Real Estate

Stalled realty projects: Centre sweetens deal for investors in ₹25,000-cr AIF

K R Srivats New Delhi | Updated on March 22, 2020 Published on March 22, 2020

The residential sector received PE inflows of $395 million in 2019

Debt handed out to stalled projects to enjoy highest priority for investors over other creditors’ dues in insolvency cases

The Centre has added to the comfort of investors looking to invest in the ₹25,000-crore Alternate Investment Fund (AIF) announced last year to support last-mile funding for stalled realty projects in the middle income and affordable housing segments.

It has now specified that a debt raised from this SEBI-registered AIF — Special Window for Affordable and Middle Income Housing Investment Fund I — would be treated as “interim finance” under the Insolvency and Bankruptcy Code (IBC).

This move is expected to pave the way for monies from this Fund to smoothly flow into stalled realty projects that are before NCLT and facing IBC proceedings, say experts. This is because once a debt raised from the fund is considered as “interim finance”, then it will get highest precedence over any due of any other creditors under the waterfall mechanism spelt out under IBC, they added.

It may be recalled that the Special Window for funding stalled “Affordable and Middle Income” housing projects had been announced last year to provide much-needed liquidity through a Government-sponsored fund. The funding would be to projects that meet the eligibility criteria and for amounts up to ₹400 crore per project.

While the Government has committed ₹10,000 crore to the fund, banks and other eligible investors can also participate, given that the Fund’s corpus can go up to ₹25,000 crore. The Centre had announced plans to bring in SBI and LIC as investors into the Fund and was also open to getting sovereign wealth funds as investors on board for this fund.

Experts’ take

Saurav Kumar, Partner, Induslaw, a law firm, said: “With a large number of real estate projects turning into an NPA and/or going to NCLT, the latest MCA move is very positive for the real estate sector. The fund is expected to solicit investment from private sector investors and the move will boost the confidence of such investors to put in monies into this special purpose fund. Homebuyers will also benefit if the monies are utilised in quick time towards completion of the stalled projects.”

L Viswanathan, Partner, Cyril Amarchand Mangaldas, a law firm, felt the latest Corporate Affairs Ministry (MCA) move will ensure that such last-mile financing provided by the Fund through the Special Window (especially to entities not currently undergoing insolvency proceedings) is given priority in the event these entities are subsequently referred to the NCLT. “This will also provide an impetus for last-mile funding to complete the stalled projects and enabling handing over possession of the completed houses to the homebuyers, which was the objective of the scheme introduced by the Government in November 2019”, he said.

Harish Kumar, Partner, L&L Partners, said this would allow the stalled housing projects of the developers, who are facing insolvency proceedings, to be completed with the aid of the said debt financing and would, in turn, ensure delivery of homes to genuine homebuyers.

According to Sandeep Grover, Partner, Ortis Law Offices,“Certain specific projects undergoing corporate insolvency resolution process before the concerned NCLT will now be considered for funding through the Special Window up to the stage where the resolution plan for such insolvency resolution process has not been approved/rejected by the committee of creditors. If implemented fittingly, it will not only provide immense relief to the distressed homebuyers and the developers as the stressed projects would be provided with immediate funding, but would also help the presently messed up real-estate sector to recuperate”.

Published on March 22, 2020
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