Riverbank aims to raise Rs 240cr

Promoters of Riverbank Developers Ltd, a joint venture between Bata India Calcutta Metropolitan Group (CMG), will seek debt of Rs 240 crore from banks through lease discounting, for the construction of a mall and a hotel at the proposed township at Batanagar, in South 24-Parganas district.

Riverbank has roped in Future Group, which will set up Hometown and Big Baazar stores as anchor investors at the proposed mall. For hotel, it has entered into a deal with hotel Crown Plaza, which will help the developers of the project to get the loan against future cash flows.

Sumit Dabriwal, managing director, Riverbank Holdings Pvt Ltd, said the construction work for the hotel and the mall should be complete by the middle of next calender year.

For completing the mall, the Riverbank will require Rs 100 crore debt, and for hotel about Rs 140 crore.

It is to be noted, real estate developers are increasingly relying upon lease discounting for completing projects, as banks have been reluctant to give pure debt to them due to a slowdown in the real estate sector.

Under a lease or rent discounting agreement, banks lend to developers for new projects against rents they directly realise for completed projects, which also is mortgaged with the bank. Thus, banks are assured of guaranteed cash flows and also have physical assets in case of defaults.

Also, the rate of interest charged by banks for loan against rent, generally for a tenure of five-six years, is generally 1-2 per cent lower than the benchmark lending rate.

The sector, which has been hit by the global financial crisis, has seen more than a 60 per cent fall in demand in the last six months, say experts.

According to real estate developers, for commercial projects, unlike the residential projects, where the funding is mostly through advances, lease discounting is a preferred funding option at present. For real estate developers with a national presence, the withdrawal of funds by foreign institutional investors have also been a cause of concern, prompting newer instruments for completing the ongoing projects.