Real Estate NCD

Real Estate NCDs are Non-Convertible Debentures that provide debt to developers through a structured debt instrument which adds value in the early stages of development. Such structures are used to raise short-term secured loans from investors. The developer in-turn ensures a regular flow of income to the investor through monthly/quarterly interest pay-outs. Unlike convertible debentures, NCDs cannot be converted to equity shares of the issuing company at a future date. Hence the return offered by them is relatively higher.

Key Features
  • Investors typically gets a fixed coupon in the range of 12%-18% with a fixed payout frequency - monthly or quarterly
  • RE-NCDs have a fixed tenor of 2-4 years. The principal is paid back to the investors at fixed intervals after some moratorium
  • The Real Estate Developer at all times have to maintain a minimum security cover - in the range of 2-3 times of the total amount being borrowed
  • The size of the NCD issues is fixed which may be divided in to multiple series of various sizes.
  • Developers usually have an option to prepay the amount raised through Real Estate NCDs with a nominal prepayment penalty.
Key Benefits
  • Higher returns than Bank FDs and Corporate FDs
  • Give a security cover for our investment
  • Steady flow of income to investor through regular interest payouts

KARVY has undertaken many Real Estate NCD issues with issue size ranging from 10cr -35cr across India

Cautionary note for Investors
Real Estate NCDs are relatively high risk products. There is a risk of delay in interest and or prinicipal payment by the developer, security enforcement in dire situation could be a long drawn and cumbersome process.