India gears up for first asset- backed property bonds
REUTERS Mumbai, 25 October
Indian property firms are gearing up to sell the country's first bonds
backed by rental income from their office buildings and shopping
malls.
The bonds would open a new source of capital for a commercial property
sector weighed down by $ 22 billion of bank debt and sluggish rentals,
and come on the heels of new rules allowing developers to raise money
through real estate investment trusts.
Property and infrastructure lender IDFC is at the most advanced stage,
with plans to sell at least ₹ 300 crore in adebt security backed by
lease rentals from an information technology ( IT) park in Noida,
outside Delhi, and a special economic zone in Pune, said people
involved in the discussions.
IDFC declined to comment. DLF, India's biggest listed developer, is in
talks to raise up to ₹ 1,000 crore in a bond backed by lease rentals
from two malls by the end of this year, the people said. The developer
has in the past talked about raising funds through such a vehicle.
DLF's executive director of finance Saurabh Chawla confirmed the
developer was looking at such a debt structure for its offices and
shopping malls, but gave few details. " We are exploring the
possibility. There are many such programmes that we have which we hope
to complete over the next sixnine months." KRaheja Corp is also
pursuing an asset- backed deal, but is proceeding slowly, Neel Raheja,
group president, said. Raheja said his company is considering doing a
deal in three to six months. " Before we do it, we want to make sure
it goes right and, therefore, we are not rushing into it," he said.
Credit Suisse and JP Morgan are among banks tapping property companies
and investors to gauge their interest in the structure, the people
said. Both banks declined to comment.
"Bankers have pitched deals for IDFC and DLF to us. We are assessing
the risk of the product and waiting for the rating," said a senior
fund manager who declined to be named because the talks were not
public. He said IDFC was likely to issue the first such bond, within a
month.
While the bond structure is loosely referred to in India as a
commercial mortgage- backed security ( CMBS), it differs from a CMBS
in the United States or Europe, under which lenders securitise
mortgages on commercial property.
Rather, DLF and IDFC's proposed bonds would be similar to so- called
lease- rental discounting ( LRD), sold in abond. Rental income is used
to pay the interest to the bond investor, while the principal is
repaid at maturity, the people said. In an LRD, the principal is
amortised over the life of the debt.
Turn to page 24 >
MONETISING RENTAL FLOW
The bonds could be a lifesaver for a sector struggling with bank debt
of $ 22 billion
HOW IT WOULD WORK
|Rental income would pay interest to investors |Principal, amortised
over the life of the debt, to be repaid at maturity |Special purpose
vehicle owing the underlying property to issue bonds |Likely to have
five- year maturity
WAITING IN THE WINGS
|DLF in talks to raise up to ₹ 1, 000 crore; to use lease rentals from
two malls |IDFC plans to raise at least ₹ 300 crore via bonds in a
month; to use lease rentals from IT park in Noida and an SEZ in Pune
|K Raheja Corp pursuing asset- backed bonds; deal likely in three- six
months
________________________________
Click here to read more...Turn to page 24 >
lick: Article continued from…India gears up for first asset- backed
property bonds
________________________________
India gears ...
Both DLF and IDFC are considering bonds with five- year maturities and
an option to extend the borrowing to seven years. The debt would be
issued by a special purpose vehicle that owns the underlying property
and would carry acredit rating independent of the developer.
DLF earns more than ₹ 2,000 crore in rent every year, Chawla said. The
company has also been selling non- core assets to reduce its debt.
IDFC is considering an asset- backed security that yields 10.75 per
cent to 11 per cent, said those close to the discussions, below the
roughly 12- 13 per cent interest on a loan for a similar duration.
Property- backed bonds carry risk, as issuers can default if lease
payments are disrupted. Defaults on mortgage- backed assets were a key
contributor to the 2008 global financial crisis.
The Indian market for property- backed bonds is likely to develop
slowly. " The tap may finally open, but not in strong force," said
Sandeep Singh, director of structured finance at Fitch Ratings in
Mumbai.
Compensation outgo could wipe out hospital's entire profits
NSC VERDICT IN AMRI CASE N
DIGBIJAY MISHRA
Kolkata, 25 October
The Supreme Court order asking citi- based Advanced Medicare and
Research Institute ( AMRI) Hospital to pay ₹ 5.96 as compensation for
medical negligence could wipe out an entire year's profit. With
interest, the compensation translates to a little more than ₹ 11
crore.
AMRI has two units, of which the one at Dhakuria was gutted by a fire
in 2011 that claimed 91 lives, might have to wait longer to see the
light of day again.
The apex court on Thursday had ordered the hospital and three of its
doctors to compensate, with interest, a US- based Indian- origin
doctor for medical negligence which led to the death of his wife in
1998.
The compensation, with interest, translates to more than ₹ 11 crore.
The hospital, cofounded by industrialists R S Agarwal and R S Goenka,
had booked a profit of around ₹ 12 crore on a turnover of ₹ 187 crore
in FY10. Then the fire accident happened and since then, the hospital
remains closed.
