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.
- 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.
- 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.