Rules for foreign funds in Construction to be relaxed

Close on the heels of liberalising foreign direct investment (FDI) norms in the defence sector and the Railways, the Government is now trying to fast-track a decision on easing rules for foreign investments in the construction development sector.

The Department of Industrial Policy & Promotion (DIPP) has floated a Cabinet note proposing to bring down the minimum built-up area requirement for FDI in construction projects from 50,000 sq metres to 20,000 sq metres. It has also proposed reducing the minimum capital requirement for such projects from $10 million to $5 million.

The existing policy allows 100 per cent FDI in the construction sector subject to minimum built-up area and minimum capitalisation requirements.

The draft Cabinet note also suggested that projects which commit at least 30 per cent of the total project cost for low cost affordable housing will be exempted from minimum built-up area and capitalisation requirements.

“As these proposals are in line with the announcements made in the Union Budget, we do not expect major opposition from other Ministries and Department. We hope to finalise our note for Cabinet’s approval soon,” a DIPP official told BusinessLine.

With the Government eager to attract investments in the 100 smart cities proposed in the Budget, easing rules for FDI in construction is very important.

“Countries such as the US, Japan and UK have all expressed interest in investing in smart cities. The more liberal norms will ease the flow of such investments,” the official added.

The existing post completion lock-in period of three years for investors, however, will not be relaxed to avoid early exits.

The Union Cabinet recently relaxed FDI rules for the defence sector, increasing the FDI cap from 26 per cent to 49 per cent. It also allowed 100 per cent foreign investments through the automatic route in a number of areas in the railways including high-speed trains, railway line, passenger terminals and coaches manufacturing and maintenance facilities.

The new rules in both sectors have been notified.

The BJP Government, however, is reluctant to allow FDI in multi-brand retail as it believes that it could hurt small retailers.

It is also not willing to open up the e-commerce sector to foreign investments for now.

Source: http://www.thehindubusinessline.com

AIR INDIA mulls REIT IPO to raise funds

Air India Ltd, India’s state-owned airline, is considering spinning off its real estate assets into a real estate investment trust (REIT) and list it on the stock exchanges in a move that could give the company significant tax breaks and also improve its finances. 

Air India has 800 properties at prime locations around the world; it ended 2013-14 with Rs.19,300 crore in revenue and a loss of Rs.5,388.82 crore; the airline had debt of Rs.40,000 crore on its books as of 31 March. 

Air India’s 800 properties at prime locations include several acres of land, office buildings, sports stadiums and residential colonies. 

The airline’s Mumbai headquarters on the high street of Marine Drive alone is estimated be worth Rs.2,250 crore, according to airline official who declined to be named. 

Mint is not aware of any valuation exercise undertaken by the airline. 

“We have a lot of land assets and this is one of the routes of monetization. We are considering the option, but a lot of work has to go in,” said an Air India executive who asked not to be identified. 

This person added that consultants had already made a presentation to Air India on the merits of the REIT route and that the airline’s finance team plans to move forward with this. 

“If it works out, we will hold 51% in the REIT; the properties will remain ours but be leased out at the best prices,” added the airline executive, who cautioned that a final decision is yet to be taken. 

A second Air India executive confirmed that the airline is considering a REIT and that work has started on it. 

REITs, which first made an appearance in the US around 50 years ago, are listed on exchanges and use money raised from the public to buy real estate. 

A REIT can be set up by a developer or any independent fund manager. The minimum investment to be made is Rs.2 lakh, said Hemal Mehta, senior director, Deloitte Touche Tohmatsu India. And if the REIT pays out 90% of its distributable income to investors, it gets a tax exemption. 

The civil aviation ministry has asked Air India to consider this option to pare its debt. The airline has an 18% share of the domestic market and a 17% share of the international one, and is in the midst of a Rs.30,000 crore equity infusion by the government that is expected to turn around its fortunes by 2021. 

There is no clarity on how much the airline plans to raise through its REIT. If Air India goes ahead with its plans, it will create among the first REITs in India, after the new government allowed the creation of such entities in July. 

India’s capital market regulator, the Securities and Exchange Board of India (Sebi), in a 10 August board meeting, approved final regulations for REITs, although these are yet to be notified. 

REITs may provide a new source of funds to Indian firms with large land banks, helping them reduce debt, and by 2020, some $20 billion worth of property and land could be held through REITs, according to an estimate by property broker Cushman and Wakefield reported by Bloomberg. 

“A REIT offers a regular return on investment and it also captures upside on the appreciation in the value of underlying property. Most of the other instruments either offer regular return (debt securities) or only upside (equity/equity-linked securities),” said Bhairav Dalal, associate director, PwC India. Mint reported in 2012 that Air India plans to raise money by developing and selling some of its real estate holdings, but nothing much came of that plan. 

Read more at: http://www.livemint.com/Companies/hn4q9Hyha7ggXvz3NG1IEO/Air-India-mulls-REIT-IPO-to-raise-funds.html?utm_source=copy