When contacted, Emami director Aditya Agarwal refused to comment,
saying he is not involved in the day- today operations and, hence, has
no idea about the impact of the payout of the compensation.
Rahul Todi, managing director of Sharachi group, too, refused to
comment on the impact of the SC verdict on the companys financials.
Emami and Sharachi are co- owners of AMRI.
The buzz around AMRI Dhakuria has been positive in the past few months
with chances of reopening of the unit gaining ground. The fire
accident had soured the relationship between AMRI promoters and the
state government, which arrested six directors of AMRI. West Bengal
chief minister Mamata Banerjee had publicly said the government was
not in favour of a ' killer' industry.
However, of late, Emami promoters were seen sharing the dais with West
Bengal ministers at public events, signalling improvement of
relations.
The latest Supreme Court verdict could change all that.
Subrata Majumdar, a Trinamool Congress leader, said, " This s being
handled by the chief minister directly. Since the verdict came from
the Supreme Court, it may delay things for AMRI." The apex court
verdict could also mean that AMRI may have to wait for a longer period
before they can resume operations.
AMRI had major expansion plans of about ₹ 2,000 crore, which were put
on hold after the fire accident. The group also had plans to set up
seven hospitals across the east and north- east with an investment of
about ₹ 1,750 crore. Plus, it was planning to invest ₹ 300 crore to
add beds in the existing hospitals.
AMRI Hospitals had major expansion plans of about ₹ 2,000 crore, which
were put on hold after the fire. The group had plans to set up seven
hospitals across the East and North East with an investment of about ₹
1,750 crore
Doctors are now a worried lot
SUSHMI DEY
New Delhi, 25 October
Doctors and hospitals are a worried lot after the Supreme Court on
Thursday awarded a record compensation of ₹ 5.96 crore in a medical
negligence case dating back to 1998.
Such a verdict could make things difficult for doctors or hospitals to
treat patients with complex diseases and those in critical condition,
according to a number of physicians and surgeons spoken
to by Business Standard.
Lawyers said this was a landmark judgment not merely because of the
penalty amount but because a hospital had for the first time been
brought under a scanner for medical negligence.
The apex court on Thursday asked Kolkata- based AMRI Hospital and
three doctors to pay ₹ 5.96 crore with interest to a US- based Indian-
origin doctor, Kunal Saha, who lost his 29- year- old wife, Anuradha,
during their visit to India in 1998.
"This is primarily a message for the healthcare industry that it
cannot shrug off responsibility in ensuring quality services and
compliance," said Vikas Tiwari, a lawyer at the Supreme Court. It's
important that institutions have safeguards and guidelines for their
doctors, he said. Adding, " You cannot be making profits and not be
accountable or responsible." Prominent cardiologist Naresh Trehan,
chairman at Medanta Medicity, said he was not aware of the merits of
the case but did believe a heavy penalty might discourage medical
practitioners. "Medicine people will shy away from taking care of sick
patients if there are such severe monetary penalties," he said. He
also argued that the medical liability cost might then impact the
healthcare cost, as hospitals would eventually pass it on to patients.
" It's a vicious cycle. Definitely, medical accountability has to be
there but it has to be handled very carefully, to maintain balance."
The realities in India are different from countries like the US where
such compensations and damages are common, Trehan added.
A doctor from Apollo Hospital said there was a need to have proper
standards of care within a hospital.
If these were breached, there should be consequences but in a manner
that it only acts as a deterrent for mistakes and not an obstacle for
medical treatment.
Ajay Bakshi, managing director, Max Healthcare, agreed with other
doctors on the issue of stringent penalty.
"While there is a need to provide patients with recourse on a case to
case basis, large punitive damages are known to have a negative impact
on healthcare systems, by making doctors practise defensive medicine."
The US has the highest incidence and cost of malpractice cases and it
is also the most expensive healthcare system in the world, he. " We
must be careful to not repeat the errors of other countries."
"Medicine people will shy away from taking care of sick patients if
there are such severe monetary penalties... It's a vicious cycle.
Definitely, medical accountability has to be there, but it has to be
handled very carefully to maintain a balance"
DR NARESH TREHAN
Cardiologist and CMD, Medanta- Medicity Hospital
"While there is a need to provide patients with recourse on a case-
to- case basis, large punitive damages are known to have a negative
impact on healthcare systems by making doctors practice defensive
medicine."
AJAY BAKSHI
MD & CEO, Max Healthcare
"It is a landmark judgment as the apex court for the first time held a
hospital accountable for negligence. This is primarily a message for
the healthcare industry that it cannot shrug off responsibility when
it comes to ensuring quality services and compliance... It's important
that institutions must have safeguards, norms and guidelines for their
doctors to operate... You cannot be making profits and not be
accountable or responsible"
VIKAS TIWARI
Independent lawyer in Supreme Court
Say heavy penalties for medical errors might raise health care costs
and make practitioners too cautious
--
CS A Rengarajan
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