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Govt AIF to ensure complete control of funds' end use, no diversion: SBICAP Ventures


The government’s last-mile financing support for stuck housing projects through Rs 12,500-crore Alternate Investment Fund (AIF) has cleared projects with a capital commitment of more than Rs 540 crores that would provide relief to over 1,800 troubled homebuyers. The AIF is taking various steps to ensure complete control of the disbursement of funds, the end use and to avoid any diversion of funds. The fund will also be conservative in assessing the cash inflows on account of receivables and fresh sales while assessing the funding requirements and this is expected to provide a degree of cushion in the funding,
Arun Mehta, MD & CEO, SBI Capital Markets and Chairman, SBICAP Ventures, told ET in an exclusive interaction.
Edited excerpts:

Q1. How is the fund planning to ensure, apart from capital infusion, timely completion of projects through developers who have failed to do so earlier?

The fund is taking multiple steps so that it has complete control of the disbursement of funds and that it has complete control on the end use of those funds too. This will ensure that there is no diversion of funds. The fund shall appoint a Project Management Company (PMC) and quantity surveyors to keep a track of the site-level expenses. All expenses will be directly funded through the company’s account with an emphasis on physical and visible progress in construction milestones. Moreover, while assessing the funding requirements, we have been very conservative in assessing the cash inflows on account of receivables and fresh sales which also provides a degree of cushion in the funding.

Q2. How soon, do you think, the problem of stalled housing projects can be resolved with the help of the government-sponsored stress fund?

The Fund will target to provide sufficient capital to complete the project with minimal dependence on market forces such as inventory sales and collection from sold receivables. Also, the investment will be structured such that scheduled repayments commence only post project completion. This will ensure that there is adequate buffer to fast track the project completion, delivery and improve the overall sale sentiment.

Q3. How will you attempt to make the fund attractive for its institutional investors (both domestic and offshore) apart from attaining the key objective of reviving stalled projects?

The investment opportunity and the target risk return profile of the fund has generated their interest. Consider the proposition – the fund has been launched just when the realty markets especially in the affordable and mid income segment have actually started recovering and improving. The fund is focused on affordable and mid-income housing that has been resilient even during the downturn. Deal flow isn’t an issue since the problem of stalled projects is large. These stalled projects don’t have many other options for funding. And finally, the fund gets to provide senior capital that is cushioned by the existing debt and equity already invested in the project.

Q4. Will the existing lender get any cash flows from the project while the Fund is still invested?

Responding to the market feedback, the fund has started sharing some of the project cash flows with the existing lenders in the project. While the capital provided by the fund shall still be used only for project construction, the fund will allocate some percentage of the cash flow from sales and receivables to the existing lenders on a case to case basis, depending upon the cushion available in the cash flows. The balance portion of the sales and receivables will be pumped back into project construction till the project is completed and will be returned to the Fund only after project completion. Thus even during the construction period, there will be some cash flow to the existing lenders that can be used to reduce provisions or service the debt as applicable.

Q5. Some developers have complained that the Fund has rejected the proposal even though the proposal met all the qualifying criteria?

The qualifying criteria are the initial eligibility screening basis for the fund. Once the deal meets the qualifying criteria, the fund team which is an independent team comprising of professionals from real estate, fund and legal background undertakes a detailed investment evaluation that covers factors including promoter background and track record, micro-market analysis, legal issues and credit checks. This is then further evaluated by the Investment committee prior to arriving at a decision to proceed with the investment.

Q6. Is the Fund Manager equipped to meet the expected deal flow?

The fund manager already established an adequately large team with over 20 investment professionals on board. The team is led by our Chief Investment Officer Irfan Kazi who has over two decades of investment experience in real estate and has been associated with several marquee private equity funds in the past. The investment team under the CIO, has been directly recruited from leading NBFCS and PE funds in the private sector. The team comprises of professionals with significant investment experience across various micro markets of the country. The team is being further strengthened and we expect the team size to increase by about 50% in just a couple of months.





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