Thursday / December 5.


inNEW DELHI: The government has relaxed the norms for allowing foreign direct investment (FDI) in the construction development sector. It is expected the move will boost affordable housing projects and smart cities across the country.


At a Cabinet meeting chaired by Prime Minister Narendra Modi on Wednesday, the minimum built-up area required to attract FDI was reduced from 50,000 sq m to 20,000 sq m, while the capital requirement was decreased from $10 million to $5 million.


Also, an investor will now be allowed to exit on completion of the project or after three years from the date of final investment, whichever is earlier.


However, the government might allow repatriation of FDI or transfer of stake by one non-resident investor to another before completion of a project. Proposals in this regard will be considered by the Foreign Investment Promotion Board on a case-to-case basis.


The proposal was moved by the Department of Industrial Policy & Promotion, under the commerce ministry, to attract more foreign investment in the construction and real estate sectors.


According to an official statement, at least $5 million in FDI will have to be brought in within six months of the commencement of a project-the date of approval of the building/layout plan by the authority. Subsequent tranches can be brought in till 10 years from the commencement of the project or before the completion of the project, whichever is earlier.


Since 2005, 100 per cent FDI through the automatic route is allowed in this sector, which includes townships, housing, commercial premises, hotels, resorts and hospitals.


Though the cap on FDI remains unchanged, the government has clarified such investment isn’t allowed in an entity engaged in, or proposing to engage in, real estate, construction of farm houses and trading in transferable development rights.


The relaxation in norms was hailed by industry. C Shekar Reddy, president of the Confederation of Real Estate Developers’ Associations of India, said now, developers could get an alternative route of funding for their projects.


“The easing of foreign direct investment rules in the construction sector will surely provide a boost to the real estate sector and go a long way in fulfilling Prime Minister Narendra Modi’s dream of creating smart cities across the country. The permission to sell completed projects to foreign investors will help Indian real estate developers get much-needed liquidity into the system,” said Sanjay Chandra, managing director of Unitech.


DLF Executive Director Rajiv Talwar said, “Now, foreign investors will not be wary at all. With the positive announcements by the government and Reits (real estate investment trusts) coming soon, I do not think foreign players will hesitate in coming to India.”


Between 2003 and 2013, the construction development sector received about $22 billion in FDI, 11 per cent of the overall FDI into the country during this period. However, since 2012, FDI inflow into the sector has slowed drastically. In 2012-13, it fell to $1.3 billion from $3.1 billion the previous year. During the first four months of this financial year, only $167 million has flowed into this sector.


Given the shortage of land and its high cost, the relaxation in norms is expected to help attract investment in new areas and encourage the development of plots for serviced housing. It would also help create affordable housing in the country and develop smart cities, the official statement said.


In case of construction development projects, a minimum floor area of 20,000 sq m will have to be developed, while for the development of serviced plots, there is no criterion on this front. The Indian entity investing in the project will only be allowed to sell plots for which trunk infrastructure, including roads, water supply, street lighting, drainage and sewerage, have been developed.


In completed projects, 100 per cent FDI under the automatic route is allowed for operation and management of townships, malls/shopping complexes and business centres.


Projects using at least 60 per cent of the floor area ratio/floor space index for units of carpet area not exceeding 60 sq m will be considered affordable housing projects. For the economically weaker category, 35 per cent of the total units should be constructed with a carpet area of 21-27 sq m. Such projects may have a mix of economically weaker section, low-income group, higher-category dwelling units and commercial units. However, servant quarters along with the main unit would not be considered units for economically weaker sections/low-income groups under an affordable housing project, the statement added.


Projects committing at least 30 per cent of the total cost for low-cost affordable housing would be exempted from the minimum built-up area and capitalisation requirements, with a three-year lock-in period, Finance Minister Arun Jaitley had said in his Budget speech for 2014-15.


Akash Gupt, executive director, PricewaterhouseCoopers India, said, “Relaxation in minimum area and capital conditions will result in increased mergers and acquisitions and private equity investment in this space due to lower risk and better returns on smaller projects. It will also result in better developments in urban centres, where space has always been a constraint, as it was difficult to develop a 50,000 sq m project.”

(Source: Business Standard, October 30, 2014)




NEW DELHI: The NDA government has made it mandatory for all proposals to the cabinet involving public private partnerships, railways, disinvestments, and issues recommended by statutory appraisal bodies such as the Telecom Commission and the Foreign Investment Promotion Board, to get a prior approval from Finance Minister Arun Jaitley.


