The Reserve Bank of India, or RBI may have shut the doors on realty, but mutual funds are opening doors for builders.

The RBI has asked banks to go slow on loans to real estate companies. And the government has tightened the screws on overseas borrowings by the sector. But Fixed Maturity Plans, or FMPs, have emerged as the savior for the real estate sector that suddenly finds itself in the grip of a correction after two boom years.

Mutual funds are picking up debt papers of real estate companies through FMPs with a 12-18 month tenure. Leading developers are learnt to have offered mutual funds a 2-5% premium over the 10% offered by certificate of deposits, or CDs.

Nilesh Shah, CIO, ICICI Pru MF said, “We are trying to step in that mould where we want to lend to good reality companies against reasonable security for a reasonable return. Clearly realty companies are offering from 200-300 bps higher than the comparable manufacturing companies.”

Mutual funds are not ready to put a number to how much they are lending to the real estate companies. Currently, total assets of 12-18 month FMPs are being pegged at about Rs 20,000 crore.

Industry sources, however, estimate that out of this about 10-15% is being invested in debt securities of real estate companies. In May alone, close to Rs 50,000 crore flowed into FMPs of different maturities with a large part of this coming from corporates.

So is this secure investment? Mutual funds are reassuring themselves by seeking collateral before investing.

Navneet Munot, CIO - Debt, Birla Sun Life MF said, “I think there are collaterals like coverage of the land bank that they have, or cash flows accruing out of the recievables from the flat buyers and things like that; there have been loan against shares of the promoter. Those are the kind of collaerals that realty companies have provided.”

While most mutual funds say they are sticking to leading developers, experts say this could well be a new window of opportunity for real estate players, who have seen most doors shut on them in the recent past.


Article source: moneycontrol.com
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