Four realty firms in External commercial borrowings (ECBs) or foreign loans, which are banned in the Indian real estate sector, are ‘wisely’ sneaking into the housing sector at present. Foreign direct investment (FDI) worth billions of dollars come into the real estate sector, without directly infringing the Press Note on FDI in property. Well, the trick lies with the current non-convertible debenture (NCD) route, which is fast emerging as a preferred mode among local developers to attract foreign institutional investors (FIIs). In a recent poll conducted by ConstructionBiz360, a whopping 100% voters claim that the NCD route is facilitating foreign funds to find their way into the country’s evolving property business. The NCD route The NCD route involves a three-way transaction, which begins with a property firm issuing NCDs to local bodies such as non-banking finance companies (NBFCs). The NBFCs then list the NCD in the stock exchange and ultimately sell the debentures to an FII registered with the Securities and Exchange Board of India (SEBI), thereby raising money for the realty firm. Listing of the NCD is a must as FIIs are not allowed to invest in unlisted debt. “In this manner no rules are broken and such FII investment is permitted in the corporate bond market,” says B Sinha, a senior lawyer practicing in the Calcutta High Court and familiar with such foreign debt raising. Over the last few months, three Mumbai-based property builders and one from Bengaluru have raised more than Rs 1,000 crore through the NCD route. NCD drivers “Increasing domestic demand for property, coupled with the government’s recent clarification on 3-year lock-in period on FDI have paved the way for NCDs in the realty market,” says a senior official working with a leading NBFC on conditions of anonymity. The major benefits of NCD are as follows:
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