“The FM’s approval must be obtained and clearly indicated… (on) the notes for consideration of cabinet and its committees, where the proposal has been recommended by any appraisal body,“ said a memo sent by the cabinet secretariat to all ministries on October 17, reviewed by ET.


The decision is significant, according to officials, as it explicitly reiterates the traditional supremacy assigned to the finance minister to sign off on all issues with financial and economic implications before they come up for the cabinet’s consideration -a system that had slackened under the UPA with some ministries such as telecom acting virtually autonomously.


UPA ministers, said officials, were emboldened to bypass the finance minister thanks to a contentious internal diktat issued under the Manmohan Singh government in July 2008 about which cabinet proposals need the FM’s prior nod.


P Chidambaram was the finance minister when that directive was issued.“The 2008 memo to ministries explicitly referred only to those proposals that were appraised by the Expenditure Finance Committee (EFC) or the Public Investment Board (PIB), that evaluate publicly-funded projects and schemes.


It didn’t mention other appraisal bodies such as the Public Private Partnership Appraisal Committee (PPPAC) and the Telecom Commission,“ a senior government official told ET, leaving room for ministries to push proposals onto the cabinet’s agenda without the FM’s nod in some cases.


Five months into its term, the Modi government has overturned the 2008 norms and put the FM explicitly in charge of all such proposals to the cabinet, leaving no room for ambiguity. Apart from the EFC and PIB, the directive explicitly makes the FM’s okay compulsory for matters pertaining to `all appraisal bodies’, such as the core group on disinvestment, the extended Board of Railways, FIPB and PPPAC.

(Source: The Economic Times, October 30, 2014)




MUMBAI: Some of India’s top business groups, including the Tatas, the Birlas and Mukesh Ambani’s Reliance Industries, have either sold assets abroad or asked bankers to find buyers this year, to service their debt and to exit from unprofitable businesses.


The Ahmedabad-based Adani Group was the latest to confirm on Tuesday that it had hired Morgan Stanley to sell its port project in Australia, acquired in 2011 for $2 billion. The sale comes within weeks of Reliance Industries’ putting its 45 per cent stake in a shale gas joint venture in the US up for sale at a valuation of $4.5 billion.


“It’s a question of survival for many corporates. The debt taken by some companies to buy assets abroad had become unmanageable and they did not have any other option but to sell assets,” says Phani Sekhar, fund manager at Angel Broking.


Bankers say this year till date, the Tatas have sold their stake in Neotel in South Africa, apart from putting Tata Steel’s long products division on the block at a valuation estimated at $1.3 billion. Bharti also sold its towers in Africa after demerging it from Zain’s operations it acquired in 2010 for $ 10.7 billion (see chart).


“This year is exactly the opposite of the boom witnessed in  2007-08, when Indian companies spent billions of dollars to buy companies abroad but failed to get reasonable returns on investments. The chickens have come home to roost as a lot of top companies are grappling with debt taken to acquire these assets,” said a banker about the spurt in sales of assets by Indian companies.


Apart from managing debt as in the case of Tata Steel and Lanco, which is selling a stake in its Australian coal mine, some companies are making the best of the good valuations fetched by their companies. The Essar and Aditya Birla groups sold their business outsourcing units for $610 million and $260 million, respectively, as they commanded better valuations.


“One of the ideas of selling the stake in the BPO operations was to use the cash to retire our debt and invest in new businesses,” said a Aditya Birla group executive. “Besides, the BPO business was not core to the group,” he added.


D R Dogra, managing director and chief executive officer of Care Ratings, says the divestment of assets abroad is a part of the restructuring process. “The business environment in the country as well as overseas has been downbeat in the last two years. This has caused companies to review their operations, especially offshore ones,” says he.


By rebuilding their strategies, those businesses that do not fit with the new whole are being sold off to improve the balance sheet and enhance shareholder value. “Several of these acquisitions or partnerships were done at a time when global conditions were ebullient. Now with growth levels coming down and just about remaining stable such introspection has been called for. This is more so as some of these assets have not quite turned profitable and no longer fit in with the medium-term goals of the organisation,” he added.


Dogra says relatively attractive valuations of these assets could be another trigger for going ahead with such plans. “Introspection is but natural when we are on the lower end of the business cycle when future strategies are reviewed and altered,” he adds.


