SBICAP Ventures spots 12 stuck housing projects in first funding round

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SBICAP Ventures has shortlisted about 12 stalled housing projects with an investment of Rs 100-200 crore to provide last-mile funding under a special window.

Work on forming and registering an Alternative Investment Fund (AIF) with the Securities and Exchange Board of India (Sebi) has begun. At the same time, SBICAP Ventures, which will work as investment manager for the fund, has scanned housing projects that are either delayed 
or stuck.

Sanjiv Chadha, managing director and chief executive, SBI Capital Markets (parent of SBICAP Ventures), said while about 12 projects had been shortlisted, the list would grow. 

Most of the stalled projects are in eight large cities and 60 per cent of them are in the Mumbai Metropolitan Region and National Capital Region.

Chadha said the first closure of the fund was expected by the end of December this year. 

The government will act as sponsor and infuse up to Rs 10,000 crore. Financial sector players like State Bank of India and Life Insurance Corporation will contribute in accordance with exposure norms prescribed by regulators.

Banks can take exposure of up to 10 per cent of the fund corpus, which is pegged at Rs 25,000 crore.

A bank’s investment in an AIF, such as the real estate fund being mooted, was capped at 10 per cent by the Reserve Bank of India (RBI) in September 2017. 

Such investment carries heavy risk weight and the amount gets deducted from the core equity capital of the bank. Therefore, the capital adequacy of banks also takes a hit. The fund will be set up as a Category-II AIF (debt fund) registered with Sebi. The internal rate of return would be in mid-teens (around 15 per cent). The fund will keep its expectations reasonable because it will have priority in getting money from the proceeds of completed projects.

Funding for stalled projects is expected to begin by the close of this calendar year or early next year. SBICAP Ventures will make a pitch to international investors including sovereign wealth funds after the first closure of the fund. It will be beneficial to showcase a few concrete investments from the fund to international investors, Chadha said.

The results of funding will be visible after a few quarters. The focus is on starting a virtuous cycle, he added. This fund will provide relief to developers that require money to complete unfinished projects.

The deep restructuring of delayed and stuck projects alongside last-mile funding will help to push project completion, Chadha said. The projects that are now NPAs and also those under resolution under the insolvency code will be eligible to get money from fund.

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