Mumbai-based real estate fund manager, Piramal Fund Management, has invested INR 12 billion (€178.3 million; $192 million) as project-specific debt for the development of a luxury residential complex in Mumbai. In a statement announcing the deal, the firm pegged it as the largest single project financing transactions in the country.
PERE understands that the firm will be investing its house capital in the project, which is being developed by Omkar Group. Development work has already begun for ‘Omkar 1973’, the Mumbai-based developer’s flagship property comprising three residential towers spread over an area of 392,040 square feet.
“This is a novel structure with a combination of senior debt as well as project funding against a very successful 20:80 scheme in a project that is clearly established with 60 percent sales and visible construction progress,” Khushru Jijina, the firm’s managing director said in a statement.
Such project finance lending is typically expected to yield around 15 percent to 16 percent in returns, Jijina told PERE.
Of the total amount, INR8 billion will be used to finance the construction progress of the project over the next two years. The firm will lend the remainder INR4 billion to Omkar to refinance existing lenders against a pari passu senior charge on the cash flows and development rights. Such a clause means that the firm’s debt would rank equal with all the other debt issued by the borrower.
In general subvention schemes, like a 20:80 scheme as in this case, the buyer is supposed to pay 20 percent of the total cost of a project, while the developer ties up with the bank or an institution to raise the remainder amount on the basis of the buyer’s borrowing ability.
In this deal, explained Khushru, Piramal will provide financing for the remaining 80 percent to the developer without taking into account the buyer’s financial status. As a safety net, in case of default, the firm has some apartments in the project unencumbered in its name.
“This [type of project finance] is better than construction finance because you also have receivables,” he said. The challenge, however is that you do not have a charge on the entire project. That is why we insisted that INR 4 billion be used to part-pay off exiting lenders so that we also become pari passu charge holders on the entire property.”
In February this year, the firm also forayed into the construction finance segment, with a planned investment of INR11 billion over a period of time in nine construction finance projects.
In addition, the firm also has a $500 million joint venture partnership with Canada Pension Plan Investment Board, which was setup in February 2014, to provide debt financing for residential projects in the country.