The government clarified the “positive net worth” condition for projects to be eligible for support from the alternate investment debt fund in a list of frequently asked questions (FAQs) that it issued on Thursday. The fund won’t provide assistance to projects that are in the Supreme Court and high courts but will take up those being heard by the National Company Law Tribunal (NCLT), it said.
The cabinet approved the plan on Wednesday to revive the ailing sector, which in turn is expected to bring relief to home buyers, generate jobs, boost sales of cement and steel, and lift the economy.
Net worth positive means the value of receivables plus that of unsold inventory should be greater than completion cost and outstanding liabilities at the project level, as per the FAQs.
The scheme is aimed at the affordable and middleincome housing sector. It’s limited to flats up to 200 square metres in carpet area and priced up to Rs 2 crore in Mumbai, up to Rs 1.5 crore in the Delhi-NCR, Chennai, Kolkata, Pune, Hyderabad, Bengaluru and Ahmedabad and Rs 1 crore in the rest of India.
90% of Stalled Projects will be Eligible: Govt
This doesn’t include additional charges for social amenities, parking, housing society charges, brokerage, deposits, registration and stamp duty. Even villas will be considered if they meet conditions.
The fund manager will be able to change the developer of a project if needed.
The government said 90% of stalled projects will be eligible, according to industry estimates.
“Home buyers are advised to reach out to their respective lending institutions to seek necessary guidance for additional borrowing or revival of their existing home loans within the existing legal and regulatory framework and standard board approved policies of the lending institutions,” the government said.
Retail loans given to buyers in eligible stalled projects will be restructured as per Reserve Bank of India (RBI) guidelines and the approved policies of bank boards.
“Since the real estate industry is intrinsically linked with several other industries, growth in this sector will have a positive effect in releasing stress in other major sectors of the Indian economy as well,” the government said.
The government said about 1,509 housing projects comprising about 458,000 housing units are stalled, based on industry estimates.
Net worth criteria
Only net worth positive and Real Estate (Regulation and Development) Act or Rera-registered projects will be eligible.
“It shall also look at projects that are NPAs (non-performing assets) or undergoing NCLT proceedings that can commence construction immediately after funds are made available,” the FAQs said. The Insolvency and Bankruptcy Code (IBC) operates through the NCLT system.
The focus of the special window will be on projects that are stalled for lack of construction funding, it said. Projects where the resolution plan under the insolvency resolution process has not been approved or rejected by the committee of creditors will not be considered.
Projects “very close to completion” will get priority, it said. Projects involving fraud or diversion may not be considered by the fund. “There will be caps at project level, developer level and city level as per standard risk management practice,” the FAQs said.
The government will act as sponsor of the proposed fund and has committed Rs 10,000 crore. SBICAP Ventures Ltd will be engaged as the investment manager and will be responsible for fundraising, investments and managing the fund team. The fund is seeking matching contributions from lenders including State Bank of India, apart from Life Insurance Corp. of India (LIC) and others to generate a total corpus of around Rs 25,000 crore.
The fund will supervise the disbursement of capital and monitor the execution of projects by the developer directly or through third party services. Existing lenders will be consulted as part of the sanction process, it said, adding that the investment manager will conduct a detailed review including inputs provided by external due diligence agencies.
This monitoring mechanism will be part of the contractual arrangement with developers. Disbursements will take place only after documentation is completed.
The fund expects to primarily structure its investments in the form of nonconvertible debentures subject to legal, regulatory or other considerations. The investment manager will determine the returns based on the risk profile and specifics of each project, it said. The investment manager will carry out an internal financial analysis to see if the project meets the fund’s investment criteria, which will be further supplemented by external due diligence agencies to cover areas such as title, financials, real estate and legal, among others, including consultation with existing lenders.
Project and developer selection will be the prerogative of the investment manager and the investment committee of the fund.
“The investors including the government will not be interfering with the financial objectivity of that process,” it said, adding that the decision will be guided by the investment objectives of the fund.