Apart from business reasons, some groups like Adani are also facing opposition from environmental activists in Australia, which allege that its $16.5 billion coal mining project will destroy the Great Barrier Reef. Many banks have refused to fund the projects, and the group is de-risking its strategy by selling its port project.

(Source: Business Standard, October 30, 2014)




MUMBAI: Credit in the banking system slipped marginally despite the festive season. Data from the Reserve Bank of India suggests that in the period between October 3 and 17, bank credit slipped 0.7 per cent.


However, in the past one year, credit growth was up 11 per cent. In the period ended October 17, it was Rs 62,20,004 crore, up from Rs 55,97,985 crore a year before.


Though credit demand has been tepid for several quarters, this fortnightly dip came just ahead of the Diwali week, the main festive season for banks. To improve the retail demand, banks have come out with several discounts and offers on both home and automobile loans.


In the previous fortnight, buoyed by festive demand, credit demand had shown a marginal improvement but the momentum could not be sustained, suggests the data.


A senior executive with Punjab National Bank said the dip in deposits and advances in the fortnight after the close of a quarter is normal. The part of business which gets booked in the run-up to a quarter’s end is unwound. The demand for credit remains subdued, though the sentiment has definitely improved, he said.


Rajiv Anand, president-retail banking at Axis Bank, said the sluggishness in growth was not so much on account of retail lending but primarily due to a slowing in the corporate segment of the business.


“Traditionally, from the month of October, that is the second half of the year, we begin to see an uptick in investment demand and that drives the growth in credit offtake. However, this year, corporate demand is yet to pick up and that accounts for the slow growth. We are hoping that in a few months, we will begin to see improved demand from the corporate end,” he said.


Bankers agree there has been some improvement in the corporate segment but a recovery is still a few quarters away. Deposits also declined by about one per cent in the fortnight under review. However, at the end of October 17, on a year on year basis, deposit growth continued to outpace credit growth at 13.6 per cent, to Rs 82,13,873 crore, up from Rs 72,94,861 crore a year before.

(Source: Business Standard, October 30, 2014)




NEW DELHI: The government is likely to issue at least a dozen sets of rules before starting the e-auction of coal blocks, promised under an ordinance of last week.


In the first phase, 74 blocks would be auctioned. The Supreme Court, on September 24, ordered cancellation of allocation of these blocks — 42 operational and 32 in line to start production — from April 1, 2015. These mines would now be offered only to developers with projects in notified end-use such as steel, power, cement and coal washing.


With the Coal Mines (Special Provisions) Ordinance empowering the government to work out the nitty-gritty, it would not need to wait for Parliament to replace the ordinance with a new law. The target is to start auctioning of blocks from December, said a senior government functionary. The process of notifying rules would take place along with the introduction of a Bill in Parliament, so that the way out of the impasse was not delayed.


To ensure legal and procedural transparency, the ministry of coal has planned an auction on the lines of what has been held in the past for telecom spectrum.


It has got in touch with the department of telecommunication for the expertise. Earlier, cancelled spectrum licences were re-allocated through a transparent e-auction process, visible on public domains.


“It would be a transparent process and we are looking to make the information publicly available. The whole point is to make the sector attractive for investors again and minimise the blocks,” said a senior government official.


The steps for a public auction are being worked on. It would include determination of a floor price, valuation of assets that would need to be transferred, collection of levy charges on the prior allottee and disbursement of compensation. And, the nominated authority in charge of the auction process would be empowered.


The rules would also look at transfer of operation and management of producing mines and use of coal by the successful bidder for notified end-use.


The SC judgment of August 25 had said the blocks’ allocation process by a screening committee for 1994-2013 was ‘illegal’, ‘unconstitutional’ and ‘without application of mind’.


In the first step forward, a committee has been set up under ex-Central Vigilance Commission chief Pratyush Sinha to evaluate the value of the land in question and other assets. The coal ministry would decide the reserve price of coal on the basis of international market prices when the auction commences. It would amount to 10 per cent of the value of coal reserves in a mine.


Compensation to the prior allottee would be decided on the value of land and other assets which are part of the mining infrastructure.“The final bid amount would be a total of coal reserve price and asset value. After paying the compensation to the prior owner, the balance revenue would go to the states,” said an official.


The ordinance also provides an option for negotiation between the successful bidder and prior owner, for transfer of assets and mining infrastructure.

(Source: Business Standard, October 30, 2014)

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