cash flows. Another important feature of the instrument includes mitigation of refinancing risks of the principal at the time of maturity through a comfortable loan-to-value ratio.

Additionally, the instrument brings with it additional features including assignment of future lease rentals, creation of escrow accounts, pledge of shares, mortgage of property and availability of adequate debt service reserve account. These characteristics delink the rating on these instruments from parent’s credit risk profile.

Earlier, VCCircle had reported how DLF’s proposed CMBS issue has got delayed against its previous schedule of December 2013. VCCircle was also the first to report last November that the realtor will issue securities against its two key mall properties—DLF Promenade and DLF Emporio.


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(Edited by Joby Puthuparampil Johnson)

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