The collapse of Lehman Brothers and the bailout of Merrill Lynch, the global financial behemoths, are likely to affect Indian realty companies that are in the process of raising fresh funds.

Many leading realtors, already facing a paucity of funds due to a slowdown or a correction in prices, will find it more difficult to raise resources even at the project level, feel bankers.

US sub prime woes spook global economy

It is more of a global problem than the slowdown or the correction in the domestic market, said the head of a realty fund of a leading foreign bank. "The investment committees of all these funds are based either in the US or in Europe. They are simply petrified by the meltdown in the US realty sector. As a result, the local heads of these funds are not willing to take any call," he added.

More importantly, many realty companies had raised money from hedge funds or private equity firms through structured deals in the recent past.

Under the agreements, these companies have given an assurance of 18 per cent return on capital and also pledged promoters' holding as collateral. The investors have the option to sell these shares in the secondary market in case their prices go below a certain level.

Following the turmoil on Wall Street, which is primarily hit by the real estate sector, bankers feel that realty stocks may continue to face selling pressure in the domestic market.

This, in turn, will force the Indian promoters to pay additional collaterals to meet the margin money or trigger a fresh round of selling pressure in the market, said another banker.

DLF, the largest Indian realty player, is in the process of raising $750 million through its associate company, -DLF Asset. Sources said the company was talking to JP Morgan for funds.

In 2006, DAL raised $400 million from DE Shaw, a leading hedge fund, and another $200 million from Lehman Brothers. Last year, the company had also planned to raise funds through a public issue on the Singapore Stock Exchange. Investment banking sources said Lehman Brothers had sold its investment in DAL to Standard Chartered Bank.

Unitech, which has already raised $175 million from Lehman Brothers, is expected to mop up another $500 million in three different projects in Mumbai.

Lehman Brothers had already invested $175 million to acquire a 50 per cent stake in the company's Mumbai joint venture.

Senior Unitech executives said they had a back-up plan ready. "Even in this market, there is no dearth of funds for a good location and right-priced projects. More importantly, other Mumbai projects are still far away and there is no need of funds in the short term. For the first project, we have already received the funds," he added.

Merrill Lynch had also invested Rs 1,481 crore for a 49 per cent stake in seven mid-income housing projects of DLF. The fund was already disbursed in the last quarter.

Merrill Lynch and Lehman Brothers have exposure to more than a dozen realty companies, including, Ansal Housing, Anant Raj Industries [Get Quote], Unity Infrastructure, the Puravankara group and J Kumar Infrastructure, among others.